Investigating the Challenges to Improve and Innovate in Thailand Pharmaceutical Industry - Literature review Example

Investigating the Challenges to Improve and Innovate In Thailand Pharmaceutical Industry Contents Literature Review 3 1 Role of technological innovation in pharmaceutical industry 3 1.2 Role of technological innovation in Thailand pharmaceutical industry 4 1.3 Challenges of adoption of innovation 5 1.4 Strategic Alliance 8 1.5 Value Chain 11 Reference List 13 Bibliography 17 Literature Review 1.1 Role of technological innovation in pharmaceutical industry The principal determinant of the rate and direction of innovation is technological progress. With more R&D and in-depth cultivation of scientific and technological knowledge, there is a stable and constant renewal of the technological pool, implying greater possibilities for an industry to incorporate better innovative actions (Evans, Hagiu and Schmalensee, 2006). Technological developments reveal the knowledge base at a definite point of time, which in turn estimates the hindrances and the cost involved in successful innovations (Etzkowitz, 2010). Technological developments are related to technological paradigms that help determine the scope of potential innovations and the effort necessary in order to achieve these along specific trajectories. Technological innovation is a very quintessential concept in the pharmaceutical industry. There have been major breakthroughs in the pharmaceutical industry which have in turn triggered radial transformations in the innovation process. The breakthroughs in genetics and nanotechnology have led to an increased understanding of biological processes. This industry is thus a prominent example of technological innovations leading to new products and processes. Products such human insulin and new vaccines that are easily marketed today were deemed unthinkable few years back (European Commission, 2013). Product developments that were previously not feasible are possible after better opportunities were generated by new paradigms, thereby leading to greater productivity (Länsisalmi, Kivimäki, Aalto and Ruoranen, 2006). There is a high level of technological opportunities existing in the pharmaceutical industry with major breakthroughs such as, the transformation from “random screening” to a “guided drug discovery” process and the technological advancements in molecular biology and genetic engineering (Hwang and Christensen, 2008;). Many studies have highlighted the need for creating a new knowledge base so that a new set of technological opportunities can be made available, which can boost growth of the pharmaceutical industry (Birkinshaw, 2006; Burns, 2012; Herzlinger, 2006). It has been found that the public research funding is a supply-side variable as it affects the introduction of new pharmaceuticals in the market as well as cultivation of new knowledge (Toole, 2012). Science or technology “push” and market “pull” were considered the principal drivers for technological innovation. There have been many scholars who have argued in favour of one or the other (Cooke, 2005; Melese, et al., 2009; Jaruzelski and Dehoff, 2008). Economists accommodated the management of all economic parameters under market demand and considered “science and technology” as an externality. The process of technological innovation is a very complex and lengthy process. Hence, the perception of technological innovation has a weak clarifying power while interpreting the chronological and historical facts. It is, thus, an inadequate support for development of a theory pertaining to the dynamics of technological innovation. In order to overcome these drawbacks after realizing the gaps, the authors by performing more researches was able to introduce a large number of specific factors, which would explain fluctuations and differences in the innovation record of the industrial sectors, companies and countries occurring over a period of time (Jacobides, Knudsen and Augier, 2006; Varkey, Horne and Bennet, 2008). 1.2 Role of technological innovation in Thailand pharmaceutical industry There have been talks of Thailand emerging as a major player in the pharmaceutical industry. The Thai market is worth more than U.S. $1.5 billion in terms of consumption. Thailand’s efforts towards developing the pharmaceutical capacity are in general concentrated on medical biotechnology and related sectors. In comparison, Thailand was relatively late in commencing its organised effort in the pharmaceutical field (Scherer, 1993). Nevertheless, there have been many research based pharmaceutical companies who have shown strong support for boosting the research made in this sector. Thailand’s National Biotechnology Policy Framework, which was published in 2004, has formed a seven year plan in order to achieve excellence in six major areas of biotechnological innovation, where practical application of the knowledge is possible. The plan requires the country to develop scientific capability and expertise in order to improve quality of life and health of the Thai people. Implementation of an efficient drug regulatory system has been considered in order to ensure that Thailand remains a centre for research and development in drugs meeting the international levels and that there is increased production of the same (Weissman, 1996). One of the major areas of incurring cost in the drug development procedure is the necessity to comply with the drug regulations. Pre-clinical tests, clinical trials and post marketing surveillance have to be conducted so as to prove efficacy and safety of new medicines. However, the system requires to be adequately advanced in order for the investors to invest the money in R&D. A specific department under the Ministry of Public Health is the Thai Food and Drug Administration, which takes care of the relevant rules and regulations. Then again, this organization does not directly monitor or take responsibility of regulating the clinical trials of drugs on humans (Malerba and Mani, 2009). In order to launch a clinical trial in Thailand, a sponsor or the drug developer needs to select a research facility and a team of physicians who would conduct the study. In such cases, hospitals and university medical centres are more capable of finding and retaining willing participants who would be willing to participate in clinical trials. Hence, most chemical trials are held in above mentioned places. Technology transfer is also now a major development in the pharmaceutical industry. Developed countries have conducted training programmes in Thailand to improve the procedure and decrease the gap in the standards of technical equipments. Training programmes include isolation, screening and culture of targeted micro-organisms. The Government of Pharmaceutical Organisation (GPO) in Thailand has decided to establish a number of domestic influenza vaccine manufacturing faculties in 2010. Thailand has achieved phenomenal success in controlling the human immunodeficiency virus (HIV) epidemic, by working on the formulation of bioequivalence studies and successfully produced Zidovudin, the first generic antiretroviral (ARV) medicine (IFPMA, 2011). There must be proper legislation in the field of developing and conducting clinical trials, which facilitates development in the field of drug marketing approval after completion of the trials. There is also a monitoring system known as the “Safety Monitoring Period”, which impedes the entry of new drugs in the market by a considerable amount of time. The Thai FDA does not allow submission of drug approval details pertaining to other countries like, the US or Europe’s EMEA, so as to support applications of new drugs in Thailand. This regulation acts as an impediment in the process of making medicines available to the patients quickly. 1.3 Challenges of adoption of innovation Start-up drying up There is a lack of venture capital in the early stage start ups. The investors are more focused on later stages of the clinical experiments, which is a major impediment in the process of innovation. Risk aversion is also another reason for the lack of innovations in this industry. True biotech is a long process that takes a long time to deliver the ROI (Van de Vrande, et al., 2009). Thus, the investment horizon is often almost 10-15 years. Decreasing Budgets The budget allocated for research and development is increasingly declining, which impacts the grants and research associated. This is a severe strategic problem that the industry is facing all over the world. With the constant decrease in budget allocation for the R&D department, the pharmaceutical companies are finding it difficult to conduct extensive research (Chesbrough and Crowther, 2006). FDA approvals Government regulations are proving to be an obstacle for the pharmaceutical industry. The laws are becoming more stringent by the day. This has forced the pharmaceutical companies to avoid any innovation that is against the law or might cause issues with the same. In order to balance safety and innovation, researchers becoming very cautious in the development, testing and marketing of new products, thereby leaving almost no scope for innovations (Chesbrough and Crowther, 2006). Need for evolving business models The cost of marketing a new drug is extremely high. The traditional models by which pharmaceutical companies used to get paid are becoming obsolete by the day. Moreover, policy changes and new regulations have been introduced, which have necessitated the pharmaceutical companies to justify their investments (Chesbrough and Crowther, 2006). Liability In the pharmaceutical industry, it is mandatory to abide by the government rules and regulations. There are several individuals who follow every move of the big pharmaceutical companies so as to target them at the first instance of a mistake. There are a lot animal rights and human rights organisations that are constantly in the lookout. As a result, there is a constant fear of the law that reduces incentive of the companies to facilitate constant innovations and patient benefits. Recommendations: 1. Operational optimisation of R&D – It is necessary to align the discovery operating model with the research strategy and to integrate advanced scientific and information technologies into the invention and discovery procedures. 2. Information and knowledge –The pharmaceutical industry being a part of the knowledge business, it is important that integrated technology platforms in the R&D be embedded in the discovery process so as to distinguish and analyse any sort of disparate data or information and technology. 3. Genomics and other technologies – The entire process of drug discovery must be integrated with the new technology platforms such as proteomics, genomics, and other technologies to enhance the Drug Discovery and Development (DDD) pipeline. 4. Economies of scale – Companies need to develop its economic models and understand that considerable advantages in the form of economies of scale can be achieved by virtualisation of research and alliance partnerships (Naylor and Stephen, 2007). 5. Patent Linkage – a persistent problem of the Thailand pharmaceutical industry is that over the last few years there has been a marked increase in the number of copied products and counterfeits that have flooded the markets. The copy products receive the Thai FDA approval even while the original product is still under patent. Therefore the cost on the PhRMA member companies increases and the incentive to work on innovations beome less. Hence Thailand should have a strong patent linkage system that would protect the interests of the innovators. 6. Data Exclusivity – Developing and marketing a new drug requires the innovator to make use of some exclusive data which he gets by conducting extensive research and tests. Such processes cost around U.S.$ 800. TRIPS mandate WTO Members to prohibit unfair commercial use of the regulatory data. Data exclusivity regime prevents over-reliance on the originator’s data and also to prevent the data being used for making copies of drugs. 7. Pharmaceutical counterfeits – Thailand is fast becoming a country which is being flooded by counterfeit products. The production, packaging and distribution of the counterfeit products are being carried out in Thailand. The regulatory bodies that are responsible for monitoring such misdoings are turning a blind eye thereby increasing the health risk of the people of Thailand. 8. Tariff Barriers – Thailand is one of those few countries that impose a tariff barrier on the pharmaceutical industry. This prevents the PhRMA members from having market access. The tariff rate is currently 10% and is applicable on all medicines except for vaccines and therapy for malaria, HIV, Thallassemia. The greatest impact of tariff is on high value medicines that are under patent and unavailable for local production. Therefore such government restrictions deter growth in the domestic pharmaceutical industry of Thailand (Liaw, et al., 2008). Thailand faces a huge lack of facilities and human resources required to conduct researches at an advanced level. Another significant area of difficulty for the drug innovators is that of obtaining the approval for conducting trials from the ethical communities at the testing facilities. The Thai FDA does not recognise approvals from other agencies as well. The process of obtaining approval for the trials has not yet been centralised in Thailand and a considerable degree of uncertainty is present. Inability to take risks is a major problem in development of the pharmaceutical industry. Inadequacy in the basic understanding of science and technology in case of certain diseases and identification of the targets that are amenable to manipulation also pose a major roadblock in the process of innovation. There is a serious need for “smart regulations” as regulations have both positive and negative impacts on innovations. There should be a certain level of sensitivity in the designing of policies, towards new drugs that do not have many avenues into the market. There are many new drugs that are vulnerable to such policy changes but are at the same time potentially useful to mankind. There are certain policies that affect few segments of research and indirectly affect the new drugs. Thus there is a need to make the policy makers aware of such situations in order to facilitate smart regulations that would help the industry (United Nations, 2011). 1.4 Strategic Alliance Strategic alliance is the relationship between two or more entities sharing the resources available so as to work towards achieving a mutually beneficial end (Armstrong, 2006). For instance, a pharmaceutical company manufacturing and distributing a particular type of medicine in Thailand wishes to sell their products in other countries (Gulati et al., 2000; Knoke, 2001). In order to do so, the particular Thailand company can establish an alliance with a different company who also wishes to expand its line of products and has distribution chains worldwide. Consequently, distribution activities of the former company increases following a successful alliance (Stuart and Toby, 2000). Advantages By way of engaging in strategic alliance, a company can pursue an opportunity more promptly and effectively as well as leverage the resources and knowledge base of the other company (Arino, 2003; Baum, Calabrese and Silverman, 2000). If a company wishes to follow an expansion opportunity on its own, then greater usage of resources is involved compared to that required while in an alliance. Similarly, a company also gets easier access into a new market and faces lesser barriers to entry (Chen and Ross, 2000). It is often difficult to manage and implement a strategic alliance as each partner has a different way of operating. Occurrence of mistrust is common in cases where proprietary or competitive information is involved. Strengthening the competitive position, tapping new markets, hedging against uncertainties, accessing critical complementary assets and increasing the knowledge base are among the other advantages of strategic alliance (Doz et al., 2000). Such alliances allow the big pharmaceutical firms to make investments in new biotechnological ventures (Triantis 1999). There is more knowledge about the legalities involved with the alliance of two new pharmaceutical companies (Inkpen and Beamish, 1997; Parise and Sassoon, 2002). There are three types of synergies that occur as a result of strategic alliances between companies. Modular Synergies is the management of resources independently and pooling only the results for generating greater profits. Sequential Synergies occurs when one pharmaceutical company completes the research procedure in order to pass on the results to the partner. The partner is then expected to further the research. In such cases the firm’s resources are sequentially interdependent. For example a Biotech firm that specializes in discovery of new drugs, like Albgenix, can set up a strategic alliance with another pharmaceutical company that is more familiar with the FDA processes, such as AstraZeneca. Reciprocal Synergies explains the conducting of research mutually through an iterative sharing of knowledge. thus the firms combine their resources and customises them in order to make them mutually reciprocal (Nag and Mohapatra, 2012). The studies related to strategic alliance and the configuration of innovative capabilities of pharmaceutical industry do not however have empirical evidence to support the same. A study conducted by Ohba and Figueiredo (2007) analysed the participation of the three groups at a strategic alliance and the ways in which their participation was influenced by the availability of technological capacity with each of the participating partners. In the case of an alliance between three companies out of which there are large pharmaceutical companies or the big pharmas, large bio pharmaceutical companies or bio-pharma and small research intensive companies. The big-pharmas contributed by providing finance, the small intensive research companies with the technological capacities and the bio-pharmas contributed to the technological as well as financial support depending on the capacity of the firm and the nature of the alliance. The big pharmas are generally the ones that have the largest hold on the technological capacity. The bio-pharmas have both the technological and financial support and being a part of the strategic alliance helps those companies maintain the research and development in the same. The small firms were however benefited by acquiring drugs that helps them gain access to the market. Zuellig Pharma had recently formed a strategic alliance with Ferring Pharmaceuticals in Thailand. This alliance was made with a view to tap the emerging market opportunities and ensure a structured collaborated response to the developing needs for healthcare products in Thailand (Zuellig Pharma, 2013). Novartis and Celgene - Focalin™ is an example of a strategic alliance where a licensing agreement with Novartis entitles Celgene royalties on FOCALIN XR and the entire RITALIN family of drugs. There is also a licensing and product supply agreement with Pharmion Corporation through its Cellular Therapeutics subsidiary, to enhance the sales of thalidomide, and bio-therapeutic products and services (Child, Faulkner and Tallman, 2005). 1.5 Value Chain Pharmaceutical products owing to the high investment costs often tend to be very expensive when it is finally marketed. So, cutting down on value chain costs has the potential to render the products affordable and available to a greater number of people. Even so, pharmaceutical industry appears to lag behind in maintaining a good value chain network compared to other industries (Vonortas and Nicholas, 2000; Papageorgiou, Rotstein and Shah, 2001). The medical device supply chains must attempt to lower the manufacturing lead times and obsolescence, allowing the distributers, manufacturers, hospitals and pharmacies to carry lower levels of inventories (Burns et al., 2002; Cooke, 2005). A value chain can be improved in five steps such as, adopting tailored business streams, adding flexibility to product design and packaging, reconfiguring the supply chain footprint, creating a network of third-party suppliers and improving planning capabilities (Ehrhardt, Hutchens and Higgins, 2012; Kale, et al., 2000). The value chain in the pharmaceutical industry is also often outsourced. Companies are increasingly shifting their R&D department to the developing countries. The requirements to serve local markets, population and the medical infrastructure are encouraging the companies to conduct the clinical trials in emerging markets of countries such as India, Russia and Brazil. Hence the developing clusters of academic research and the development of the R&D facilities in such countries are increasingly encouraging early stage research. A very popular method of outsourcing R&D is the licensing of early stage drugs so as to reduce development risk. Thus value chain enables the companies in the developing countries that have the know-how to conduct research and can engage in drug discovery; however do not have the funds to do the same. Registering a drug, patenting the manufacturing process or even breaking into a market requires a lot of funds which is facilitated by the value chain procedure. For example Glenmark, an Indian pharmaceutical company has established a credible track record of being able to monetise its NCE research pipeline. It has been outsourcing to the large pharmaceutical companies, molecules at different development stages and conducting the research further. By way of doing this, the company has already generated sum of $US 87 million (Hoekman, Maskus and Saggi, 2005). Pfizer has developed their value chain in an efficient manner. They have launched supplier diversity programmes that allow them to increase market share and shareholder value. They also organise training programmes for the suppliers and there is a regular assessment of the labour practices and performance of the key suppliers. The company has also achieved operational excellence by constantly improving on their manufacturing practices by way of incorporating technological innovations. This has helped the company decrease the costs by $5 billion in the past ten years. Pfizer makes good use of innovative technology such as sophisticated analytical and tracking tools in order to protect the supply chain of the company. Such innovations help them identify counterfeit products and also the sources from where they have been delivered but also their sources. In order to ensure the removal of counterfeits from the supply chain, Pfizer works closely with government agencies (Pfizer, 2009). Thus it is quite evident that value chain in a pharmaceutical industry helps in enhancing and promoting good practices and eliminates products that do not match the standards of the company. Thus the consumers’ health is given priority in ensuring a strong value chain. Also it leads to technological innovation and advancements in the industry and reduces the costs. 1.6 Research Gap By conducting extensive studies, the researcher has been able to realize that the pharmaceutical industry as a whole suffers from a number of bottlenecks, which restrict further technological advancements. The pharmaceutical industry particularly in Thailand lags behind some of the competing countries, which triggers a need to perform more number of relevant research and development therein. Also, there are certain regulations prevailing in the country that act as impediments in the advancement of this industry. Increased awareness and in-depth studies are necessary regarding these regulations. There is very limited literature available on the pharmaceutical industry in Thailand and hence, there is ample scope for further studies in order to fill the void. The current paper concentrates upon Thailand’s pharmaceutical industry so as to highlight on the existing gaps and the subsequent requirements. Hence this study would help improve and enhance the pharmaceutical industry in Thailand. This extensive research will also help the researcher understand the prevailing bottlenecks and the researcher will be able to throw some light on the matter so that the concerned authorities take notice. Reference List Arino, A., 2003 Measures of Strategic Alliance Performance: An Analysis of Construct Validity, Journal of International Business Studies, 34, pp. 66-79. Armstrong, M. 2006. 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