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3 Dec 2020

Econ Digest

Guideline for upgrading of Thai pharmaceutical industry: promote investment and support research and development

         The increase in Thailand’s total population and the proportion of the elderly population resulting in an aging society are pressures on the management of the public health system, and the government’s public health budget is expected to continuously increase. An analysis of Thailand’s the public health budget for the fiscal year 2017-2021 reveals that the Ministry of Health budget has an average growth rate of 2.7% (CAGR) and is expected to accelerate to cope with demographic changes, including building health insurance. 
        Thailand’s pharmaceutical budget accounts for about 25-30% of the total public health budget, partly due to the country’s dependence on modern drugs imported from abroad. Although the ratio of domestic drug production value to drug import value has remained at 30:70 since 2012, domestic drug production value has increased slightly. However, most of the domestic pharmaceutical production is generic production and OEM production of finished drugs, as there are not many original drugs and APIs (Active Pharmaceutical Ingredients) developed in Thailand, and there are patent restrictions on drugs from foreign companies. This shows that Thailand’s pharmaceutical industry, especially the upstream industries of the pharmaceutical production chain, still has room for development in order to reduce Thailand's dependence on imported drugs, which will help build long-term public health security.
          Meanwhile, there has been a major shift in the drug production base in the global drug production chain, with drug patent companies choosing to shift some of their production bases from the United States, Germany and the United Kingdom to China and India. According to data from the US Food and Drug Administration (FDA), China and India accounted for more than one-third of the world’s production capacity of APIs in 2019. It is evident that since 2015, Thailand’s imports of drugs from the United States have gradually declined, while the proportion of the value of China’s drug imports has increased. In addition, as the global medical and health industry trends to shift more and more to natural products and biotechnology, this seems to be a favorable condition for the Thai pharmaceutical industry to evolve from using herbal medicine to treat diseases to the production of modern medicine, and under the condition of well prepared for R&D and skilled human resources, Thailand will be able to grasp the opportunity to become a production base of a key component for the world’s drug production in the future. 
KResearch believes that the Thai pharmaceutical industry must rely on additional support factors to reduce its dependence on foreign imported drugs and be prepared to upgrade to a production base in the world drug supply chain in two main ways:
    1. Introducing promotional measures to attract more investment in the pharmaceutical R&D industry. Although there is already a BOI investment promotion policy for investment in the medical industry, it may need to be adjusted to include more proactive strategies such as joint investment with foreign companies to set up API/original drug R&D bases, since during the process of developing drug formulation, the pro​ject does not generate revenue. Therefore, under the conditions of   the transfer of expert skills within technology industries and for the commercialization of product development guidelines, the government’s role as an initial investor should help increase investment opportunities.  
    2. Developing incentive mechanisms to support research and development, such as the development of an intellectual property rights law system, a technology investment allocation mechanism for research funding and for human resource development, and business matching to further commercialize products for commercial purpose. This development can be carried out by conducting pilot projects on Thai medicinal herbs and plants, leading to the development and production of plants such as turmeric, black ginger, etc. as components of APIs. 

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