participation. For instance, more than 90 per cent of 2,000 NMEs launched to the market between 1960 and 1988 were produced by developed country-based TNCs.²⁰ By contrast, pharmaceutical firms in developing countries are small and currently account for less than 20 per cent of world production.²¹

TNCs have dominated the world trade in pharmaceuticals for a long time, and the list of the world's largest pharmaceutical companies has not changed much over the past few decades (Table 1). This is due to the range of barriers for new firms aspiring to venture into this field. The barriers to entry derive not only from the peculiarity of the pharmaceutical industry which requires a high degree of investment, but also from the employment of patent rights and other marketing practices by the existing firms which have created obstacles to the entry of new companies. The practices of the pharmaceutical companies are examined in depth below.

Characteristics of the Thai pharmaceutical industry

Production of medicines

The pharmaceutical industry in Thailand primarily consists of non-research based manufacturers. In 2005, there were 162 firms involved in manufacturing modern medicines in the country.²² The Thai government established two state enterprises to manufacture drugs to fulfil the requirements of the Thai market: the Government Pharmaceutical Organisation (GPO) and the Armed Forces Pharmaceutical Factory (AFPF).

GPO, which was established in 1964 under the Ministry of Public Health, is the most important public enterprise in the pharmaceutical field. The major roles of GPO are to support government health practices and plans as well as to be a source of cheap drugs for institutions and retailers.²³ Its activities include: producing basic pharmaceuticals; procuring medicines from other sources; conducting quality control; and distributing all pharmaceutical supplies to public hospitals.²⁴ GPO has proven its ability to create a competitive force in the generics market. For example, it has recently produced an anti-retroviral compound called GPO-vir--a fixed-dose combination of three drugs (i.e. stavudine, lamivudine and nevirapine)--that has become the first cheap and affordable ARV treatment in Thailand and other developing countries. GPO currently exports medicines to other developing countries such as Malaysia, Myanmar, Nepal, Vietnam, Laos and Cambodia.²⁵ In 2002 it agreed to form a joint venture to supply anti-retroviral drugs (i.e. GPO-vir and didanosine-- ddI) to 13 African countries.²⁶

The private sector represents almost 90 per cent of the pharmaceutical manufacturers in Thailand. Thai-owned private companies are mostly small in size and are involved in packaging or formulating drugs. Domestic firms are characterised by low production capacity and simple technology. These companies generally acquire chemical ingredients and technologies from foreign sources.

The affiliates of drug multinationals have played important roles in Thailand in terms of production, importation, and distribution. Foreign investment in the Thai pharmaceutical industry appears in the forms of joint ventures and wholly owned subsidiaries. Most affiliates of foreign companies supply the Thai market by importing finished products from abroad. Some foreign companies have formulation and packaging factories, but they have not established local plants for the production of basic active ingredients in Thailand. ²⁷

No firms, whether foreign or local, are engaged in R&D activity in the search for new drugs in Thailand. Some basic and applied research programmes have been carried out in state universities, but the achievement of these research programmes is still uncertain. The researchers in the public sector generally lack financial resources and management skill to convert their research outcomes into large-scale commercial ventures. Successful research outcomes are generally sold to foreign companies.

Foreign companies view Thailand as an inappropriate location of research units ²⁸ due to several factors, including the scarcity of well-trained personnel, equipment and resources, the lack of a chemical industrial base, the low level of technological capability, and the deficiencies of the registration system for new medicines.

Less than 10 companies in Thailand, including GPO and AFPF, are involved in the production of raw materials that can be used as inputs for the production of medicines. Almost all the raw materials produced by those companies are confined to intermediate ingredients such as alcohol, solvent, and sodium chloride. Only a few active ingredients that possess therapeutic effects (e.g. chloramphenicol and ferrous sulphate) are manufactured in Thailand.²⁹ Like R&D, the absence of the production of active ingredients in Thailand can be explained by two factors: (i) the lack of capacity of domestic companies, and (ii) the limited size of the market, making it unappealing to the multinationals. Since the domestic production of active ingredients is almost non-existent, most chemical compounds required for transformation into finished drugs (i.e. about 95 per cent of compounds used in the country) ³⁰ are imported, mainly from the United States, the United Kingdom, Germany, Switzerland, France, Japan, Italy, Eastern European countries and China.³¹

Overall, Thailand is unable to achieve self-reliant pharmaceutical production. This is evident from the growing trade deficit in this area. The statistics show that Thailand's trade balance of payments in the pharmaceutical sector has always been in deficit, and this deficit seems to be continually widening. For example, the value of trade deficit in pharmaceutical products substantially rose from 12,847 million baht (US$338 million) in 2001 to 17,234 million baht (US$453.5 million) in 2004 (Table 2).

The lack of domestic pharmaceutical production leads to high dependency on other countries regarding technology, finished drugs, and medicinal active ingredients. This means that the healthcare service in Thailand will face difficulties, especially when situations of crisis occur, such as during conflict or war, in cases of epidemic, or following natural disasters like earthquakes or tsunami. The heavy import dependence of the economy also means substantial outflows of foreign exchange resources. Therefore, domestic industrialisation and greater self-sufficiency in the supply of drugs is necessary for the country to achieve sustained economic growth in this sector and

Footnotes

20. UNIDO, TheWorld's Pharmaceutical Industries: An International Perspective on Innovation, Competition and Policy (Edward Elgar, Hants, 1992), p.12.

21. W. Kaplan and R. Laing, "Local Production of Pharmaceuticals: Industrial Policy and Access to Medicines", HNP Discussion Paper, Washington DC, 2005, p.7.

22. TDRI, "Intellectual Property and Impacts of Trade Agreements on Thai SMEs", Thailand Development Research Institute, Bangkok, 2006 (in Thai).

23. P. Hutangura and C. Sepulveda, The Pharmaceutical Industry in ASEAN Countries: Thailand (UNAPDI, Bangkok, 1979), p.209.

24. ibid., p.184.

25. Ministry of Industry, Master Plan for the Development of Pharmaceutical Industry, Bangkok, September 2002.

26. Kaplan and Laing, cited above fn.21, p.27.

27. International Trade Centre: UNCTAD/WTO, Thai Pharmaceutical Industry Study, Bangkok, 1999.

28. S. Supakankunti et al., "Study of the Implications of the WTO TRIPS Agreement for the Pharmaceutical Industry in Thailand", WHO Regional Office for South-East Asia, 1999, Bangkok.

29. P. Bumrungcheep, The Role of European Pharmaceutical Transnational Corporations in ASEAN Countries (ESCAP, Bangkok, 1981), p.27;Hutangura and Sepulveda, cited above fn.23, p.317; GPO, Annual Report, Government Pharmaceutical Organisation, Bangkok, 2004.

30. GPO, ibid.

31. Thai Drug Control Division, Pharmaceutical Manufacture in Thailand, Bangkok, 2003. Available at: www.fda.moph.go.th