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No doubt, the lack of generic competition and government control on prices provide ample opportunity for drug suppliers to set excessive prices; being the main factors for the high prices of medicines. Any attempt to tackle this problem has to be mindful of these factors. Unlike other goods, identical medicinal products are usually quoted at different prices in different markets. The price differentials mainly stem from the pricing policy of drug multinationals that typically charge "whatever price the market can bear". The price level of medicines generally depends on the situation in the market.46 Patents seem to be the most important factor for determining drug prices. Before TRIPS was adopted as part of the WTO agreements, it was evident that countries with no pharmaceutical product patents, whether developed or developing countries, showed lower price levels than countries that provided a high degree of patent protection. Moreover, in countries with no patents on medicinal products and also price control measures, such as India and Italy, the price levels of pharmaceuticals were very low.47 The figures show high price variations in the Thai pharmaceutical market. Identical products are generally sold by different companies at disparate prices.48 The price margins for each drug are relatively wide, ranging from 93.55 to 1,966.67 per cent. Drugs sold by Thai-owned companies are generally much cheaper than those offered by TNCs. For example, Pfizer's Fluconazole (200mg caps) is sold under the brand name of "Diflucan" at US $6.20--much more expensive than that sold by GPO at US$0.30. Table 5 also reveals price differentiation of various anti-retroviral medicines in Thailand. This confirms that the prices of branded drugs are quoted several times higher than those of the generics. TABLE 5 comparison of anti-retroviral prices in Thailand, January 2005 In Thailand, apart from customs and tariffs law, there is no specific legislation regarding arm's length price or other mechanisms dealing with the transfer pricing practices of TNCs.50 As a result, the transfer pricing techniques have been widely utilised by foreign companies operating in Thailand. A study on pharmaceutical prices indicates that prices of sales by parent companies to subsidiaries located in Thailand are often artificially raised and usually higher than prices charged between other unrelated parties. For example, in 1981 the prices of imported aspirin, dexamethasone and ampicillin paid by subsidiaries of multinationals to their parent or overseas affiliates were respectively 23, 15 and 5 per cent higher than the prices of the same drugs charged between independent enterprises.51 The lack of any specific legislation to check transfer pricing renders the pharmaceutical market in Thailand vulnerable to foreign price distortions. Prices of drugs can therefore be artificially inflated or deflated by pharmaceutical firms depending on what they feel about the market. |
Footnotes 46. A multiple-country analysis based on price packages of medicines conducted by Schut and Van Bergeijk shows that the main factors that cause price differentials in the pharmaceutical industry are: (i) per capita gross domestic product (GDP), (ii) government policies on price controls, and (iii) patent protection for pharmaceutical products. F.T. Schut and P.A.G. Van Bergeijk, "International Price Discrimination: the Pharmaceutical Industry", World Development, Vol.14, No.9, 1986, pp.1141-1150. 48. W. Hiranrath et al., "The Survey of Selling Prices of TNCs and Local GMP Manufacturers", Chulalongkorn University Press, Bangkok, 1990, pp.43-44. 49. However, the situation might change after 2005 when all WTO Members (except least developed countries) have to protect pharmaceutical patents as required by the TRIPS Agreement. The supply of cheap raw materials and active ingredients might be limited as a result. See S.M. Karandikar, Indian Drug Industry after GATT (World Trade Centre, Bombay, 1994). 50. N. Chaiseri and C. Hongladarom (eds), "The Role of Multinational Corporations in Thailand", Conference at Thammasat University, Bangkok, 1984, p.175. 51. M. Kaosa-ad, "Transfer Pricing in the Pharmaceutical Industry", Thammasat Economic Journal, Vol.3, No.1, 1985, p.15. |
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