The production and R&D structure of the Brazilian pharmaceutical industry: The role of public procurement and public drug production

Abstract

This article examines the use of governmental purchasing power and public laboratories to stimulate domestic production and research and development (R&D) activities in the Brazilian pharmaceutical industry. Three main areas in which public laboratories can play an important role are identified: (1) large-scale production of essential medications; (2) production of strategic drugs to reduce the trade deficit in the health sector; and (3) in-house research efforts and stimulation of R&D in the private sector through public–private partnerships (PPPs). The analysis of the production and R&D structure of the Brazilian pharmaceutical industry tends to show that the Ministry of Health (MOH) purchasing power can be used to nurture the growth of public laboratories and generate positive externalities for the private sector. Nonetheless, fieldwork data reveal that the lack of alignment between health policies and public laboratories' production are resulting in idle production capacity. In order for the current governmental strategy to promote industrial growth, there should be a division of tasks among public laboratories within a long-term framework, based on a stable set of priorities from the MOH.

Keywords:

• pharmaceutical industry
• public laboratories
• governmental purchasing power
• public procurement
• public–private partnerships

Acknowledgements

The author gratefully acknowledges Fritz Eduardo Kasbaum, Sérgio Duarte de Castro, Marco Túlio de Barros e Castro, Radhika Lal, Marcos Targino Siqueira, Geraldo Obermayer da Costa Braz, Onésimo Ázara Pereira and Zich Moysés Júnior for their invaluable assistance during fieldwork. Thanks are also due to the anonymous reviewers, whose comments on an early draft have resulted in significant improvements to this article.

Notes

1. The Brazilian Health Surveillance Agency (Agência Nacional de Vigilância Sanitária – Anvisa), created in 1999, is the Brazilian agency responsible for defining the GMP for the pharmaceutical industry. Anvisa's regulations are intended to ensure a high level of hygiene and quality standards and compliance with such rules imposes substantial costs on domestic firms.

2. In Brazil, ‘essential drugs’ are financed by the MOH, states and municipalities and are defined according to the special needs of each region for the treatment of the most common diseases. ‘Strategic drugs’ are funded directly by the MOH and are those used for diseases whose treatment is cost-effective and represent a high socio-economic impact for the Brazilian population (Medici 2010). The ‘strategic drugs’ are listed in Ordinance 978, enacted by the MOH on 16 May 2008. This list is periodically revised and was recently altered by Ordinance 1284, enacted on 26 May 2010.

3. In some instances, a Brazilian pharmaceutical company (or a group of companies) has the technical capacity and human resources to start API production for a strategic drug in a short period of time. In such cases, if there are no patent issues, the public laboratory may sign the PPP directly with the Brazilian pharmaceutical company. Until the end of the partnership, however, this pharmaceutical company will transfer the know-how on API production to the public laboratory, and the latter may pass this knowledge on to other public laboratories. Thus, the main characteristics of PPPs are that they must involve technology transfer, and the entire production process (from API to final dosage form) must take place in Brazil.

4. Abernathy (1978) distinguishes two types of innovation: radical and incremental. While the former introduces a totally new product, resulting in a disruptive change in the evolution of the previous one, the latter is characterised by minor but significant improvements that shape the direction of existing products. Despite the relevance of radical innovation, he contends that ‘it is misleading to judge an innovation by its apparent novelty’. According to him, ‘incremental innovation has been very important because it is cumulative and because it builds on existing approaches’.

5. For instance, Daiichi Sankyo acquired Ranbaxy Laboratories in June 2008 for US$4.6 billion (The Economic Times 2010), Abbot Laboratories bought Piramal Healthcare in May 2010 for US$3.7 billion (Timmons 2010) and Sanofi-Aventis took over Shantha Biotechnics in July 2009 for US$783 billion (The Financial Express 2009).

6. In the case of developing countries, the existence of the so-called neglected diseases demands a greater role of the government in the pharmaceutical industry. R&D investment of private firms for these types of diseases is insufficient, mainly due to the high costs of developing new medications and the low profit potential, as neglected diseases usually afflict the poorest (Hubbard and Love 2004, Vidotti et al. 2008). The public sector should play an active role in designing policies aimed at stimulating innovation in this area, as a way of facilitating access to medicines for the poor.