Cablegate: Pharmaceutical Costs and the Fta
This record is a partial extract of the original cable. The full text of the original cable is not available.
070954Z Dec 05
UNCLAS SECTION 01 OF 06 BANGKOK 007526
SIPDIS
SENSITIVE
DEPARTMENT PASS USTR FOR BWEISEL, VESPINEL
GENEVA FOR USTR
COMMERCE FOR ITA/MAC/AP/OKSA/JBENDER AND JKELLY
HHS FOR OGHA STEIGER, ELVANDER AND BHAT
USPTO FOR DKEATING AND MMOEZIE
E.O. 12958: N/A
TAGS: ECON ETRD KIPR TH
SUBJECT: PHARMACEUTICAL COSTS AND THE FTA
1. (U) Summary and Introduction: The prospect of strong
"TRIPS-plus" patent provisions in a U.S.-Thailand Free Trade
Agreement (FTA) has been a controversial issue in Thailand.
Anti-FTA activists from NGOs and within the RTG claim that
stronger patent protection for pharmaceutical products in an
FTA with the U.S. would prevent or delay the production of
cheaper generic drugs to compete with pharmaceutical imports.
They fear the FTA would raise overall health costs and
prevent access to cheap essential medicines desperately
needed in a developing nation with scarce resources to fund
large-scale health programs, particularly for HIV/AIDS
treatment.
2. (U) The immediate effect of the FTA on pharmaceutical
costs in Thailand would appear to be low. Although the
patent system and market exclusivity it provides to
pharmaceutical companies has kept the prices of some drugs
high, there are few drugs currently on the market whose costs
would be further affected by the patent provisions likely to
be included in an FTA. Delays in patent and marketing
approval that could add extra life to patent terms under an
FTA are few and manageable with additional resources.
Thailand has a capable generic pharmaceutical industry that
can copy most any drug, but the likelihood is low that the
RTG would break the patent on any given drug and produce it
generically, despite frequent demands by FTA critics.
3. (U) This cable aims to examine the potential effects of
an FTA on pharmaceutical costs in Thailand. Although a
patent chapter has yet to be introduced by either side in FTA
negotiations, previous U.S. FTAs with other nations give some
indication as to what patent provisions could look like in a
U.S.-Thai FTA. End Summary and Introduction.
Pharma in a nutshell
--------------------
4. (U) According to industry analysts, the pharmaceutical
industry in Thailand had revenues of over USD 1.4 billion in
2004 and has been growing an average of 12 percent over the
last five years. Approximately 3000 pharmaceutical products
are on the market in Thailand, both original products and
generic copies. Multinational firms control approximately 60
percent of market share, though two Thai firms break the list
of top ten largest firms, Siam Pharmaceuticals and the
state-owned Government Pharmaceutical Organization which
almost exclusively produce generic products. An estimated 25
percent of pharmaceutical imports came from U.S.-based
companies in 2004, but given the global nature of most
pharmaceutical companies, teasing out what percentage of
imports was produced in which country is difficult to
accomplish. U.S.-based pharmaceutical giant Pfizer is the
industry leader in Thailand; Merck and Bristol-Myers Squibb
make the top ten as well.
What's the problem?
-------------------
5. (U) Health care activists in a number of Thai and
international NGOs claim that increased patent and data
protection for pharmaceutical products resulting from an FTA
with the U.S. could delay the introduction of cheaper generic
competitors. As drug expenditures account for approximately
30 percent of total health care expenditure in Thailand,
there is great concern for availability of cheap medicines to
stretch the Thai health care budget. A recent and somewhat
alarmist study by the Ministry of Public Health predicted
that an FTA could raise annual health care costs by as much
as USD five billion. Although even NGO activists admitted
that number was wildly unrealistic, Thai FTA negotiators have
cited the figure as a reason for concern in negotiations with
the U.S. on IPR.
6. (U) Despite the range of products on the market in
Thailand (and the range of maladies), concern with the FTA
and pharmaceuticals has focused almost exclusively on
HIV/AIDS medicines and the impact of an FTA on treatment for
the large number of patients in Thailand. Despite a
successful campaign in the 1990s to slow the spread of AIDS,
approximately 570,000 Thais are HIV positive. The World Bank
estimated that nearly 50,000 Thais died from AIDS in 2004,
though the death rate has been decreasing as treatment
improves and becomes more widespread. The Bank estimated
nearly 20,000 new cases of HIV occurred in 2004.
7. (U) The RTG Ministry of Public Health (MoPH) has
allocated 2.7 billion Baht (USD 66 million) for
implementation of an anti-retroviral treatment scheme for
FY2006. MOPH has set a goal to provide free treatment to
80,000 HIV positive patients under the universal health care
scheme. Health officials say that although there are 570,000
HIV positive cases in Thailand, only 100-120,000 have reached
the stage of the disease where treatment is necessary, making
the MoPH goal close to near universal treatment for patients
who require it.
8. (U) Thailand's Government Pharmaceutical Organization
(GPO) makes its own generic antiretroviral cocktail, GPO-vir,
a cocktail of three anti-retrovirals (ARVs) which are off
patent. Approximately 70,000 of the patients to be treated
under MoPH's program will receive GPO-vir at a cost to the
RTG of only a dollar a day per patient. However, drug
resistance to GPO-vir has increased over the past two years
and an additional 10,000 patients in the MoPH program require
second-line ARVs to continue treatment. The few second-line
ARV cocktails available include drugs patented in Thailand by
multinational pharmaceutical companies, and are available
only at up to ten times the cost of first-line regimens. As
more AIDS patients build resistance to the first-line ARVs,
the number of patients needing more expensive second-line
treatment will only increase.
Patent term restoration, or unnecessary extension?
--------------------------------------------- -----
9. (U) FTA critics point to provisions in recent U.S. FTAs
that affect pharmaceutical products and could restrict access
to essential medicines in Thailand. Recent U.S. FTAs include
articles that require governments to lengthen the term of a
patent to compensate the patent holder for any unreasonable
delays in the issuance of the patent or during the marketing
approval process. The pharmaceutical industry considers this
just compensation for opportunity lost to sell their product
with market exclusivity. FTA critics call it an unwarranted
extension of the 20-year patent term, and fear that it will
delay the introduction of cheaper generic competitors.
10. (U) FTA patent provisions would unlikely have an
immediate effect on drug patent terms. At present, few
pharmaceuticals are under patent in Thailand as the RTG only
recently began accepting pharmaceutical patent applications
in September, 1992. Owing to the sometimes decade-long
process of creation of a new drug, many if not most of the
chemical compounds which have been submitted for patent
approval in Thailand have yet to reach market.
11. (SBU) A U.S.-Thai FTA would also not appear to have any
immediate effect on availability or price of ARVs in
Thailand. At present, only four of the 13 ARVs on Thailand's
National List of Essential Drugs (NLED) are under patent.
GPO already makes generic copies of most unpatented ARVs on
the NLED and would presumably continue to do so post-FTA.
There are other ARVs not on the NLED that are patented as
well, but industry analysts knew of none (on or off the NLED)
that would receive patent term extension from an FTA.
12. (SBU) Despite patent protection and the market
exclusivity that it allows, pharmaceutical companies in
Thailand claim they do not charge excessive monopoly prices
on their products. Most companies practice price
differentiation, selling their products at a steep discount
from what they would charge in the U.S. in recognition of the
different level of income in Thailand. In addition, despite
the patent, companies still face competition from other
products which, while not precisely the same, have similar
purposes. Thailand is a respectably-sized market and there
is ample presence of most major multinational pharmaceutical
companies, not to mention a domestic generic industry that
competes strongly in off-patent products. Nevertheless, one
company estimated the price dropped an average of 40 percent
after the end of a drug's patent protection.
Unreasonable delays in patent and market approval?
--------------------------------------------- -----
13. (U) The pharmaceutical industry complains of excessive
delays in awarding patents and cites an average of five years
to approve a patent on a pharmaceutical product. Mr. Suradet
Atsawintarangkun, head of the biotechnology section of the
Thai Patent Office (TPO), insisted that his section processed
most applications for new chemical compounds within one or
two years, five years at the outside. Econoff toured the TPO
where five patent examiners specialized in pharmaceutical and
biotech products. Desks were piled high with some of the
estimated 100 new applications received monthly, most inches
thick with detailed scientific data on the new chemical
compounds.
14. (U) One point on which nearly everyone agrees is that
the TPO is strained for resources. TPO's Suradet said patent
applications were increasingly complicated and hi-tech and
examiners were pressed to thoroughly check data in patent
applications. Most examiners in the biotech section were
graduates of Masters-level science programs, but Suradet
admitted that the TPO found it difficult to compete with the
private sector for the best graduates. Examiners tended to
rely heavily on patent approval reports by the U.S. Patent &
Trademark Office, but nevertheless made their own
determinations. Applications from foreign firms were
difficult as well because technical experts from the firms
were not nearby to answer technical questions. The lengthy
process of sending examiners' questions from TPO through a
series of lawyers to the patent applicant and finally back
again added further delays.
15. (U) Delays in issuance of patents are not a primary
concern of the pharmaceutical industry in Thailand as the
patent is typically examined and approved while companies are
still engaged in the lengthy research and development of a
new drug. However, drug companies are concerned with
uncertainty in the process and great variation in the length
of time required for a patent to be approved. Although some
drugs take many years to produce, others are ready for market
relatively quickly.
16. (U) The industry is more concerned for potential delays
in the market approval process, as at this stage a new drug
is ready for marketing and delays mean lost revenue.
However, in contrast to their grumblings about the TPO, the
pharmaceutical industry had few complaints about market
approval. The Thai Food and Drug Administration (TFDA) has
responsibility for determining the quality, safety and
efficacy of new drugs before allowing them on the market.
The TFDA gives itself 180 working days to approve a new drug,
though the clock stops if additional information is required
from the submitting company. Most approvals are issued in an
acceptable 12-18 month range, though the TFDA can process an
application much more quickly for life-saving drugs it would
like to speed to market.
Data exclusivity ) protecting secret data or blocking out
generics?
--------------------------------------------
17. (U) Data exclusivity provisions in a proposed FTA have
also been controversial. Typical provisions in an FTA
require governments to protect clinical test data submitted
in support of marketing approval for five years after product
approval, not only from disclosure to other parties, but also
to essentially prevent generic manufacturers from relying on
test data submitted by other companies to support
applications for market approval for their own generic
copies, regardless of whether the product was ever patented.
18. (U) Current Thai law under the Trade Secrets Act
provides for protection for clinical test data, though
implementing regulations have yet to be approved. TFDA keeps
test data under lock and key and there have been no
complaints of leaks of confidential data. However, there are
no restrictions on generic firms from relying on test data
from the original producers when submitting generic copies
for approval. Although the generic firms never see the data,
the TFDA will accept an application for market approval for a
generic drug shown to be bioequivalent to the original drug
and accept that the drug has already been proven to be safe
and effective based on earlier approval with the original
test data.
19. (U) Protection of clinical test data is a high priority
for the pharmaceutical industry as a majority of their
products were never patented in Thailand, either because of
the unavailability of patents before 1992 or simply because
the market was not considered important enough to warrant the
cost of the patent filing. Pharmaceutical companies claim
that the costs of product development and clinical testing of
new drugs can run into the hundreds of millions and call for
data exclusivity to protect that investment. Generic drug
firms in Thailand currently have a significant competitive
advantage in foregoing expensive and lengthy testing of their
own to produce a generic copy, but these firms and the RTG
question the logic of forcing generic producers to needlessly
undertake the same clinical tests that the original producer
had already completed years before. They claim the end
result would be delays in the introduction of cheaper
generics, even for products that were never patented.
20. (U) The Thai pharmaceutical industry association, Prema,
believes only a handful of drugs (none of them ARVs) would
receive immediate benefit from an FTA regarding data
exclusivity. As data exclusivity is typically granted for
only five years, an FTA would affect only those drugs that
came on the market in the previous five years. Approximately
30 new innovative drugs come on the Thai market every year,
meaning an estimated 150 drugs could benefit from data
exclusivity at any given time after an FTA entered into
force. However, the increasing prevalence of patent filings
in Thailand means most drugs of any commercial importance
will acquire patent protection (and therefore already have
market exclusivity) and data exclusivity will increasingly
become less crucial.
Compulsory licensing
--------------------
21. (U) FTA critics also point to restrictions in previous
FTAs on the terms under which a country may issue a
compulsory license. Under certain conditions WTO rules allow
local manufacturers to produce a patented medicine without
license from the original manufacturer. These conditions
include the existence of a public health emergency for which
the medicine is required.
22. (U) Despite frequent urgings by NGO activists and MoPH,
the RTG has yet to issue a compulsory license for any drug.
Activists readily attribute this to USG pressure and RTG
unwillingness to damage the bilateral relationship with the
U.S. However, an industry analyst suggested that GPO
realized it simply would not be cost-effective to produce
some generics under a compulsory license, no matter the need.
The costs involved in producing a generic copy, including
the cost of importing ingredients, research and development,
and license fees to the patent holder could surpass the cost
of simply purchasing the product.
23. (SBU) NGO activists frequently point to the
extraordinary high prices of patented ARVs, but the potential
for greatly reduced generic prices may in fact be low. FTA
critics most often cite two patented drugs, efavirenz by
Merck, Inc., and Kaletra by Abbott Laboratories, as essential
ARVs with prices far beyond the means of the average HIV/AIDS
patient, and call for compulsory licenses for local
production in Thailand. However, Merck representatives said
that they sold efavirenz in Thailand at a no-profit price in
recognition of Thailand,s AIDS situation and developing
nation status (though MoPH complains it is chronically in
short supply). As well, a survey on ARV pricing by Medecins
Sans Frontieres showed that the 600 mg tablet of efavirenz
was already being sold in Thailand at the same price as the
cheapest generic version in India. It is unlikely that GPO
could beat Indian manufacturers on price.
24. (SBU) Kaletra, the second-line ARV which is the other
frequent target, is sold for $300 a month, ten times the
price of generic first-line ARV GPO-vir, but a generic copy
would also likely be expensive, at least in the short run.
Brazilian generic manufacturers recently claimed that if the
patent were broken in Brazil they could manufacture Kaletra
for approximately USD 1000 per year, still several times more
expensive than GPO-vir.
25. (U) At present the likelihood for the RTG to issue a
compulsory license on an ARV is low. There are relatively
fewer HIV patients who require second-line ARVs in Thailand,
and in the short run economies of scale are perhaps too small
to warrant local production. However, the MoPH's program to
provide ARVs to significantly larger number of HIV positive
patients promises to slow the fatality rate from AIDS and
increase the overall number of HIV positive patients. As
more of these patients move to expensive second-line ARV
regimens the additional costs may fuel renewed calls for
compulsory licenses for these ARVs.
Can they make the generics?
---------------------------
26. (U) The Government Pharmaceutical Organization takes
the lead on development of generic copies of innovative
drugs, though they also perform their own original research
and in fact hold a number of patents. GPO manufactures
approximately 300 pharmaceutical products, including a number
of generic ARVs. GPO's facilities are generally highly
regarded and in a meeting with Econoff, R&D Director Ms.
Pisamorn Klinsuwan insisted that GPO had the capability to
produce some of the most complicated drugs on the market,
including second-line ARVs such as Kaletra were they given
the opportunity.
27. (SBU) GPO had their eye on producing other patented
drugs including blockbuster anti-cholesterol medicine
Lipitor, the top-selling drug in Thailand. Pisamorn claimed
GPO could produce the drug at half the cost of its current
retail price, but admitted that estimate did not include R&D
costs. R&D was tallied in a separate budget and not factored
into overall production costs.
28. (SBU) Although GPO produces generic copies at
substantially reduced prices from original versions, the
state-owned firm still faces many of the same market
constraints as a private firm. GPO's R&D director told
Econoff that GPO was researching all available ARVs for
future production, but decisions to produce other drugs were
dependent on local conditions. GPO took into account the
need for a new drug when deciding whether to produce a
generic copy, but like other pharmaceutical companies had to
examine the size of the market and whether it would be worth
the investment to produce a generic copy. Absence of a
patent on an original drug was insufficient criteria to
produce a generic. Although GPO is state-owned, it receives
no budget support from the RTG and is expected to turn a
profit both to expand operations and to provide budgetary
support to the RTG.
29. (SBU) GPO is preparing to produce the anti-viral
medicine Tamiflu, considered to be effective in battling
various strains of avian influenza. The original
manufacturer, Roche Holding AG, confirmed to the RTG that
Tamiflu was not patented in Thailand and that GPO was not
restricted from producing the drug nor obligated to pay a
licensing fee. GPO is acquiring precursor ingredients from
Indian pharmaceutical companies and has claimed it can
produce enough Tamiflu for 5000 patients within a year.
Tariff issue
------------
30. (U) Pharmaceutical reps in Thailand often take issue
with RTG complaints about the need for lower drug prices,
noting that Thailand maintains a ten percent tariff on
pharmaceutical products, with exceptions for medicines for
HIV/AIDS, malaria, thallassaemia and vaccines, which are
zero-rated. Zero-rated medicines make up less than ten
percent of the value of Thai pharmaceutical imports. A
successful conclusion to the FTA and a reduction in tariffs
could produce a drop in overall pharmaceutical costs.
Taking the long view
--------------------
31. (U) Although little immediate effect on pharmaceutical
costs would appear to be likely after implementation of an
FTA with the U.S., Thais are concerned about future drugs
entering the pipeline. The HIV/AIDS crisis is diminishing
thanks to greatly improved treatment and access to ARVs, but
restricted access to future generations of ARVs could set
back the progress made to date. Thais are concerned as well
that a future vaccine or treatment for avian flu might be
marketed at prices beyond their means to prevent an epidemic.
32. (U) Analysts do not foresee future difficulties with
unreasonable delays in patent and marketing approval
processes and resulting lengthening of a drug,s patent term.
The importance of ARVs and other life-saving medicines
virtually ensures that the RTG would quickly approve patents
and marketing for any future treatments or cures. In
addition, important drugs of this nature would almost
certainly be patented (if a decision were not made to license
them locally), and put on the market relatively quickly, and
therefore data exclusivity would be unlikely to come into
play. Industry observers agree that despite less than rapid
service for the typical patent at the Thai Patent Office,
additional resources should ensure that few new patent
applications face any unreasonable delays.
33. (U) Despite predictions of skyrocketing drug prices by
anti-FTA activists, the long-term outlook in the
pharmaceutical industry has not changed. Company reps in
Bangkok did not appear to be altering business models in
Thailand in anticipation of a U.S.-Thai FTA and did not
expect any significant increases in revenue after its
passage. Several company reps were unaware an FTA might have
provisions that would affect their products. One analyst
explained that the industry was supporting the FTA's patent
provisions primarily to help set a precedent for future FTAs
in more important markets.
34. (U) Comment: The debate over access to medicines and
FTAs presents a dichotomy of goals: access to cheap and
effective medicines for patients who need them now, but
incentives for development of innovative drugs for the future
as well. The hard truth is that without economic incentives
to manufacture an innovative new drug, it won,t be made; if
no market exists in Thailand for a new drug to be sold
profitably, it won,t be marketed, even by Thai generic
manufacturers.
35. (U) Inevitably, some drugs would be affected by an FTA
and raise overall pharmaceutical costs, though the increased
costs of individual drugs could be offset by tariff
reductions on pharmaceutical imports overall. Thailand has
an advantage in that it has a sizable market for new
medicines and can promote competition, and has also developed
a strong generic industry to compete with off-patent drugs.
Its generic industry's ability to copy most any drug also
backs up the occasional threat to issue a compulsory license
and helps persuade companies to keep prices lower than they
might otherwise. However, Thailand's program to provide HIV
medicines to more patients portends a future of skyrocketing
health care costs as HIV-positive patients live longer and
move on to expensive second-line regimens. The threat of a
compulsory license may one day cease to be only a threat.
End comment.
36. (U) Embassy expects an uphill battle against organized
opposition to the FTA and overcoming fears among Thais of
skyrocketing drug prices and a widening HIV/AIDS crisis. As
part of an overall outreach effort, Embassy suggests use of
the following talking points regarding pharmaceutical costs
and the FTA:
-- No provision exists in the IPR chapter of the U.S.-Thai
FTA that would encourage pharmaceutical companies to raise
prices for their products. On the contrary, a reduction in
the ten percent tariff on most pharmaceutical imports could
reduce prices for many drugs in Thailand.
-- Few essential drugs would likely be granted additional
market exclusivity by an FTA. We know of no anti-retroviral
medicines to treat HIV patients that would be affected.
-- Additional resources from the RTG to improve patent and
marketing approval procedures would go far to removing the
potential for patent term extensions on individual drugs, and
speed essential drugs to patients as well.
BOYCE