Some things I've learned about the Philippine pharmaceutical market

It's complicated.  Most things are,  right?  Some first thoughts.

Only a few drugs are produced locally, because the Philippines doesn't have much of a local chemical industry.  (Which is an interesting issue right there.  I'm not sure if the proper question is "well, why doesn't it?" or "well, why should it?" but anyway, it doesn't.  And while there is the technical know-how and human capacity to run a pharmaceuticals plant, there was never much investment money for capital-intensive greenfield projects wandering around the Philippines.  And there's even less today.  So. )  There isn't the capacity to produce a lot of APIs, Active Pharmaceutical indegredients.  Or at least not in an economically effective way.

There are exceptions, of course.  Apparently there are some APIs that don't require much underlying industry, and that you can more or less whip up in a basement.  These include some obvious ones like aspirin and antiseptics, and also paracetamol, drugs that end in "cillin", and -- who knew?  -- oxytocin. Those are made here from scratch.   But most other stuff, not.

That said, there is a pharmaceuticals industry!  They're just not producing stuff from scratch.  Instead, they're importing APIs and other raw materials -- salts, esters, binders and such -- doing some processing, turning them into pills and ampules, and then packaging and labelling them.  Turns out that pharmaceuticals is another one of those industries where different parts of the production chain can be sourced in different countries, and usually are.

Page break! 

Local production is divided between branded stuff and generics.  (That's not a hard and fast distinction, BTW, but leave it be.)  The biggest local producer is InterPhil, which has two big plants, and which produces branded stuff for the big multinationals.  They have about a third of the market.  Second biggest is Unilab, which has about another third.  Then there are over 200 small producers -- some of which, I swear, really must be running out of someone's basement. 

Unilab, BTW, is a fascinating story.  It would get a post of its own, except the good stuff is either legally actionable or inappropriate.  Still, here's the short version: owned by a Chinese-Filipino, rose to influence under Marcos.  (Unilab helped bankroll his first presidential campaign, way back when.)  And  all through his long rule, they had a privileged position; Unilab executives rotated in and out of his cabinets, and Unilab salesmen inked some very cozy deals with public hospitals. 

Then in 1986, Unilab was one of the first big companies to publicly turn on Marcos, including handing over a chunk of wealth he'd tried to hide with them to the new government.  So they ended up doing just fine.  They're still hugely influential, and they have an immense facility in Pasig City, right in the middle of Manila.  Local rumor says nobody gets appointed Secretary of Health or director of BFAD, the Bureau of Food and Drugs, without Unilab's okay.  Take it with a grain of salt.  I'm just sayin'.

Anyway.  In addition to local production, there are also imports.  Lots of imports -- the Republic of the Philippines is, for its income level, a surprisingly voracious consumer of expensive imported pharmaceuticals.  This is not unconnected to the country's high Gini coefficient: there are 80 million Filipinos who are poor, but there are a couple of million who are Beverly Hills rich!  And they like their Lipitor and Norvasc! 

A super-simplified drug supply chain would look something like this:

Producers + Importers   -->  Distributors   --> hospitals, dispensing doctors, & retail pharmacies

This is about as accurate as a nine-word description of the Krebs cycle, but let it bide.  Here are a few interesting factoids.

• Local production consists of two big producers, InterPhil and Unilab, who have about 1/3 of the market each; another half dozen or so medium-sized producers, who have about 15-20% more; and 200+ small producers splitting the rest.  Local production includes both branded pharmaceuticals, under license from the multinationals, and lots of generics.

• Imports are significant: roughly half the market in volume terms, more than half in cash.  The import business is very fragmented, since there are about a dozen multinationals with local subsidiaries, and each does its own importing.  There are also a number of independent importers, most of them acting as local agents for multis who don't have a large enough presence here to have a subsidiary.  There is some importing of generics, but not much.  There is some parallel importing, but so far it's less than 1% of the market.

• Distribution consists of two big distributors, Zuellig and Metro, who have about 1/3 each, and a lot of smaller distributors who split the remaining 1/3.  Zuellig owns Metro, BTW -- bought it a few years back.

• Retail pharma consists of one giant, Mercury Drugs, that owns between 45% and 60% of the market depending on how you calculate it. (Like, prescription only or over-the-counter stuff too?  volume sold, or cash value?  Mercury sells a lot of the pricey top-end stuff, so in cash terms they're well over 50%.)  Then there are five or six smaller chains that divide another 20-25%.  Then a couple of thousand Mom & Pop stores and some small chains divvying up the rest. 

• There is also some vertical integration.  Most notably, Zuellig owns InterPhil, while Unilab has a "harem" of small distributors serving them exclusively, and also owns a couple of the smaller drugstore chains.

At this point I should probably pause and note that there is no antitrust law in the Philippines -- zero, zip.  Somehow they just never got around to it.  Some cynics note that Philippine political elites and business elites are basically the same people -- almost every member of the Senate either has a business empire or is closely related to one by blood or marriage -- but that would take us outside the scope of this discussion.  Let us just note the fact and move on.

So.  Given the foregoing, what else might we infer about the country's pharmaceutical market?

Whoops, must run.  More in a bit.

Comments

[Noel Maurer]

It isn't quite true to say that there is no antitrust law in the P.I. Article 186 of the Revised Penal Code defines and bans combinations in restraint of trade. The Price Act bans cartels and "abusive" price increases. Similarly, the Corporation Code of 1980 and Revised Securities Act of 1982 have both been used to block the creation of interlocking directorates.

What there isn't is a unifed competition authority charged with enforcement of the existing laws. So what you get are ad hoc legal actions, some successful, most not. (Frex, the Supreme Court blocked an attempt by the owner of Asia Brewery, John Gokongwei, to get himself onto the board of San Miguel. Later, in 1997, the Court blocked an attempt by Petron, Caltex and Shell to cartelize the gasoline market.) It isn't good.

But I don't think one can accurately claim that there's /no/ competition law in the Philippines. Just very poorly enforced law.

[Bernard Guerrero]

Complete aside, but it seems to me that the similarity of oxytocin to vasopressin must mean something in evolutionary terms. Anyway.

The lower end of the distribution chain looks more concentrated (HHI basis), but it's high overall. Any evidence of collusive behavior (that they'll show you)?

[Peter]

Some countries are more relaxed than the United States in terms of what drugs can be sold over the counter without prescription. In Mexico, for example, many antibiotics are sold OTC. What's the situation like in the Philippines?

[Doug M.]

Legally, you need a scrip for all ethical products. In reality, anything that's not a narcotic or CNS active is de facto OTC -- you just have to know what to ask for.

Doug M.

[aragorn (not the real name)]

hi,

I believe the country can have capability of running an API (active pharmaceutical ingredient) plant. Our politicians are giving our very own pharma market (in which filipino-owned businesses, jobs etc. depend on) to India. Sooner or later, we will lose jobs, opportunities to India (as the next superpower maybe next to China in the years to come).We need to manufacture our own since we can spur business in the pharma sector, rely less on import and instead, do exportation if ever we achieve good quality.

The philippine pharma market is 1/3 of India and relatively higher in Indonesia considering the population. So obviously in the ASEAN market, our country is the top pick for growth from both Big pharma and Indian generics. Also, we have the highest growth in the market. Plus, we have the highest cost of medicines!! so really, its a good deal to enter.

We have capabilities and talent. These talents should be recalled since maybe most of them are abroad or maybe some have come back now in RP. (I know people working in US,canada or singapore for pharma manufacturing). After earning well abroad, these researchers, scientists, engineers etc. will GO back (wink) to our country to settle for good and to share what they have learned for the good of their fellowmen.

If we have a pharma active plant, we will provide jobs for people. There will always be jobs there since medicines are essential products. The retrenchments in the Big pharma around the globe are the result of patent expiration of blockbuster drugs and so much research with less results. In our case, we will just be producing what is needed, the current drugs that are sold in the market..so it should be constant. It is a metter of cost reduction rather than making a headway for pharma manufacturing. But once we establish a plant, we can spur growth to export. now thats another story since in terms of hygiene and cleanliness, we can be sure ahead of India/ China. We can even convince the Big pharma to invest in these plant if they have the quality and talent for producing those. I know some local pharma manufacturers (tablet etc. manufacturer) who make for the Big pharma. Why not the upstream API plant?

For talent, thats another thing. But talent can be grown. Training..The only problem is, its a huge investment. But in the long run, it will be benificial. Besides, all business should have investments.
but the talent issue is a small thing. the investment is the big problem. If a leader in our country can solve that, then he can help a lot of people and help our country.

The technology for API plant is more difficult, complicated, hazardous than the secondary manufacturing (tablets ,capsules etc). Also, it is costlier because of the cGMP (current good manufacturing practics) set by US FDA. It is almost like a chemical plant (fine chemicals etc) but with strict restrictions on safety and cleanliness since the products are taken by humans.

I am only worried about the politicians becuase they will always make money out of it when they approve indian medicines to enter the country. Its not actually helping the people..

I can tell this because I have a pharma experience in pharma processing (both upstream and downstream). Which means i am capable in making an active and at the same time, the tablet etc, plus a few other facilities of making it..I am an advocate of this since this is one of the few things I can help my countrymen.

[Hotjobs]

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