Thailand’s pharmaceutical market, which only two years ago was growing at an average annual rate of 15%, suffered a harsh blow in July 1997 when the baht’s switch to a floating rate triggered a severe economic crisis in the country. From 1997 to 1998, the Thai pharmaceutical market fell about 16% to US$670 million.
In 1999, however, there are increasingly encouraging signs that Thailand’s economy – and thus the country’s large drug market – will recover. The government has implemented a new fiscal stimulus package and lowered interest rates to stimulate domestic demand. In addition, the baht has maintained a fairly stable position against the dollar over the past few months. GDP is expected to grow about 1% in 1999, inflation has fallen almost 5% over the previous year, and export growth is expected to rebound.
Figure 1. Changing Economic Trends in Thailand (% Change)
|Exports (US$ terms)||4.0||-6.9||4.1|
|Imports (US$ terms)||-13.4||-33.5||10.3|
Source: World Bank, 1999
With the expected rise in private consumption and expected decrease in inflation, consumer demand for pharmaceuticals is also expected to rebound. Domestic demand for pharmaceuticals has been the industry’s greatest driving force – Thailand’s rapidly aging population (by 2020, the number of people over 65 will increase to 10%, compared to only 4% in 1990), and increased incomes from a spectacular 8% annual economic growth that lasted from the mid-eighties to mid-nineties, has accelerated the demand for better healthcare. Even during 1998, when Thailand experienced 8% negative GDP growth, only tonics and vitamins experienced negative growth while sales of generic drugs and basic medicines remained stable. Overall, drug expenditure constitutes about 35% of Thailand’s total health expenditure.
While Thailand’s regulatory environment is still quite bureaucratic, a gradual liberalization of pharmaceutical law has also improved forecasts for the industry in 1999, and the pharmaceutical market is expected to grow at 5 – 10% for 1999. Foreign drug companies can therefore take advantage of renewed demand for quality pharmaceuticals, and perhaps over the next few years achieve the same 16% average growth rates attained by members of the Pharmaceutical Producers Association (PPA), the leading international industry association in Thailand, before the crisis began. However, foreign drug companies must make sure they understand Thailand’s pharmaceutical regulations and regulatory environment completely if they are to succeed in its rapidly growing drug market.
II. OVERVIEW OF THAILAND’S PHARMACEUTICAL MARKET
The local pharmaceutical industry in Thailand is mainly a formulating industry and does not involve much R&D. Most of the pharmaceutical ingredients of locally manufactured drugs are imported.
Thailand’s pharmaceutical market is made up of locally produced domestic drugs (generic products, which account for an estimated 46% of the drugs on the market), locally produced international brands (about 32% of the market), and imports (22% of the market). There is probably a greater reliance on imported products in Thailand, since companies manufacturing international brands in the country have concentrated on ethical drugs.
Government hospitals and pharmacies are the largest distribution channels, with each accounting for 35 – 40% of all sales:
Figure 2. Total Pharmaceutical Sales in Thailand by Market Segment
|Market Segment||Pharmaceutical Sales|
Source: Zuellig Pharma
Whatever method of entry is chosen, new entrants should be aware that competition is intense. New entrants who choose to introduce their products into the Thai market must have a long-term plan and be prepared to commit resources to developing the market.
III. PHARMACEUTICAL REGULATIONS IN THAILAND
The Food and Drug Administration (FDA), under the Ministry of Public Health (MOPH), is the main agency in charge of drug approval and registration. Its main sections relating to pharmaceutical registration are:
1) Drug Products, under the Drug Control Division;
2) Import Licenses, under the Division of Manufacturing and Import Facilities Control;
3) Product Registration, under the Food Control Division, and
4) Label Registration, which is also under the Food Control Division.
Thailand’s regulatory environment for pharmaceuticals is not as well enforced as in other Western countries, leading to widespread bribery and corruption in the FDA and other agencies of the MOPH. The country’s economic slump has only aggravated this problem by leaving the FDA understaffed and with an annual budget of only US $10 million (minus the $3 million spent on workers’ salaries) – less than the budget of many provincial offices. Thus, the FDA has been taking quite a long time to fully consider drug approvals, often taking several years to complete the process.
Recently, the government made some revisions to the FDA’s structure in order to minimize corruption and speed up approval. Two years ago, it decreed that only one FDA official should be in charge of the licensing approval process, instead of the previous arrangement where individual FDA officials controlled various parts of the licensing process (for example, one unit in a particular division of the FDA responsible for issuing licenses for product sales would have to wait for reports from authorities in another unit on inspection of the manufacturing site, as well as technical documents from yet another unit before it could give approvals).
The change aimed to reduce bribery by cutting out FDA “middlemen” who would make sure that the documents of the products and the pharmaceutical firm under their responsibility moved faster from one unit to another. As a result, authorities are now able to trace back on work pending in the agency more easily.
The government also plans to focus the FDA’s efforts only on monitoring and improving the quality of drugs in the market, steering the agency away from such previous (and distracting) responsibilities as overseeing the proper operation of drugstores in country. Instead, the latter will be transferred to the government’s Pharmacy Council, and the government hopes that the switch will increase the speed and efficiency of the FDA’s operations.
The government, however, has been slow to respond to claims that the FDA, in order to function effectively for the benefit of the public and free from political interference, should partly receive autonomy and be administered as an executive agency with a board of representatives from consumer groups, academics, the business sector, and the media.
Under this plan, only a part of the FDA would become “independent,” and legislative sections of the FDA could stay in the bureaucratic system. Supporters of this plan, many of whom are in the FDA itself, claim that the greater administrative power the FDA would gain after being taken out from under the MOPH could greatly speed up drug approval.
In late 1998, the FDA requested the Secretary for Public Health that it be allowed to become an independent executive agency, and urged public health administrators to reconsider their earlier decision against that plea. However, no decision has been made on this proposal yet.
Previously, the MOPH classified pharmaceuticals into “modern” and “traditional” (i.e. herbal) pharmaceuticals. Modern pharmaceuticals, which included generic and new drugs for human use as well as veterinary products, were further divided into three categories:
• Ready-packed pharmaceuticals, which are similar to those available in over-the-counter drug stores;
• Dangerous pharmaceuticals, which must be sold by a registered pharmacist; and
• Specialty controlled pharmaceuticals.
However, the modern/traditional classification was too general, leading to multiple sub-categories for different drugs and creating general confusion over how certain drugs were to be treated in the market. For example, many drugs in the Thai market were misclassified as “dangerous drugs,” and thus according to law kept off the National List of Essential Drugs (NLED, the standard drug price list in Thailand). As a result, manufacturers were prevented from advertising these products in media other than professional medical publications, ultimately lowering sales.
In January 1999, in an effort to harmonize its drug classification with international standards, the government finally decided to reclassify drugs into three categories:
1) over-the-counter drugs;
2) drugs sold by pharmacists; and
3) prescription drugs.
This new classification, while not following international standards exactly, does eliminate much of the subjectivity in the previous system and thus makes the identification of drugs more accurate. Also, with the reclassification of drugs and revision of the NLED, the government has also begun allowing many drugs previously labeled as “dangerous” to be sold in drugstores. As a result, the revised NLED will contain about 800 items, compared to only 367 before the revisions – thereby expanding market opportunities and increasing competition for pharmaceutical manufacturers in the country.
Thailand’s national drug control system stems from its Drug Act BE 2510 (1967) and its four amendments. The MOPH, along with the Drug Control Division of the FDA, is responsible for administering the system. Companies interested in manufacturing or exporting pharmaceutical products must obtain prior approval from the FDA. Both manufacturers and importers are required to get a license to produce, sell or import any pharmaceutical products into Thailand.
The pharmaceutical control system is divided into a pre-marketing and post-marketing phase. In the pre-marketing phase, companies must obtain a license to produce, sell or import any pharmaceuticals into Thailand, as well as register their products in the country. The Bangkok metropolitan area’s Drug Control Division and surrounding provincial health offices are in charge of licensing. There are nine categories of licenses, including a license to produce, a license to sell, a license to act as a wholesaler of modern drugs, etc.
A. Registration: Pre-Marketing Phase
The pre-marketing phase also includes registration of products. FDA’s Drug Control Division is in charge of Steps 1 and 3, while the Department of Medical Sciences handles Step 2. Thailand also has a regulatory procedure for new drug registration.
Generally, there are three main steps to drug registration in Thailand:
1. Application for permission to manufacture or import drug sample (requires the following documents):
• Application form
• Drug formula (active ingredients only)
• Drug literature
• Drug labeling and packaging
• Accreditation for overseas supplier
• Certificate of free sale
• Certificate of analysis
• Drug price list
2. Application for the approval of drug quality and analytical control method (requires the following documents):
• Application form
• Drug formula (complete)
• Manufacturing method
• In-process control
• Raw materials specifications of active and inert ingredients
• Finished product specification
• Certificate of analysis
• Drug analytical control method
• Packaging and labeling samples
• Storage condition information
• Stability studies of finished product
3. Application for approval of granted credential certificate (requires the following materials):
• Application form
• Permit to manufacture or import drug sample
• Drug sample
• Approved drug quality and analytical control method
• Pharmacological and toxicological study (if any)
• Clinical trials
• Safety and efficacy study (if any)
• Drug formula
• Drug literature
• Labeling and packaging information
• Certificate of free (for imported drugs)
A Certificate of Free Sale from the country of origin is required when registering a new chemical entity, and samples of the new drug must be submitted to the Thai Department of Medical Science for analysis prior to acceptance of the registration documents. This analysis usually takes 6 months, but can often take longer given the bureaucratic nature of the FDA.
Once the registration file is received, the FDA can take up to 18 months ensuring that it is complete, before submitting the clinical work to the Review Committee for consideration. In turn, the Review Committee may ask additional questions or require that a local study be carried out to ensure that Thai national companies under local conditions can duplicate the clinical data in Thailand.
For manufacturers of pharmaceutical products, a Good Manufacturing Practice (GMP) certificate has also been recommended and offered by the Thai government for about 10 years. While continued efforts are needed, Thailand’s pharmaceutical market is trying to establish Good Manufacturing Practice (GMP) in all local manufacturing facilities. The Thai FDA began giving out GMP certificates to local drug companies meeting the standards in 1996, and FDA officials from Thailand have also been participating in a new Asia-GMP improvement program sponsored by the World Health Organization (WHO), where foreign companies train Asian health officials on international pharmaceutical GMP. After these month-long training sessions, Thai inspectors have gone back to Thailand and developed their own internal GMP training courses to spread acceptance of the international standard. However, the GPO is still exempt from registration and GMP requirements, and thus Thailand still has a long way to go in harmonizing its standards with those accepted internationally.
B. Registration: Post-Marketing Phase
In the post-marketing phase, following registration and sale of pharmaceuticals, the quality control system at the government level tends to focus on output, i.e. the last stage of the production process, rather than input/raw materials or in the actual production process itself. In this phase, pharmaceutical quality monitoring is done by regular inspection and pharmaceutical sampling through the National Adverse Drug Reactions Monitoring Center and its 19 regional offices. Academics from outside the FDA are often hired to consider technical papers involved in drug registration. However, follow-up drug reevaluations are not routinely performed.
Difficulties in Pharmaceutical Registration
Foreign pharmaceutical companies have often encountered difficulties when obtaining manufacturing or import approval for their products in Thailand. Foreign firms have been especially dissatisfied with the way Thailand’s FDA handles drug registration. For example, the FDA investigates and registers medicines on the basis of their chemical components, but fails to perform more rigorous testing on how the medicines actually affect people. Furthermore, companies have complained that the FDA has not monitored and controlled the maintenance of quality standards by producers after registration. The PPA has proposed several times that the Health Ministry upgrade the FDA registration system to international standards, but to date has had little success.
Many companies frustrated with the bureaucracy and lengthy approval procedure in Thailand have made it a regular practice to pay “extra money” to FDA authorities in order to speed up the approval process – often reducing approval times from two years to six months, and six months to around 45 days. The FDA secretary-general tried to legalize this practice by setting up a welfare fund that would make use of this money, but additional contributions to this fund were abolished in January 1999 due to the violation of Thai civil service regulations. Foreign pharmaceutical companies therefore have little recourse now in speeding up the approval procedure, and registration timing is now falling back the old two-year filing term.
IV. PRICING AND COMPETITION
Heavy drug price controls have hurt foreign pharmaceutical companies in Thailand. The Department of Internal Trade (DIT) of the Ministry of Commerce regulates pricing, and the DIT must approve all price increases over 10%. The government also maintains a National List of Essential Drugs (NLED), from which all public hospitals have to purchase 80% of their pharmaceutical needs. Many foreign companies, whose pharmaceutical products are often higher quality and thus more expensive, therefore cannot have their products listed on the NLED. As a result, several foreign firms have tried to seek listing on individual hospital formularies, where there are no restrictions on having their products prescribed and reimbursed within the hospital system.
Domestic competition for foreign firms also comes from Thailand’s bureaucracy. Almost all of the drugs purchased by hospitals on the NLED have to be purchased from the publicly run Government Pharmaceutical Organization (GPO), a state enterprise under the MOPH which is one of the largest manufacturers and distributors of pharmaceuticals in Thailand. Total sales for pharmaceutical products from the GPO, for example, were valued at roughly $120 million in 1995. Import duties for pharmaceutical products are also quite high; they are 10% for drugs that do not compete with a domestic product, but rise to 20-30% for products that do.
The Asian economic crisis and the resulting economic slump in Thailand only intensified the government’s efforts to keep drug prices low for its population. For example, in 1997 the GPO planned to privatize its production and distribution of drugs, which would make the organization more flexible and increase its capacity to deliver drugs to hospitals and retailers more quickly. However, this proposal was frozen by the cabinet due to fears that the loss of the only state-run drug manufacturer would create problems for price and quality control. Furthermore, in response to the government’s recent “Buy Thai” campaign, the MOPH tried to implement a “Good Health at Low Cost Policy” whereby the Ministry would instruct all public hospitals and healthcare centers to increase their use of pharmaceuticals on the NLED list from 80% to 85%.
In 1998, the MOPH established a subcommittee to review and revise the existing NLED. However, there still have been no significant reforms to make drug pricing more market-based in Thailand, and any reform will most likely occur after a year when the Thai economy has made a healthy recovery.
V. MARKETING REGULATIONS
The Advertising Control Division of the FDA controls marketing and advertising regulations. To date, there have been many complaints that document forgery and bribery undermine the advertising approval process. Proposals for advertisements, for example, are often forwarded to FDA officials through advertising agencies hired by manufacturers or importers of the product. To seek fast approval, these agencies have often been willing to pay “tea money” to officials or add misleading marketing information to convince the public into having full faith in their products.
In addition, FDA officials have often told companies that hundreds of other companies are on the “waiting list” for advertising approval, thus prolonging the approval time to several weeks unless payment was made under the table. How much money is needed to speed the approval process has depended on the content of the advertising slogans, and rates charged often range from US$260 to over $2,000. Often, such payments can allow the company to receive a FDA endorsement in two days.
The government has been trying to crack down on internal corruption in the regulatory process, and has recently announced that advertisements of drugs under its supervision will come under closer inspection as to prevent abuses. Beginning February 5, 1999, for example, all drug advertisements on television, radio or in the print media must state their FDA approval number, and all endorsements must be screened by a technical team before they are sent to administrators.
Regulations on correct labeling and packaging have been strengthened to ensure that more drugs in the market meet quality and safety standards, and also to prevent unscrupulous officials from bargaining for extra money by maintaining unclear advertising criteria for products. Also, to reduce the risk of forgery, application forms for advertisements will be separated from approval forms, and product owners must apply themselves or give advertising agencies written authority for marketing approval. Advertisers will be informed if their advertisements are considered inappropriate. Finally, over the past year, the Advertising Division of the FDA was also changed to a Publicity Division to turn its focus away from marketing (where FDA officials would often earn huge incomes for considering approval of advertisements) and more towards creating public awareness and protecting consumer rights.
While the new regulations are stricter, the FDA asserts that they will not prolong the procedure to receive advertising approval, and the time to consider an application will remain at around a couple of weeks.
VI. INTELLECTUAL PROPERTY PROTECTION
Corruption in the Thai pharmaceutical market, combined with the country’s economic crisis, have led to widespread intellectual property rights (IPR) infringement in the pharmaceutical industry. Lowered incomes have prevented many in Thailand from purchasing more expensive, higher-quality foreign drugs, leading to a growing market for illegally copied drugs in the country. Thailand has been on the U.S. 301 Watch List for the past few years due to alleged copyright and patent infringement.
Thailand did extend patent protection to pharmaceuticals in 1992, but it did not provide protection for foreign-patented products not yet marketed in Thailand. In 1994, the FDA created a “Transitory Provision to Conduct Safety Monitoring and Bioequivalence Studies of New Drugs,” where pipeline protection was granted for pharmaceutical products patented elsewhere in the world between January 1, 1986 and September 1991. This procedure required companies to report adverse reactions for a two-year period, and companies could also request an additional “two plus one” year reporting period in which the FDA would not accept registration applications for generic copies of the product.
Under the 1994 legislation, up to five years’ market exclusivity would be provided for patented drugs, the only restriction being that sales were to be confined to hospitals and clinics (no drugstore sales). However, the effect of this legislation has also been undermined by the MOPH’s recent decision to make the NLED a “maximum list” for government hospitals, thereby excluding products given this pipeline protection from the list. As a result, innovative products qualifying for the pipeline protection will not be listed or stocked in most hospitals.
Thailand also introduced a new Patent Law Amendment Bill into Parliament in late 1998, which if passed would delete some important provisions on the government’s authority to enforce compulsory licensing of pharmaceutical products. The amendment would also disband a pharmaceutical patent law committee.
However, many original provisions of the 1992 legislation are untouched in the new legislation. For example, it still excludes naturally existing biologicals from patent protection; generic use of patented products is still allowed prior to the originating company’s patent expiration; compulsory licensing of patented products not manufactured in Thailand is still required; and dependent compulsory licenses, compensation and appeals are all still inconsistent with the World Trade Organization’s TRIPS (Trade-Related Aspects of Intellectual Property Rights).
Finally, the new legislation also introduces new inconsistencies: it extends the protection period for “state of the art” pharmaceuticals to 18 months, compared to the internationally-accepted period of 12 months. This may be used as a mechanism to reject an application by a foreign company on the basis that the company’s country does not offer the same rights to Thai applicants. Also, the new bill allows import of the patented product if the patentee or licensee has already sold the product in Thailand, therefore allowing other countries to import the same drug without recognizing the rights of its original product/process patent holder. If the company holding the patent does not license its product, it still has control over its IPR – but there are still many risks to foreign companies in Thailand’s existing patent regime.
With its economic recovery and renewed demand, growth prospects in the Thai pharmaceutical market are quite good. The major obstacles to foreign companies lie in skirting the regulatory system’s widespread corruption, which can manifest itself in everything from intentional delays in the approval process to weak IPR protection. Fortunately, Thailand’s government has begun to recognize the need to improve its regulatory structure, and reforms are gradually taking place. Foreign pharmaceutical companies will most likely see the bulk of reforms occurring over the next few years, as Thailand completely recovers from its economic slump and the switch to more market-based, efficient practices will become easier. Any foreign firm looking to stay in the Thai pharmaceutical market for the long term must pay attention to these developments carefully in order to gain an edge in the country’s lucrative drug market.