Innovation, competition and cheaper drugs

Innovation is always the engine for change and growth in any individual, enterprise or society. Life becomes interesting and exciting only when there is always something new to see and try, something new to sell and buy, even something new to give away for free.

Innovation is encouraged under a competitive environment. When there is no competition, there is very little incentive to innovate. A monopolist that supplies a particular commodity to a community and it is assured of zero competition for the next 20 or 100 years, will have very little incentive to innovate. Why spend money on expensive research and developing a new and better product when consumers do not have any other options anyway except buy their product no matter how lousy it is?

People change, communities change and evolve. Diseases also evolve. What used to be considered by the people as an ordinary flu is now seen as various strains of flu – bird flu, cat flu, cow flu, swine flu and so on. The attitude of people towards diseases also evolve, they become more demanding if not impatient as they assume that new medicines are coming to cure them within a few days and not a few weeks or months.

The traditional sources of medicine innovation are the pharmaceutical multinational corporations (MNCs). These are huge corporations which have the resources and network to test and develop new drugs to respond to different patients with different diseases with different budget. But more local or nation-based pharma companies are also sprouting up, first to develop off-patent and generic medicines, and later on to start developing their own new concoction and medicines which are both safe and effective.

And still slowly emerging, are individual researchers and non-government organizations (NGOs) which have a clear goal and mission to develop new medicines targeting particular diseases for patients in poorer countries and communities.

Among such innovative and tireless researchers and scientists is Dr. Krisana Kraisintu from Thailand. Krisana is one of the Ramon Magsaysay Awardee for 2009, for being the
Champion of Scientific Crusade for Affordable Medicines by “producing much-needed generic drugs in Thailand and elsewhere in the world.” She joined the Government Pharmaceutical Organization (GPO) in 1983 and led its research department in producing many generic medicines for a wide range of illnesses.

In 1995, Krisana produced the world’s first generic ARV, a generic AZT (zidovudine) for HIV that reduces the risk of mother-to-baby HIV transmission. In 2002, she left the GPO and went to the sub-Saharan Africa region, hit hardest by the AIDS pandemic. Among the countries she visited and worked with, “In war-torn Democratic Republic of Congo, she set up a pharmaceutical factory that was able to produce generic ARVs after three years.” In Tanzania, she upgraded an old facility to produce not only ARVs but cheap anti-malarial drugs as well. The Inquirer has a special news report about her, “RM Awardee: Cheap drugs for poorest”.

Krisana’s initiatives are good. Those who have the expertise and capacity to produce more competing products made whether by multinationals or local pharma companies, should join the competition. More competition is always good for consumers and patients.

I would add that local pharmas should aspire to become multinationals themselves someday. Like San Miguel, Jollibee, Figaro, SM, and Metrobank, etc., companies that previously were just confined to the Philippines, now selling their world-class products and services in several countries around the world.

Yesterday, I and other NGO leaders under the Coalition for Health Advocacy and Transparency (CHAT), the civil society partner of the Medicines Transparency Alliance (MeTA) Philippines, had a great opportunity to meet up with Krisana. She was joined by the current Director of the Research and Development Institute of GPO, Ms. Achara Eksaengsri.

After an overview of the Philippine health and pharmaceutical situationer given by former DAR Secretary and now President of HealthWatch Philippines, Obet Pagdanganan, we had a productive free flowing discussion. Among the topics that we explored were the following.

One, more competition among pharma companies in Thailand than in the Philippines. In Thailand, there are 167 local pharmas and about 500 multinational pharmas operating. In the Philippines, I could count only about 50+ local pharma and about 40+ multinational pharmas. That’s from the members of local pharma association PCPI, and mostly multinationals pharma association PHAP. This partly explains why medicine prices in Thailand are generally cheaper than in the Philippines.

Two, there is no drug price control law being implemented in Thailand, but they have issued compulsory licensing (CL) on 7 drugs against hypertension and cancer. The Philippines has current drug price control program but has not issued CL on any essential drugs yet.

Three, there is no single dominant drugstore in Thailand, unlike in the Philippines where Mercury Drugstore corners a big portion of the drug retailing market. The most dominant player usually could set its own price or profit rate much higher than competing drugstores’. Former Sec. Obet’s figure is 60 percent share by Mercury, but I think the steady influx of many new drugstore chains like Watsons and The Generics Pharmacy, plus the in-house pharmacies of private hospitals and clinics, should be eating away the market share of Mercury to only 50 percent or less.

Four, both the Thai and the Philippine governments impose taxes on medicines, despite their high profile pronouncements that they want “cheaper medicines”. Thailand has up to 7 percent import tax and 15 percent value added tax (VAT) on medicines. In the Philippines, up to 5 percent import tax on finished products, 3 percent on raw materials, and 12 percent VAT. The latter also imposes VAT on tolling fee which can be claimed as input tax credit against imported drugs’ sale of the tolled product, and VAT on the sale of the tolled product to distributors. Then there are import processing fee, import documentary stamp tax, and local government tax. The government charges the 12 percent VAT on the landed price of imported drugs plus the other taxes and fees. The VAT in effect, is a tax on a tax.

To my mind, both governments – and many other governments – are hypocrites for calling for cheaper medicines but contributing to expensive medicines because of the various taxes and fees they impose on medicines. They treat drugs as no different from alcohol, beer and hamburger that must be slapped with as many taxes as possible.

Five, Krisana says the role of NGOs is very important in their work in Thailand in producing alternative cheaper essential drugs, and she believes the NGOs in the Philippines are also playing a crucial role in health policy debates. She calls the Philippines’ Cheaper medicines law (RA 9502) “the best” law that she has recently encountered.

I fully agree that NGOs and civil society groups have an important role in various public policy debates, especially in health issues. But said NGOs should not behave or expect like they are adjunct or an “annex” of the government, by easily running to the government to seek for more regulations and interventions.

Here in the country, the President who signed the Executive Order (EO) on drug price control as pressured by some NGOs and media people, is the same witch that created endless political and business scandals that include large-scale corruption charges, the same witch that wants to be the Prime Minister of the country by attempting to bastardize the Constitution so she will be in power as long as she wants.

NGOs and civil society groups should fiscalize the government in power because even the opposition political parties are not really intent on changing certain policies like medicine taxation because they also want to implement the same regulations and taxation once they are in power. Not a single big politician or political party in this country for instance, has proposed to abolish certain taxes on medicines to contribute to cheaper medicines. Civil society groups should take up that role as voluntary representatives of consumers and ordinary taxpayers.