Thailand's health ministry plans to issue compulsory licences, permitted under World Trade Organization rules, to buy local copies of Sanofi-Aventis's heart disease drug Plavix and Abbott's HIV treatment Kaletra. The government will then license the drug to GPO, which will start producing it and selling it to Thai doctors and hospitals. This isn't the first time that Bangkok has violated patent rights. The threats to Abbott's and Sanofi's intellectual property are in addition to those made against the patents of Merck's HIV drug Stocrin last November.
These moves are far from the boon to patients they're made out to be. The GPO facilities used to manufacture HIV treatments have not passed the World Health Organization's manufacturing standards. In the industry jargon, there is no decent "bioequivalence data" on the quality of GPO-manufactured drugs, meaning that they are at best approximate copies and should not be labeled generics. Furthermore, even WHO standards have been lax, with 18 different "WHO approved" HIV treatments withdrawn in 2005 -- after use on thousands of patients -- due to lack of proof the drugs actually worked.
While WHO standards have improved since 2005, one cannot be so sure of the GPO. Lembit Rago, WHO's coordinator of drug quality and safety put it starkly recently: "Nobody would buy an airplane without wings....Drugs should be treated the same way. But with drugs it's difficult to understand what makes them up to a certain standard of quality because there are so many elements involved. In certain cases, minor things are wrong, and in some major things. Drugs that are not pre-qualified [WHO approved] may not directly kill people, but they could foster resistance to AIDS drugs."
GPO's products are not pre-qualified. As to fostering drug resistance, a 2005 study by Thailand's Mahidol University's faculty of medicine found that GPO-vir, a copy HIV treatment GPO makes, had between 39.6% and 58% resistance in the 300 patients investigated. This result is perhaps the worst case of HIV drug resistance in the world. These patients should already have moved to second-line treatment -- the next generation of drugs -- which requires expensive hospitalization.
Drug resistance is almost certainly contributing to rising costs, as some patients receive high quality patented second-line drugs. Mongkol na Songkla, Thailand's public health minister, said last week's announcements of compulsory licensing were necessary to ensure broader access to life-saving medicines for patients in Thailand's universal health-care scheme. "We don't have enough money to buy safe and necessary drugs," he said. He could've negotiated with the drug companies first.
And there may be more to come. Teera Chakajnaradom, President of the Pharmaceutical Research and Manufacturer's Association, the lobby for Western industry in Thailand, announced last Monday that "Leading members of the association have...confirmed that their plans for further investment in Thailand will be put on hold....They are concerned about continuing to invest in a country where the government cannot provide a basic guarantee for the safety of their assets."
This is probably not just empty rhetoric. Thailand's move to issue a compulsory license for a heart disease drug, Plavix, changes the debate entirely. The Health Minister said cutting the price for Plavix from 70 baht ($2) to 6 baht per pill would increase use above the 20% of patients needing the drug that he estimates currently have access. But while this is understandable, it almost certainly breaks WTO rules. Combating HIV has always been seen by activists, if not others, as a health emergency, and under WTO rules, patents can be broken in emergencies. However, it's hard for anyone to argue that heart disease meets such stringent tests.
It wouldn't be surprising to see Sanofi-Aventis sue the Thai government, or for the U.S. trade representative to file an action against Thailand through the WTO's dispute resolution panel. Of course, if negotiations with the Thai government fail, Sanofi and other drug companies may just leave Thailand altogether.
This would be a disaster for Thailand because the real risk to the poorest of the ill, and HIV sufferers in particular, is not drug prices but bad health systems and poor training of medical professionals. For self-interested reasons, Western pharma companies provide training in the disease areas where they have drugs, which ensures proper prescribing and good patient compliance, limiting the risks and costs of treatment failure, which are far higher than the costs of the drugs themselves.
If Thailand pursues ever wider compulsory licensing, the biggest risk of all may be to the fragile but sustainable price tiering system that Western drug companies follow globally. In Asia, patents are protected and it is illegal for products to be re-imported from one country to another. So it makes good economic sense for companies to tier their pricing, charging lower prices to people who don't have the means to pay what Europeans or Americans can.
So while a cancer drug or HIV treatment might cost $20 per person per day in the West, companies often lower their prices in less affluent markets, sometimes selling drugs at cost in poor countries. But they can only do this if they can make money in mid-income countries, such as those in Asia. If other countries follow Thailand's lead and demand no-profit African pricing, then the incentives for further drug development are weakened, especially for diseases uniquely affecting the Asian region, such as dengue fever and leishmaniasis.
Other countries in the region are watching Thailand's actions with interest; notably, India and China with their own pricing battles and patent litigation imminent. And their copycat companies must be licking their lips at the prospect of exporting WHO-approved, and arguably WTO-compliant, but still ripped-off drugs to Thailand. The result of the Thailand action could affect the direction of policy in Asia for the next decade.
Hope remains that the Thai government will see sense. It still has not actually broken the patent of Stocrin -- even though it issued a compulsory license last fall, negotiations continue. One has to hope that Bangkok reconsiders its strong-arm tactics. More than the health of its people is at stake.
Mr. Bate is a resident
fellow of the American Enterprise Institute.