Pharmac says a new kind of competition will be needed to enable it to continue to afford a particular group of expensive drugs.
The Government's drug-buying agency says medicines known as biologics are already costing New Zealand at least $100 million a year.
Biologics are made from living systems rather than chemicals and include the breast cancer drug Herceptin and Humira for arthritis.
In its latest annual review released on Thursday, Pharmac says the top five biologics used in New Zealand cost $100 million annually, and that will become unmanageable without some kind of competition.
It says biologics can't be patented like other drugs, but the generic equivalent, known as biosimilar drugs, are the answer and the first of these was funded last year.