In Thailand price controls of drugs have existed for a long time and in many forms. However, for the first time there is a proposal to include direct price control of new patented drugs as part of the approval and registration process.
Sections 48 and 49 of a new Drugs Bill impose an obligation on an applicant for a new patented drug to establish that the proposed price for that drug is "reasonable" and "appropriate". Applicants will be required to submit to the Food and Drug Administration (FDA) "information regarding price structure". This requirement is likely to extend to detailed costing and pricing data that is confidential and commercially sensitive.
If the FDA considers the proposed price unreasonable or inappropriate, it may refuse approval. This can be seen as an additional procedural barrier to the approval and registration of new patented drugs in Thailand.
The subject of drug price control is a vast one. We will touch briefly on some aspects of the Thai government's new proposal and some of its possible unintended consequences.
As far as we are aware, the government has provided no formal explanation as to why these price control provisions are needed. There has been no clear statement of policy or objectives.
This is particularly important because Thailand already has extensive price control measures over drugs, both direct and indirect. Direct control is contained in the Prices of Goods and Services Act BE 2542 (1999) which gives the Commerce Ministry the power to control the prices of drugs. Indirect controls are numerous and include the National List of Essential Medicines, generic substitution, and the prohibition of direct-to-consumer advertising.
The proposal relates only to applications for approval of new patented drugs. It does not apply to new unpatented drugs or to new generic drugs. The reason for the discrimination against patented drugs is not clear. We surmise that the implicit reason may be an assumption that patented drugs are always more expensive than unpatented drugs, and the government feels it needs to intervene to restrain excessive pricing.
However, this is not so. The existence of a patent per se does not confer pricing power or sales success. The position of the patented drug in the relevant market is important. If there are therapeutic substitutes there is competition, including price competition. Competitive market forces contain prices without the need for price control. An example would be a new patented antibiotic for pneumonia where there is an extensive range of therapeutic equivalents.
In short, the availability of substitutes keeps prices reasonable without the need for direct price ceilings. This is true for both patented and generic drugs. If there are two or more similar drugs to treat the same condition market forces (including Thailand's existing indirect controls) are sufficient.
A serious shortcoming in the draft legislation is that it fails to draw any distinction between patented drugs with therapeutic substitutes (and therefore subject to competition) and those comparatively rare patented drugs that are truly unique (and perhaps not subject to intensive competition). To treat all patented drugs in the same manner is unnecessary and inappropriate.
In any case, the proposal seems to be aimed at the wrong target. If the overall concern is with cost containment, the imposition of direct price controls on patented drugs will not help. By far the greatest expenditure in Thailand is on generics. Encouraging more utilisation of generics is not going to be achieved by putting price controls on patented drugs only.
If the concern is with achieving improved patient accessibility, there may well be unintended consequences. There would most likely be additional delays, expense and uncertainty in obtaining approvals for new patented drugs. Alternatively, applicants might simply decline to pursue any approval in Thailand rather than run the risk of experiencing unacceptable price determinations or having to disclose confidential data in a legal environment where protection of registration data is less than optimal. Either way, Thai citizens would be denied or delayed access to state-of-the-art technology and health care.
Other unintended and unforeseen consequences could arise. If potential applicants decided against taking part in a non-transparent and uncertain application process, there would be no registration data available for subsequent reference by the FDA when assessing applications by subsequent generic equivalents. Generic applicants might then face the delay and expense of having to generate their own registration data, and their prices might have to increase as a result. A further irony might be that the Government Pharmaceutical Office might not be so affected, being exempted from the need to comply with the Drugs Act.
The World Health Organization has emphasised that any price control system should be objective and transparent. Other commentators have said direct price controls can be cumbersome to administer, open to manipulation and can encourage misleading accounting. To date we have been given no information as to how the new Thai requirements would be implemented in practice.
In conclusion, it is appropriate to quote Article 7 of TRIPS (trade-related aspects of intellectual property rights) which reads as follows:
"The protection and enforcement of intellectual property rights should contribute to the promotion of technological innovation and to the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge, and in a manner conducive to social and economic welfare, and to a balance of rights and obligations."
For reasons outlined above, the proposed price-control provisions (which discriminate against patented drugs) do not promote intellectual property rights and they do not promote technological innovation in or transfer to Thailand. They have the potential to act in ways that are adverse to the interests of Thailand and its citizens. They are unnecessary because adequate price-control mechanisms already exist.
Finally, these new rules run against the spirit of the Asean Economic Community (AEC). This is not the time for Thailand to be seeking to impose direct price controls on drugs when such systems are not used by other AEC members. They could only frustrate, rather than facilitate, the achievement of a common market for drugs.
Peerapan Tungsuwan is a partner at Baker & McKenzie Ltd.