You're Only Hurting Yourself, Thailand

When I was in grad school, we were repeatedly bombarded with examples of governments making idiotic, short-sighted moves that hampered the long-term health of their economies and citizens. And now it appears that Thailand has made just such a gaffe. On Monday, Thailand's government announced that it was going to allow either the manufacture or importation of generic versions of Abbott's (NYSE: ABT  ) HIV treatment Kaletra and Sanofi-Aventis' (NYSE: SNY  ) blood clot drug Plavix, even though the drugs are still under patent protection and producing generic versions of them would be illegal in many countries.

Estimates of the savings on health-care costs in Thailand from this move are a measly $24 million a year, and with the Thai economy at almost $600 billion a year (the 21st-largest in the world) the savings will be peanuts. Meanwhile, the perception of how the country treats intellectual property rights and patents could be very costly.

In truth, this decision is not going to have a material impact on Abbott's and Sanofi's bottom lines. Kaletra sales were $1.1 billion last year and Plavix sales were $1.8 billion through the first nine months of the year, and the market for pharmaceuticals in Thailand is tiny compared to the rest of the world. It's the precedent that Thailand's proposal sets for other countries that is worrying for pharmaceutical firms.

While producing generic equivalents of these drugs might (it's still somewhat of a gray area) technically not be illegal -- Thailand is a member of the World Trade Organization, and developing countries have until 2016 to implement protections for pharmaceutical patents -- the country is still obligated to pay and negotiate licensing fees for the drugs, or else risk having a trade complaint filed against it.

Interestingly enough, discouraging pharmaceutical innovation with compulsory rules forcing the price of drugs down doesn't really help countries save on drug costs. The FDA has a white paper that shows that prices of generic drugs are cheaper in the U.S. than their Canadian-branded and generic counterparts, even though the U.S. gives stronger "incentives for R&D" spending.

There's a whole litany of reasons why artificially capping drug prices or circumventing payment for branded drugs under valid patent protections is a bad idea. It only takes a simple understanding of economics to know that the less revenue the pharmaceutical companies receive for their products, the less cash they have to plow back into the R&D of new and improved medicines. Places like Thailand that fail to realize this and attempt to save a buck in the short run really are hurting everyone in the long run, as these sorts of actions slow the pace of pharmaceutical innovation.

Looking for the next great pharmaceutical innovator? Our Motley Fool Rule Breakers newsletter can lead the way. And now you can take the swashbuckling newsletter dedicated to up-and-coming companies in emerging fields for a 30-day free spin.

Fool contributor Brian Lawler does not own shares of any company mentioned in this article. The Fool has a disclosure policy.

Read/Post Comments (0) | Recommend This Article (20)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 521012, ~/Articles/ArticleHandler.aspx, 10/27/2016 3:49:27 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 6 hours ago Sponsored by:
DOW 18,199.33 30.06 0.17%
S&P 500 2,139.43 -3.73 -0.17%
NASD 5,250.27 -33.13 -0.63%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/26/2016 4:00 PM
ABT $39.96 Down -0.23 -0.57%
Abbott Laboratorie… CAPS Rating: *****
SNY $37.06 Down -0.33 -0.88%
Sanofi CAPS Rating: *****