Stage Fright: The Risks and Benefits of Moving Forward

The Southeast Asian pharmaceutical industry is at a crossroads: The transition from underdeveloped nations to developing and now emerging markets has brought with it many conundrums and many opportunities. The shape of the sector across the region is expected to drastically change, and today's picture is evolving quickly. Every country of the region and its national industries faces challenges associated with its socioeconomic conditions and industrial history. But, the novelty is that a set of common threats and opportunities is surfacing across the region that should determine the near future of the sector as a collective, increasingly unified, and certainly more global group of actors competing across a larger market space.

Started as a joint effort to promote economic cooperation and the welfare of the people in the region, ASEAN has increasingly evolved over the years into an economic forum doubled with instruments of economic action. At a 2003 meeting in Bali, it was stated that the objective is to set up an ASEAN economic community by 2020. Eleven key sectors, including the healthcare sector, were identified as priorities for the integration effort.

The first anticipated stepping stone will be the 2008 ASEAN Free Trade Agreement (AFTA), which will be held in January 2008. Covering a wide range of items, this agreement will unify a market space of more than 500 million people across 10 countries. It will affect the pharmaceutical industry by allowing companies to trade freely and register products across the region. Of course, the dream of a fully free market is still far away because some protection mechanisms will still be available to states that still wish to play by their own rules. But, provisions are to be strictly framed and will be more constraining than opening up to the free and fair trade. In the meantime, the industry is looking at unifying the norms and standards as well as facilitating registration procedures and the flow of goods, technical dossiers, and bioequivalence studies across the region.

Sec. Roberto M. Pagdanganan, Chairman & President of PITC

Labeling standards for pharmaceutical and medicinal products should be established by Dec. 31, 2006. By December 2008, an ASEAN common technical dossier (ACTD) is expected to be released. Approval and recognition across the region should then be a natural step. Currently, efforts are being made to formalize a postmarketing alert system for defective pharmaceutical and medicinal products and explore the feasibility of implementing a flex-twinning system among countries with similar setups. These efforts will bring many opportunities to the region and its players, even if they will be taken primarily by those who had the foresight to turn their organizations into globally able companies. A unified market of more than 500 million potential customers is clearly a mouth-watering prospect for most regions leaders and their challengers, but it might come with strings attached.

Exclusivity versus AFTA

While the application of a free-trade agreement is being discussed on a bilateral level between Malaysia and the United States, future members of AFTA (who must review their existing agreement with the United States before full entry into AFTA) have looked at their Malaysian neighbors with apprehension as the issue of data exclusivity has been brought forward by the United States during the discussion. These issues has triggered a wave of concerns across the Southeast Asian industry. The data at stake are all the test data (i.e., clinical data) that were produced by the originators in the course of the new molecule's development.

The Philippines turn vision into reality

Because it appears that in any FTA signed before mid-2007 the US Trade Representative is legally obliged to obtain US-similar standards of intellectual property protection with the signatory country, the threat lurking in the almost exclusively generic industry is clear. The United States has the highest and most onerous intellectual property standards in the world, so Malaysia and other Southeast Asian countries would need to raise their intellectual property protection standards significantly. Following the latest round of trade talks undertaken by the World Trade Organization, the Doha declaration established the use of trade-related aspects of intellectual property rights (TRIPS) agreements and reinforced the importance of access to medicines while reaffirming the ability of governments to use the flexibilities available in TRIPS to ensure the affordability of medicines.

Now the United States is pushing for what is commonly referred to as "TRIPS-Plus" allowing for a period of data exclusivity of up to 11 years beyond the date a generic version of a product would normally begin to compete with the patent holder.

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According to a letter highlighting a Thai survey and sent by the president of a Malaysian consumers association to the Malaysian Minister of Health in March 2006, "The Thai Ministry of Health has done a study of the predicted impact of the TRIPS-Plus provisions found in US FTAs. It found that if generics were prevented by data exclusivity from entering the market for a period of ten years beyond the date when patents normally expire, this would cost an extra $5400 million (at wholesale prices) per year which is 77% of the current total Thai health expenditure."

Furthermore, the adoption of TRIPS-Plus provisions would greatly harm the development of the local pharmaceutical industry, which relies on being able to produce bioequivalent products for its markets under the current protection of the TRIPS system and the other intellectual property protection mechanisms.

Acknowledgments

This will be a sticky situation if the negotiation favor international originators as opposed to local generic manufacturers in Southeast Asia. It is also a test of the ability of the industry to mobilize itself across the region, while facing a common threat. Beyond this issue lies opportunities to strengthen what is today a multitude of medium-size players with different business agendas into a more solid, forward-thinking and opportunities-grabbing industry. In turn, this should offer plenty of areas of possible cooperation between international companies, particularly US and European, and the movers and shakers who will emerge from these trying times. For once, casting originators against generic players might end up strengthening the industry across the board.

This report was prepared by Executive Country Reviews. Authors are Gilles Valentin gilles@ecreviews.com Emmanuelle Berthemet emma@ecreviews.com Marco Parigi marco@ecreviews.com Amicie de Bodinat amicie@ecreviews.com and Yaz Yazicioglu yaz@ecreviews.com