A leading New Zealand cancer researcher says drug prices are reaching insane levels and it's time for new approaches to drug discovery, development and funding.

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Professor Bill Wilson of the Cancer Society Research Centre at Auckland University suggested options could include giving the savings from means-tested national superannuation to Pharmac.

His comments follow outrage among melanoma patients about the low priority given by the drug-buying agency to funding for Keytruda, an expensive new treatment for advanced melanoma.

Pharmac estimates the cost of funding Keytruda for up to 300 patients a year at $30 million, while patients paying privately face bills up to $250,000 a year each.

Prof Wilson, who has decades of experience in anti-cancer drug development, said such high prices were indicative of problems in the pharmaceutical industry, particularly in the United States, and regulatory change was needed.

"The US is the highest-priced pharmaceutical market. And it's somewhat ironic that in the economy that's considered the leading free-market economy in the world there is essentially a monopoly given to the pharmaceutical industry for extended periods of time - 20 to 25 years," he said.

"And not only is there a monopoly, but the current US law precludes negotiation of price for new drugs that are approved by the FDA [Federal Drug Administration]."

There was an extraordinary mark-up for many drugs, he said.

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While the cost of producing Keytruda has not been divulged, "in comparison with other agents of a similar nature - monoclonal antibodies - one would expect that an annual course would probably represent the cost of approximately $NZ250, so something like 0.1 percent of the actual retail price," Prof Wilson said.

In this context, the Pharmac model would come under increasing pressure, and internationally there would be a need to look at a "quite different strategy" around drug development.

Prof Wilson said that in New Zealand this could mean partnerships between universities and district health boards to develop drugs.

Prices would get worse before they got better because new-generation agents, such as genetically modified viruses that are being used in cancer treatment, might be used more often in combination.

He said people in the US were already talking about using these agents in combination with a cost per patient of $US1m a year.

Considering Pharmac's future

More funding was needed for Pharmac, he said, which had a budget of $800m this year.

"One would want to leave the Pharmac model intact but simply increase the pot so that rational decisions can be made that will provide access."

Consideration also needed to be given to other questions, including whether national superannuation should be means tested, with the funds saved going to Pharmac.

"I'm - courtesy of the taxpayer - receiving a cheque once a fortnight. I am fully employed by the University of Auckland, I do not require superannuation."

He also said there could be debate about whether younger people could gain access to drugs like Keytruda while those who are older - say, over 70 years old - would not have funded access.

Politicians respond

Prime Minister John Key told Morning Report new cancer drugs cost a lot because pharmaceutical companies needed to cover their research and development spending.

"Of the 10 drugs a drug company might be developing, only one ultimately gets to the market.

"And the process is so long, so what you are paying for isn't the little tablet that you pop into your mouth per se, it is the whole R&D development programme that the drug company is running."

Mr Key said he believed Keytruda fit in that category.

Green Party MP Kevin Hague said although Pharmac had limited the cost of medicines in New Zealand, "its ability to hold back this next tranche of more expensive medicines is going to be very limited".

He said DHBs supported restricting the increase in the Pharmac budget this year, and he would prefer to have the budget guided instead by an independent group.

That stance was echoed by Associate Health Minister Peter Dunne, who said New Zealand had a medicines strategy but not a blueprint that could help Pharmac make difficult decisions.

"We really need to stand back and say, in an ideal world what medicines would be available to New Zealanders and what should the picture look like?

"And then work from there to say 'OK if that's the ideal what can we do to achieve it or if we can't achieve it to at least get some way along the path to it ... That's the missing bit of the picture at the moment."

Medicines New Zealand general manager Graeme Jarvis said new and innovative medicines saved money in terms of hospital costs.

Research and development costs had gone up over the past 30 years, Mr Jarvis said.

"It now costs upwards of $US4 billion to get one drug through to the marketplace, and what a lot of times people don't understand is - that's one drug out of about 6000 that start the [drug development] process."

Drug prices were also negotiable, he said.