Prospective producer: Government measures frustrate R&D investment, but the retail market continues to grow

Valued at BT129bn ($4.11bn) in 2011 by the Board of Investment (BOI), Thailand’s pharmaceuticals industry continue to ride high on growing domestic and export demand. These prospects are expected to push market value to BT225bn ($7.18bn) by 2019, in which time Thailand’s own Government Pharmaceutical Organisation (GPO) is hoping to tap into the 2015 ASEAN Economic Community (AEC) to emerge as a leading exporter of generic pharmaceuticals in the region.

The Ministry of Finance owns 90% of the GPO, which has annual revenues of some $30m. The GPO produces more than 300 pharmaceuticals, biological and natural products. For the moment, however, Thailand remains a net importer, buying BT49.26bn ($1.57bn) of drugs in 2010, a 65% rise from 2006. Exports, while up 68% in the same period, were worth BT10.52bn ($335.59m) in 2010, according to the Ministry of Commerce.

PUSHING FOR INVESTMENT: The BOI declared in 2011 that research and development “is a wide-open opportunity”, welcoming foreign investors and private partnerships to the sector. Yet Thailand is competing against regional players China, India, Malaysia, Singapore and Vietnam for these same R&D capacities that bring novel biological and chemical treatments, as well as knowledge transfer to its own professionals.

Thailand’s domestic market presents an attractive and viable opportunity, but it is struggling to attract new R&D investments, ostensibly due to unusual regulatory frameworks and opaque market access. Since the launch of its universal health care (UHC) system in 2002, the GPO has been the government’s solution to providing affordable medical access to an estimated 48m members of the informal economy. Yet insufficient budgetary support has had ramifications for pharmaceuticals procurement, which makes up roughly 33% of all public health expenditure.

Austere National Health Security Office (NHSO) restrictions, which require procurement for the Universal Coverage Scheme to come from the GPO, have tilted the market in the GPO’s favour causing deep-seated divisions with the Ministry of Public Health. “The government’s generous offer to make health care accessible to everyone without an adequate budget raised concerns about quality,” Dr Kitima Yuthavong, the CEO of Thailand’s Pharmaceutical Research and Manufacturers Association’s, told OBG.

INTELLECTUAL PROPERTY: Intellectual property concerns have historically arisen from compulsory licensing orders placed on retroviral HIV, cardiac and cancer drugs since 2006. The controversy stem from World Trade Organisation regulations that allow countries to issue licences for generic copies of patented drugs without the patent owner’s permission. Proponents argue that compulsory licensing has been key in expanding access to life-saving drugs, while pharmaceuticals companies say the practice hurts their revenues and de-incentivises innovation. “Multinational pharmaceuticals face challenges on the Thai market, not least of which is the issue of compulsory licensing. Thai authorities should recognise the need for patented drugs on the market and facilitate trade in these,” Busakorn Lerswatanasivalee, the managing director of Japanese pharmaceutical Takeda, told OBG.

Thailand’s Food & Drug Administration (FDA) has also drawn criticism for allowing the GPO’s exceptionality clause, which permits the introduction of drugs to the market without registration in times of emergency, to be invoked for commercial purposes.

While companies typically endure regulatory approval delays in excess of two years, GPO drugs have been made available within six months. Retroactive registration mechanisms for GPO products have been implemented, but with prices 10 times lower than for branded products and five times lower than for other generic drugs, the state-sponsored entity is difficult to compete with. Moreover, as public hospitals are legally obliged to source drugs from the GPO when possible, it has market dominance in many product lines.

REGULATORY CHANGES: In 2009 the rules changed to permit suppliers to tender to the NHSO without first seeking FDA registration have also resulted in a qualitative deterioration in auditing cheaper pharmaceuticals products. This has led to documented incidences of contamination that have affected patients.

International firms have been diplomatic in raising criticisms and concerns over the accountability and transparency of FDA and NHSO processes. They maintain concerns that lobbying of the NHSO by apparent non-governmental organisations and pseudo-consumer protection groups are exercising undue influence and that there are vested interests at play in FDA sub-committees. It has been criticised for providing an opaque, anti-competitive market environment of, “policy-based evidence making.” These issues have created barriers to knowledge transfer in an industry that is expected to play a pivotal role in the nation’s creative economy initiative. “Some government measures for cost containment will backfire in terms of Thailand’s long term access to innovative drugs,” said Kitima.

RAPID DEVELOPMENT: Such seemingly opaque regulatory environments are contradictory to Thailand’s leading role as an arena for the development and field testing of communicable disease vaccines such as Dengue, Typhoid and even HIV.

Yet the pharmaceuticals industry has also questioned the qualitative standards of some initiatives, notably the fast-tracking of an avian influenza vaccine since 2005. It took just five years for Thailand’s FDA and GPO to develop a Pandemic Live Attenuated Influenza Vaccine (PLAIV) for the H1N1 virus, including the construction of a factory capable of producing 10m doses, although it had the World Health Organisation’s (WHO) assistance. FDA registration of the GPO’s PLAIV was still pending in 2011, just ahead of clinical trails for the H5N1 virus.

Given that development of a single new drug typically takes 10-15 years and cost more than $1bn, according to PREMA, the seemingly lenient standards applied to GPO products could have worrying implications.

While R&D investments remain uncertain, Thailand’s vibrant yet diffuse domestic market still attracts interest, hosting 714 local and foreign corporations, including Sanofi-Aventis, GlaxoSmithKline, Merck and Novartis. Market leader Pfizer holds just 6% of the market.

PARTNERSHIPS: Multinationals are pursuing partnerships with local manufacturers by allowing considerable cost reductions on imports, which is critical for leverage in the market. “Many larger international pharmaceuticals companies are looking for partnerships with local manufacturers to produce generic drugs or to repackage bulk imports for sale on the Thai market,” Busakorn told OBG. However, such partnerships typically demand the Pharmaceutical Inspection Convention and Pharmaceutical Inspection Cooperation Scheme (PIC/S) compliance, and local firm Biopharm remains the only company to achieve accreditation.

Virapatna Thakolsri, the managing director at Biopharm Chemicals, told OBG, “Thailand is moving towards implementing PIC/S good manufacturing standards within 2012. This is important to further strengthen Thailand’s pharmaceuticals manufacturing capacity at international standards, while still making the industry more attractive for foreign companies who wish to produce locally.” These practices are among the first steps toward competing with rival PIC/S-compliant manufacturers in Malaysia and Singapore.

GENERICS TAKE OVER: The over-the-counter (OTC) market is rapidly expanding and now constitutes the principal growth vector. “With rising convenience and an increase of health awareness among locals. With the new trend of “pharmafood” (nutrition supplements), for example, OTC products are growing annually at between 6% and 7% and will continue to sustain the overall growth in the market,” said Virapatna.

Despite GPO’s exclusive contract, which has meant generics capture a 75% market share of the public health care system, according to the WHO, public hospitals still constitute 60% of private pharmaceuticals firms’ market base and 70% of their revenue. Private hospitals constitute just 20% of the branded pharmaceuticals market, drug stores and clinics 10%. The removal of branded pharmaceuticals products from the list of drugs covered by the NHSO and UHC, where generic equivalents exist or are available, is increasing.

In 2011 the government announced that Thailand will be host to the 74th International Congress of the International Pharmaceutical Federation in 2014, which cited the nation’s dynamic and innovative market environment among its reasons for choosing the host.

Such accolades are perhaps deserved, but it is time for change, said Busakorn. “Research and innovation is unfortunately not supported in Thailand. Stringent regulations that dissuade international companies from importing innovative pharmaceuticals should be reformed to meet a clear need on the Thai market.”

While Thailand has long been considered a gateway to ASEAN’s market of 600m consumers and remains an attractive market for foreign and domestic companies, it faces competition from its neighbours’ established and evolving R&D capacities. Regulatory reforms will be essential in ensuring that it can attain the regional pharmaceuticals role it has envisaged in the AEC.