|Study of the implications of the WTO TRIPS Agreement fotr the pharmaceutical industry in Thailand (The Centre for Health Economics, Faculty of Economics, Chulalongkorn University Bangkok - WHO Collaborating Centre for Health Economics - WHO/SEARO, 1999, 113 p.)|
The past few decades have seen a strong and rapid trend toward free trade. It was built around international specialization and based upon comparative advantage, the idea is usually described by terms such as "liberalization" and "globalization". International trade is gaining an ever increasing share of GDP in both developed and developing countries. In Thailand, more than 50% of GDP in 1997 was related to international trade.
WTO was established in 1994, and the principal instrument under WTO consists of multilateral agreements that become binding upon member states when they join WTO, and of plurilateral agreements that are optional. The Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) was among these; the TRIPS Agreement is annexed to the WTO Agreement.
The scope of the TRIPS Agreement is much broader than any previous international agreement. Its main aim is to strengthen and harmonize or standardize certain aspects of the protection of intellectual property at the global level. The provisions of the Agreement are not optional and require member countries to accept and implement all provisions unconditionally within the time frame provided.
The potential effects of the TRIPS provisions on pharmaceuticals in developing countries including Thailand are the limited term of product and process patents, terms of protection, broad scope for compulsory licensing and enforcement procedures in their national patent system. The first patent law in Thailand was enacted in 1979 after long debate whether Thailand should or should not have this type of law. In 1992, the patent law was revised. The essence of the second patent law was to include drug protection in both production and process in the country and consistency between international standards and national law. In March 1999, the third patent law became effective and the content is clearer than the second patent law. The major revisions can divided into three major categories, namely Petty Patent or Utility Model, Pipeline Protection for the patent holder country, and Parallel Import.
Many point out that revisions of the drug patents to comply with TRIPS standards should emphasize the protection of the Thai people's right to benefit from drug patents. The future impact of the TRIPS Agreement on the local pharmaceutical industry in Thailand may be in the price of patented drugs as the amount of patent royalties will increase because multilateral pharmaceutical companies will want to protect their heavy investment in R&D and take advantage of their frontier technologies such as biotechnology. Developing countries, therefore, will be compelled by developed countries to strictly enforce the TRIPS Agreement even more so than at present. Inventions in pharmaceutical products and biotechnology will have to be granted intellectual property rights for twenty years. Any infringement upon this rule could lead to serious consequences including sanctions in other sectors of trade. This paper attempted to study the implications of the TRIPS Agreement on the pharmaceutical industry in Thailand. The main findings conclude that:
1. The evidence shows there has not been much technology transfer or foreign investment directly into the pharmaceutical industry in Thailand since 1992. The pharmaceutical industry in Thailand is still rather small compared to other production sectors and is reserved for domestic consumption rather than for export. Moreover, almost half of the raw material and intermediate input (48.5%) for this industry was imported for domestic production. In addition, the new registration of Thai pharmaceutical companies from 1984 to 1998 indicates a majority of Thai shareholders when compared to shareholders from other countries, reflecting the fact that not much FDI is flowing into this industry.
2. Spending for health care is mainly for curative care, a great deal of which is for medical technologies including medication at a rate rising faster than overall health care spending. This is due to the fact that in Thailand both hospitals and drugstores provide diagnosis and a normal supply of medicines. Unlike the West-the US and European countries-many types of medication can be bought over the counter. Although there are dispensing regulations for certain drugs, these rules are often not observed and many drugs requiring a prescription in Western countries are sold freely in Thailand.
The current new drug registration system has been in place since 1992. As of December 30, 1998, 705 drug items had been registered under the New Drug Approval system which will give the benefit of SMP to patent holders. Of the 705 total, 423 drug items were still on the SMP while 282 items have already passed it.
3. The data shows that before 1989 generic pharmaceutical firms did better than originator pharmaceutical firms, measured in terms of operational income generated from one unit of assets, and vice versa afterward. This may be because foreign-owned companies truly performed better than Thai-owned firms. However, many medicines and types of health care services need not always be a necessity; they may often become a luxury in life. During the period of economic prosperity (late 1980s), people had enough or excess power to purchase medicine or health service they perceived to be of high quality. This means income is more sensitive to imported drugs than to domestically produced drugs. With increased income, Thai people will spend more for imported drugs at a rate which is actually higher than the increase of income.
4. The impact of the economic crisis on the cost of imported drugs has caused the government to more cautiously control spending on health. This has led to the introduction of the essential drug policy and caused people to use generic drugs more commonly, as can be seen clearly in 1998. The point whether this intervention policy is sound is worth reconsidering for policy makers after the economic recovery. They will have to determine on what grounds government control of spending is warranted and whether it is an effective measure in normal situations when people can afford to buy higher priced products.
Consequently, in 1998, the reduction in import value of finished drugs (mostly originals) can be explained by at least three reasons: the price effect (due to baht depreciation), the income effect, and government policy in favour of domestically produced drugs. These three factors were interconnected and difficult to separate.
5. Since the 1992 Patent Act went into effect, the share of the original drug market in Thailand gradually increased 1-6% every year, reaching its peak in 1997. The share between generic and original products was 33% and 67% respectively in 1997. The growth rate of the originator pharmaceutical market was also quite extraordinary- two to three times of GDP growth until 1997. It seems that the originator pharmaceutical sector was not affected by the financial crisis in mid-1997 (Thailand floated the baht on July 2, 1997). However, when the exchange rate effect was taken into account, the market value of the originator pharmaceutical sector started shrinking in 1997. The total volume in US$ decreased by 17% and 24% in 1997 and 1998 respectively. In 1998, original drugs lost 13.3% of their share value. Nonetheless, they still dominated the market with more than 50% of the total. Generally, the Thai market continues to be segmented between original and generic drugs, with the substitution effect, to some degree, depending on purchasing power and drug dispensing regulations.
6. In order to review the price increase resulting from the introduction of patented drugs, we need to emphasize that we do not need drugs that are representative the whole market, but drugs that represent the patented market (which is not yet available in Thailand). Therefore, with the criteria shown on page 42-43, pharmaceutical products in six therapeutic categories were chosen: antidepressants, antihistamines and antiallergics, antihyperlipidemic agents, antiulcerants, broad-spectrum antibiotics, and gastro-intestinal tract (GIT) regulators. The gap of equivalent prices between original and generic products was varied and unpredictable.
7. Market prices of drugs in Thailand are regulated by legal means as well as non-legal mechanisms. Implementation of price control laws generally aims at manufacturers and importers' list prices and drugstore retail prices. The prices of drugs sold through hospitals and clinics are not subjected to legal control. While private hospitals set their prices independently, retail drug prices in public hospitals are normally no greater than 15% over hospital purchase prices. Since self-medication is common, retail prices of drugs distributed through drugstores directly affect the affordability of drugs. However, there is no systematic evaluation as to the effectiveness of government price regulation and how drug prices affect affordability.
Public sector procurement rules as well as provincial group purchasing help regulate wholesale drug prices. Experiences show that collective procurement is effective in price bargaining. In addition, competition among suppliers also helps hold drug prices in check. However, due to a lack of overall coordination, drug companies are charging different prices for the same product procured by different Thai purchasers.