US embassy cable - 05BANGKOK7526

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