In many developing countries, there is insufficient research and pharmaceutical manufacturing capacities. With respect to research, the challenge for these countries is how to enlarge their capacity for research, for example, through increased investment in basic sciences, research and development (R&D) and technological innovation. In the 1990s, the Commission on Health Research for Development proposed that all governments allocate 2 per cent of health expenditure to research. The South Commission’s report, in the same year, also pointed to the critical need for developing countries to increase R&D spending.41 Lack of resources, however, means that very few developing countries can afford to devote more that 0.5 per cent of national income to health R&D.
41 See South Commission (1990).
As technology develops and becomes an important tool for development increasingly it is also becoming a means of competitive advantage. This raises the question of research standards for pharmaceutical research, manufacturing and quality. In this regard, the International Conference on Harmonisation (ICH) process raises particular difficulties for developing country research. While no one should seek lower quality medicines, diagnostics etc. there is need to guard against protectionist research and quality standard setting. The fiascos around generic HIV/AIDS drugs and quality and the WHO pre-qualification process have also demonstrated the problems that developing country companies face in this area. Developing countries face significant barriers that may block R&D based in developing countries or with the collaboration of developing countries.
Pharmaceutical manufacture includes all operations purchasing of material, processing, production, packaging, quality control, release and storage of medicinal products and related control.42 According to the United Nations Industrial and Development Organization (UNIDO) there are various categories of countries with respect to pharmaceutical manufacturing.43 These include those that: 1) have no manufacturing facilities and are dependent on imported finished medicines; 2) package already formulated medicines and have small-scale local production of sterile or non-sterile formulations such as IV fluids; 3) make formulations of drugs in final dosage form and engage in some production from imported intermediates; 4) engage in production from imported intermediates and manufacture of some intermediates from local materials; and 5) those that engage in production of active substances and processing to produce the required pharmaceutical dosage forms.
42 Kaplan, W., et al. (2003), p. 16.
43 See Balance, R., J. Pogany and H. Forstner (1992). Also see WTO Secretariat document IP/C/W/345.
The production of pharmaceuticals requires many elements. Kaplan et al. in a recent literature survey identified various factors as general preconditions for economically viable domestic production of pharmaceuticals.44 First, there should be a high ratio of domestic R&D to gross domestic product (GDP) since production in the pharmaceutical industry is technology-driven. The second factor is the size of the economy. This may enable a pharmaceutical firm to take advantage of domestic economies of scale and also provide an opportunity for product variation and improvement. The third factor relates to the income level in the domestic market. The fourth factor is availability of reliable local infrastructure and amenities at competitive prices. The fifth factor relates to policies that govern local production and their enforceability so as to ensure efficiency and reliability of the market. The final factor relates to the structure of trade barriers in the pharmaceutical industry. For example, a structure of tariff and non-tariff barriers that promotes investment in the local pharmaceutical industry can play an important role.
44 See Kaplan et al. (2003), p. 17. Note, however, that this paper was aimed at identifying gaps in available information on global pharmaceutical manufacturing and consequently, only a research agenda - as opposed to evidence of the necessity of these factors for production -was identified.
There is, however, no conclusive evidence that all these factors must exist for a country to produce pharmaceuticals nor is there clarity in the available literature on the relative importance of each of the identified factors or on how these factors change with the type of production in question. For example, different factors are likely to be at play depending on whether the production is low-end manufacture and repackaging or high-end manufacture and whether the production is for raw materials or final products. That said, the lack of manufacturing capacity negatively affects the ability of developing countries to use certain TRIPS flexibilities, such as compulsory licensing, for public health purposes.