Report from: the Philippines

The Philippine pharmaceutical industry is taking a beating from the government's decision to impose a 50% price cut on certain drugs. For the first time in the country's history, 21 molecules or medicines were forced to comply with the Maximum Drug Retail Price (MDRP) system that was implemented last September. These are medicines used to treat hypertension, diabetes, common infections, amoebiasis (a leading cause for diarrhea), and some cancers such as leukemia. The cut went into effect Aug. 15, 2009. In addition, pharmaceutical companies are committed to reduce by approximately 10-50% the prices of 22 other products.

The price controls system is part of the government's Cheaper Medicine Bill, which was passed in late 2008. The system will be reviewed after three to six months by the Department of Health. To help enforce the price cuts, the government has lobbied the public to report noncompliant drugstores and has taken action against four such stores that violated the new ruling.

Table I: Active ingredients that fall under the Philippine Mandated Maximum Drug Retail Price (MDRP) system.

The system is meant to provide affordable and easy access to healthcare to citizens, especially the poor, but industry players remain skeptical that the program will provide such a solution. According to a statement released by the Pharmaceutical and Healthcare Association of the Philippines (PHAP), the price controls policy "is not the best approach as most medicines will remain inaccessible to the poor who live on an income of less than PHP100 ($2) a day."

To worsen the situation, taxation on medicines comprises approximately 20% of the retail price of drugs in the country. This explains why medications (both over the counter and prescription) in the Philippines are typically priced 40-70% higher than those sold in nearby Asian countries, according to 2008 figures cited by the Philippine International Trading Corporation.

Table II (Part 1): Drug products that fall under the Voluntary Price Reduction scheme as provided by Resolution 2009-001 of the Philippine Advisory Council for Price Regulation.

Private hospitals have already upped prices for their services to offset the reduced drug prices. Other related problems such as delays in obtaining rebates from drug companies by drugstore representatives have also started to surface.

Over the years, the government has implemented healthcare policies to alleviate the problem of accessibility and affordability, only some of which have been effective. For example, a generic-drug law expanded the amount of generic drugs and manufacturers in the country. On the other hand, the government-run PhilHealth insurance package is unable to cover the projected 77.4 million beneficiaries (84% of the 92 million Filipinos) because it has only 13.85 million paying members. Similarly, the Drug Price Reference Index, which is meant to inform consumers of prices, provides only retail-drug pricing and is unable to address the high drug-pricing problem.

Table II (Part 2): Drug products that fall under the Voluntary Price Reduction scheme as provided by Resolution 2009-001 of the Philippine Advisory Council for Price Regulation.

Healthcare policies aside, industry's primary concern about the MDRP system is that it may turn the tables on domestic firms. Nonoy Oplas, president of the Minimal Government Thinkers, a group of professionals and small entrepreneurs, says, "Local firms who are producing drugs under the 21 molecules will become more expensive sellers now. To remain competitive, the natural response is for them to slash prices between 10-20%, which will reduce their profits."

He adds, "Domestic firms do not enjoy economies of scale due to high production costs. Eventually, many will be forced out of business. Unlike multinational companies (MNCs) who can divert their attention to other markets, home-grown companies have fewer product offerings and do not have other market avenues."

On the other hand, it appears that foreign firms are likely to grow in the long run. Although their product prices are affected as well, the Philippine market is considerably small (about 5% of the global sales of multinational corporations) and, these companies can afford to divert their attention to other markets. They already hold a lead in manufacturing and retail revenue, according to 2008 PHAP figures. Foreign firms garnered total sales of PHP71.12 billion ($1.46 billion) compared to local ones at PHP32.46 billion ($0.69 million).

Table II (Part 3): Drug products that fall under the Voluntary Price Reduction scheme as provided by Resolution 2009-001 of the Philippine Advisory Council for Price Regulation.

Oplas believes that foreign drug manufacturers should feel encouraged to remain on Filipino soil to help develop the local pharmaceutical industry. The majority of MNCs in the country are focused on drug discovery, which can, in turn, create opportunities for local firms to produce generic versions when innovator-drug patents expire.

That said, there's nothing to stop foreign firms from exploring the development and manufacturing of generic drugs for the Philippines market. Louis D. Payet, senior consultant of the healthcare division at Frost and Sullivan Asia- Pacific says, "Several MNCs have acquired generic-drug manufacturing capabilities in recent years. If they produce and sell them in the domestic market, local companies will lose market share and suffer reduced profitability as competition in the branded generic-drug market increases."

In light of the current situation, some MNCs such as Bristol Myers Squibb (New York) may adopt business approaches such as engaging external sales personnel to continue un-disrupted supply to the market or out-license their products to local players while maintaining control over profitable product lines, according to Payet.

Ultimately, patients are the losers. "We are likely to expect a fall in the number of generics companies and medicines in the country, which in turn, limits treatment options for doctors and patients," says Oplas. "Also, it is also possible that a black market emerges when storage, dispensation, and sale of essential medicines are no longer transparent [or competitive]. This paves the way for the entry of counterfeit drugs that are perfect substitutes for effective and expensive medicines."

Payet is trying to stay positive. "The bill has to be more expansive in the number of drugs covered. Currently, there are more than 80 price-control candidates under review. The implementation of the price-controls system is just one aspect of the Cheaper Medicines Bill and may not have a big impact on the market."

Jane Wan is a freelance writer based in Singapore.