Emerging economies are extremelyattractive markets for pharmaceutical companies. While North American andEuropean markets are saturated and highly regulated, South America and Asia(including China and India) are the new frontiers promising higher returns oninvestment.
Innovative and generic medicinemanufacturers have been eyeing these markets for various reasons:
ü I- In emerging countries, healthcare is financedlargely out-of pocket (up to 60% in Asia) and the number of middle-class consumersis rapidly increasing;
ü - Governmentsand health authorities intervene less, which means fewer regulations and lessdemand for transparent drug pricing, as well as easier drug registrationprocedures;
ü - Thecost for producing, developing and commercializing old and new drugs issignificantly lower because of cheaper patent protection, lower production anddrug registration costs, cheaper logistics and proximity to producers of activepharmaceutical ingredients;
ü - Emergingcountries’ rich biodiversity and traditional knowledge may help with thedevelopment of new drugs and methods of treatment; and
ü - Emergingmarkets are plagued by the triple threat of “old diseases” (tuberculosis andmalaria, diarrhea and malnutrition), infectious diseases (SARS and H1N1), andsilent healthcare pandemics (obesity, diabetes and cancer).
A recent study predicts that sales in 17 so-called “pharmerging”countries – including Thailand – will “in aggregate expand by $90 billionbetween 2009 and 2013”.
This is unprecedented in the history of pharmaceutical industry. Civilsociety and international Non-Governmental Organizations (NGOs) are now usingthese figures to push for greater access to affordable medicines especially inpoor and emerging countries.
“Of all the issues discussed atWorld Health Organization governing bodies, access to medicines consistentlysparks the most potentially explosive debates,” stated Margaret Chan,Director General of the World Health Organization (WHO) has stated.
In Thailand, NGOs such as the Thai Network of People with HIV/AIDS,the Social Network for Cancer Patients, AIDS Access Foundation, Foundation forConsumers, Médecins Sans Frontières and Oxfam strongly lobby the Thaigovernment to issue compulsory licenses.
Lower prices
Thailand initially resorted to compulsory licensing in 2006 and 2007 becauseoriginal drug prices were perceived as extremely high. At the time, compulsorylicenses were granted so that more patients could be treated.
Government statistics show that these goals were achieved. Compulsorylicensing has saved 1.18 billion THB (US$40 million) on the purchase ofanti-retroviral drugs alone. Total cost savings accrued to the Thai governmentis estimated at 7 billion THB (US$233 million) for the period between 2006 and2011. Thailand’s compulsory licensing forced down the prices of efavirenz andthe lopinavir-ritonavir combination by 3.4 and 6.4 times, respectively, sincethe country announced its policy on HIV/Aids and cancer drugs in November 2006.
Access to drugs
Prior to compulsory licensing of thetwo drugs about 4,539 HIV-positive people had access to efavirenz and only 39could afford the lopinavir-ritonavir combination.
Compulsorylicensing increased the number of patients receiving efavirenz to 29,360 ; morethan 6,200 now receive the lopinavir/ritonavir combination.
The HealthIntervention and Technology Assessment Project found that compulsory licensingmade drugs available to an additional 84,000 patients, half of whom needed thewidely used heart drug, clopidogrel (Plavix).
TRIPs and transparency
From a legalperspective, Thailand clearly interpreted the rather vague conditions of theDoha Declaration (which allows a country to issue a compulsory license in thecase of a public health emergency for the production of generics without theconsent of the patent owner), Article 31 of the TRIPs Agreement, and its ownlegislation – (Thai Patent Act BE 2522 (AD 1979)) – to justify its resort tocompulsory licensing. Section 51 of Thai patent Act allows government to grant compulsorylicense under specific conditions including “to carry out any service forpublic consumption”. Section 51 alsocontains provisions regarding the royalty payments to the patentee or hisexclusive licensee, a condition explicitly required by Article 31 of the TRIPsAgreement.
It is said that the Thai government ‘proposed royalty rate of 0.5% was rejectedby some affected patent owners. Patent owners considered the royalty rate arbitraryand too low, compared to other countries.
To avoid future conflicts, greater transparency is needed. It is needednow and over any future compulsory licenses.
Negotiations with affected patent owners should be made transparentbefore any compulsory licensing decisions are made. In addition, clearselection criteria for choosing a drug should be developed and incorporated intothe Thai Patent Act or its Regulations.
Reassessing the GPO
Thailand mustreassess and review the role of the Government Pharmaceutical Organization(GPO). The GPO’s profit role is not the main issue: the GPO’s profits aresupposed to be used for the public good, such as to produce medicines inresponse to emergency situations like the influenza pandemic, and to produceorphan drugs.
The issue of contention is the GPO’s status. The GPO is currently the largestdomestic drug manufacturer and has a near monopoly over the country’s publichospitals.
Public hospitals are legally obliged to purchase 80% of their drugs fromthe GPO.
Drug manufacturers perceive the monopoly enjoyed by GPO as unfaircompetition. Such a monopoly could prevent new drugs (including generics) frombeing commercialized in Thailand. Generic drug manufacturers hesitate to enterthe Thai market for fear that the GPO could easily take over their investment.
Ironically, the dominant position of the GPO could undermine the effortsof Thai authorities to develop the generic drug market, increase dependency onbranded medicines and, ultimately reduce consumer access to affordablemedicines.
*A complete version of thisarticle is published in the May edition of Managing IP.
Franck Fougere