Despite a population of 95 million and a growing economy, the Philippine pharmaceutical industry has been largely overlooked in the past–but things are about to change. The industry has been quite radically reshaped in the last year, following the approval of the Universally Accessible Cheaper and Quality Medicines Act, that includes the Maximum Drug Retail Price (MDRP) scheme. After years without any regulation, the MDRP called for a 50% price reduction on 21 molecules, and introduced some systematization to drug pricing in the country.

    The law is meant to increase access to medicines for the poor, in a country where the price of pharmaceuticals is among the highest in Asia and 60% of the population has no access to even basic drugs. So far, the effects of the Cheaper Medicines Law–as it is informally called–have been negative on the pharmaceutical industry. Reiner Gloor, president and executive director of the Pharmaceutical and Healthcare Association of Philippines (PHAP), points out that “there have been no real volume increases, and particularly the molecules which have been touched, have been flat. It is still too early to say if it has really expanded the market, but it has taken [even by recognition of Department of Health (DOH)] PHP 12 billion [approximately USD 270 million] out of the pharmaceutical market”.

 Critics claim that in addition to negatively affecting the pharma industry, the law has not truly increased access to medicines for the poor. But former secretary of health Esperanza Cabral, who was a promoter of the voluntary price reductions adopted by the industry, believes that “the industry may be right that the very poor are still not able to afford the medicines they need. However, there are many people who were struggling before–a group in between rich and poor–who could only afford some, but not all of, their medicines before the MDRP. These people have benefited from the MDRP because now they can afford the medicines they are prescribed.”

 The MDRP is the first step in increasing access to medicines. The next step is increasing social support. Currently, Philhealth, the national insurance, covers only 38% of the population. The recently elected Aquino government, that took office on July 1st 2010, has set universal healthcare coverage by 2013 as one of its primary objectives. If it becomes reality, universal healthcare will further change the competitive landscape in the Philippine pharmaceutical industry.

 The industry will also be reshaped by the prospective harmonisation on pharmaceutical regulations that is currently being discussed by the Association of Southeast Asian Nations (ASEAN). The harmonisation will provide opportunities for local Philippine companies to expand beyond national borders; it will also facilitate entry into the Philippine region for foreign pharmaceutical companies. Within the Philippines, of course, this legislation will increase competition as more products flow in. According to Edward Isaac, president of the Philippine Chamber of the Pharmaceutical Industry (PCPI)–the voice of the Philippine companies–the harmonisation will, at the beginning, “be a threat.” Yet he continues, “There will be a learning curve for us, but in the long run it will be good. We believe in competition, so we are getting ready for that.”


 An industry adapting to a changing environment

 Local players are indeed getting ready for increased competition. While historically, multinationals controlled 80% of the market, in recent years local companies have steadily increased their share, and locals now represent 27% of pharma business in the country. In addition to United Laboratories (Unilab), the number-one company in the Philippine pharmaceutical industry and a local Phillipine brand, other local players have carved out a space for themselves–including Pascual Laboratories, GX International, and Natrapharm. They have gained leading positions in some therapeutic areas, and are challenging multinationals.

 On their end, multinationals are coping with the challenges presented by the MDRP by making modifications to existing pharmaceutical lines, and expanding their offering outside of traditional pharmaceutical products altogether, by moving into areas such as consumer healthcare and nutraceuticals. Otsuka (Philippines) Pharmaceutical, an affiliate of the Japanese company–and active in the Philippines since 1998–has adopted this strategy. As Leopoldo Dimerin, president and general manager, explains, “as a solution to cope with unpredictable scenarios, we have extended our pipeline by introducing line extensions with a new delivery system–like we did for our antiplatelet product, from a tablet to a powder preparation, for stroke patients who had difficulty in swallowing.” The company continues to invest in various pharmaceutical products, and as Dimerin points out, “there will be new products and line extensions in the next 3-4 years and we expect them to be the growth drivers for the pharma segment.” There are still a number of pharmaceutical products developed in Japan that are not yet available in the Philippines, and a key objective of the company is to expand their pharmaceutical portfolio in the coming years.

 In addition to its pharmaceutical business, which currently accounts for 90% of its total revenue, Otsuka (Philippines) Pharmaceutical has diversified with the recent launch of new medical devices. The company also plans on strengthening its consumer healthcare and its nutraceutical businesses–areas that have strong growth potentials–and is looking into the possibility of introducing other products to accompany their successful health drink Pocari Sweat. Dimerin hopes these strategies will bring the company into the top 15 in the next seven to ten years.

 Multinational companies are not the only ones who have diversified their production; local players have also branched out. Market leader Unilab–which was founded in 1945 as a drugstore, and evolved into the leading pharmaceutical company, with affiliates in Indonesia, Thailand, Malaysia, Singapore, Hong Kong, Vietnam and Myanmar–is now looking into consumer healthcare. In the words of Joey Maria Ochave, corporate vice president of the business development group, “the basic DNA of Unilab is to provide a more affordable quality option. Initially we were offering only medicines, but we have expanded our mandate to include healthcare. We are not focusing on pharmaceuticals only. We have started going into other businesses as well.”


In search of a niche

 While the biggest players are focusing on diversification, more nimble companies are looking for a niche in which to position themselves.


 Multinationals like Novo Nordisk and Lundbeck have chosen to focus on diabetes and central nervous system (CNS) diseases, respectively. They are prime examples of how specialization has lead companies to achieve stronger positioning in the market. For instance, the vision of Lundbeck Philippines is “to become the world leader in psychiatry and neurology,” while its mission is “to improve the quality of life for people suffering from psychiatric and neurologic disorders,” says Joan Alvarez, country manager of Lundbeck Philippines. To achieve this result, the company has to overcome some challenges, namely the social stigmas surrounding CNS, and low patient compliance due to high medicine prices and a lack of reimbursement.

  In the case of Lundbeck, specialization has proven a more successful strategy than diversification. In the words of Alvarez, “While everybody else is into diversification, we remain focused on CNS, which is believed to lead to the largest amount of debilitating disorder cases by year 2020.” In addition to a number of drugs that will be launched in the next three years, Lundbeck has recently signed an agreement with Teva Pharmaceutical Industries for the Parkinson’s disease drug Azilect®, which will allow the company to further strengthen its position in the Philippines, and eventually become the preferred CNS provider in the industry.

  A specialization strategy has also been adopted by some distributors. For example, Phoenix Pharmaceutical specializes in distributing steroids, while GenAsia Biotech focuses on orphan drugs. For these distributors, specialization allows them to succeed in a market in which 85% of distribution is concentrated in the hands of the two leaders, Zuellig Pharma and Metro Drug–and where specialization is the best way to compete.


The rise of generics

 While the Philippine pharmaceutical industry registered a negative growth in 2010, the generics segment has been growing steadily. Historically, generics have not been positively perceived, mainly because of lack of support from doctors. The Philippines is a prescription-driven market, where patients put utmost trust in their physicians–the doctors’ non-endorsement of generics, derived from a limited promotional effort by the generics players, hampered the sector’s development.

However, since 2001, the generics market has been on the rise, fuelled by the opening of The Generics Pharmacy–the first generics retail pharmacy–which started franchising in 2007. The company recorded impressive growth: from one store in 2007, to more than 900 in 2010. Benjamin Liuson, president and founder of The Generics Pharmacy, believes that “the retail prices of generic medicines dropped in the Philippines because of The Generics Pharmacy. Thanks to our company, the market started following the law of supply and demand.” With a forecast of a 1,000 stores by the end of 2010, The Generics Pharmacy is now the chain with the highest number of outlets, overtaking the market leader Mercury Drug–which currently controls 60% of the market, but has 800 drugstores.

 Amongst its target areas, The Generics Pharmacy is establishing stores in rural regions, supporting the development of pharmaceutical retailing in zones that were previously devoid of drug distribution. Historically, businesses in the industry have focused only on the three Philippine centers of Metro Manila, Cebu and Davao. Only recently have companies started to see the potential of outlying areas of the country.

 The increasing importance of the generics segment is confirmed by the number of new players that are entering the market. Sandoz, the generics arm of Swiss multinational Novartis, the Pakistani Getz Pharma, and the Taiwanese corporation OEP are amongst the fastest growing companies in the Philippines. Several Indian generics players have also started operations in the country, including Torrent Pharma, Ranbaxy, and Lupin–the latter having acquired a 51% stake in the Philippine company Multicare Pharmaceuticals. However, Indian companies are facing additional challenges in entering the market as Filipinos are very brand conscious, and they prefer either Western (i.e. European and American) brands, or locally manufactured products.


Increasing access to medicines: a common goal of the industry

 Reduced medicine prices due to the MDRP scheme and the increased use of generics are contributing to the improved accessibility and availability of medicines. However, to truly achieve greater access to medicines, more cooperation between the stakeholders is needed.

 Several pharmaceutical companies have already shown their commitment to this cause. As noted, following the MDRP, a number of multinationals have declared 50% voluntary price reductions on key drugs. Sanofi-aventis initiated the Innovation for Life program, which reduced medicine prices for indigent patients in government-run hospitals. Novartis started a partnership with the Department of Health (DOH) to make the drug Valsartan available to public hospitals.

 Janssen Pharmaceutica, a division of Johnson & Johnson Philippines, volunteered a 50% discount for products used in hospitals for open heart surgery. Jane Villablanca, general manager of Janssen Pharmaceutica, affirms that, in her company, “there is a high commitment to making new innovative products available through partnering with the government and doctors, and to delivering healthcare to the people.” Janssen also launched the Family Link program, that educates families of patients suffering from mental disorders, as well as a program that helps policemen deal with people suffering from mental diseases in the street. According to Villablanca, “these little steps have been accumulating for five years as small contributions in making a huge difference,” and Janssen plans to continue making a difference in the Philippines.

 Another company that has been contributing to improving healthcare in the Philippines is OEP Philippines (a subsidiary of the Taiwanese company Orient Europharma). OEP entered the Philippines in 2003 by acquiring Elan Pharma. The company, one of the key players in the generics segment and currently the 24th pharmaceutical company in the Philippines, launched several initiatives tailored to increasing access to healthcare.

 JP Chang, general manager of OEP Philippines, explains how the company has been leveraging Taiwanese expertise to improve service delivery in the Philippines: “the insufficient budget allocated for public hospitals limits service for patients. Since the healthcare programs in Taiwan are mature and successful, we are seeking to put in place collaboration programs between the medical centres of the Philippines and hospitals in Taiwan for long term cooperation.” In addition to inviting prominent Taiwanese doctors to the country to exchange knowledge and hold seminaries, OEP has also sponsored some patients to travel to Taiwan to undertake surgery in local medical centres. As Chang illustrates, “we can leverage our connection with institutions in Southeast Asia and Taiwan, and it will make us a unique generic company that better serves Filipino patients. I believe this will have some impact in the future, since healthcare should have no boundaries. Part of our obligation is to look into the welfare of the patients.”


 Manufacturing in the Philippines

  The majority of the multinational companies present in the Philippines are engaged exclusively in sales and marketing activities. Over the years, the MNCs which had manufacturing plants in the country closed down their facilities, and began to import from corporate production centres abroad, or turn to local contract manufacturers.

 One prominent example of a multinational that kept production in the Philippines is GlaxoSmithKline, the number-two pharmaceutical company in the Philippines, and number one among the MNCs. Roberto Taboada, general manager of GSK Philippines, explains that “manufacturing is mainly about costs. There are some products where manufacturing in the Philippines provides cost advantages, compared to bringing these products from other GSK plants.” GSK also exports some products manufactured in the Philippines, especially for its consumer brands.

 While many multinationals abandoned the Philippines, the local manufacturing industry became livelier. The number of laboratories declined over the years, as many were not able to cope with technological advancement and increasingly stringent requirements, but the ones that survived are Good Manufacturing Practices (GMP) compliant and at par with the latest technologies.

  Some of these companies specialise in toll manufacturing, as in the case of Interphil Laboratories and Hizon Laboratories, the two leading players. Hizon Laboratories is one of the oldest pharmaceutical companies in the Philippines, established in 1898 as a manufacturer for drugstores. Over the years, it survived two World Wars, a Japanese occupation, and the destruction of its factory by a fire–but these events did not stop the company from becoming one of the leading players in contract manufacturing, thanks to its focus on quality products and services.

 Even with decreasing medicine prices, Hizon Laboratories has never compromised on quality. Rafael Hizon Jr, member of the third generation of the family that founded Hizon Laboratories and currently its chief executive officer, points out that “at Hizon Laboratories, quality is built into the entire system of producing each batch. Manufacturing in relatively high volumes or big batches has helped us keep our prices competitive. There should never be a trade-off when it comes to the quality of our products.”

 In their quest to maintain high quality, Hizon Laboratories has been following international standards not only in developing and manufacturing products, but also in testing and evaluating. As the Philippines is getting ready for the ASEAN harmonisation and the local FDA is applying to join the PIC/S scheme, the company is prepared for more stringent requirements. Hizon explains, “as part of our continuous improvement, we have already incorporated some PIC/S standards into our system so as to be in stride with the Philippine FDA. We have also adopted most of the requirements of the ASEAN harmonized standards.” Hizon’s clients trust the quality of its products and services, and the experience that comes with more than 100 years of history–these are the factors that allow this local player to be the giant it is today.


 What’s next for the Philippines?

 The entire pharmaceutical industry in the Philippines is now waiting to see how the market will further evolve. The MDRP transformed the competitive dynamics, and further changes will soon follow as the new government seeks to achieve universal healthcare. But one thing is sure–the potential of the market. In a country of 95 million people, wherein only 30% of the population can currently afford medicines, the opportunities for future growth are significant.

 Novartis is already taking advantage of this potential. The company has placed its South East Asian headquarters in the Philippines, and believes the region can be a strong epicenter for conducting research and development. “We have made significant investments in R&D over the last six months focusing on key therapeutic areas, as we see a huge potential in research. We would like to conduct trials in the Philippines for some of our future key products, especially vaccines,” explains Eric Van Oppens, country president of Novartis Healthcare Philippines and South East Asia cluster head for Philippines, Singapore, Indonesia, Pakistan and Bangladesh.

We will soon see if other companies will follow Novartis’ example, and if the Philippines will play a more central role in South East Asia. It is well-positioned to do so, with a large population, widespread use of English, and a favorable investment climate. It is clear that this formerly quiet, emerging market, has finally started to raise a clamor.


Growth from diversification

  The MDRP had negative effects on the majority of multinationals present in the Philippines–including sanofi-aventis, who saw three of its top brands affected by the law. The French multinational succeeded during this difficult time through differentiation. Since price decreases were not compensated by volume growth, the company started to follow a global strategy of diversification in an attempt to prepare itself for future changes in an unpredictable environment. The first step was the launch of Winthrop Pharmaceuticals, which competes in the unibranded generics category. According to Carlito Realuyo, president and general manager of sanofi-aventis Philippines, “we were the very first multinational company to have launched a unibranded generics company in the Philippines, competing with two local manufacturers, Pharex [which is part of Pascual Laboratories] and RiteMed [part of United Laboratories].” Currently the Winthrop portfolio accounts for 5-8% of total business for sanofi-aventis, but it is expected to represent at least 20-25% in the next five years.

 In addition to generics, sanofi-aventis has ventured into consumer healthcare with the liver supplement Essentiale® and the feminine intimate wash Lactacyd®. It has also ventured into food supplements, launching the Cenovis® line outside Australia for the first time. “The plan is to build up a diversified portfolio. The Winthrop and the food supplement diversifications protect us from further unpredictability of government intervention,” Realuyo explains. The consumer healthcare business, which now represents 40% of the total business of sanofi-aventis, is expected to reach at least 50% of total business in the next three to four years. Being immune from future price reductions, the food supplement and consumer healthcare brands can drive the growth of sanofi-aventis in the Philippines.


DPI – the new frontier of the pharma industry

In the coming years, dry powder inhaler (DPI) technology is expected to be a major growth area in the pharmaceutical industry. The DPI global market is expected to rise from a $19 billion market capitalization, to $37.7 billion in 2015, driven by the increasing incidence of respiratory disorders.

 With the Philippines’ economic growth and the population’s increasing susceptibility to chronic and lifestyle-related diseases, there is potential for the DPI market to play a significant role in the Philippine pharmaceutical industry.

  Lloyd Laboratories, an ISO-certified, leading Philippine pharmaceutical company, is taking advantage of the potential of the inhalable-delivery technologies market, thanks to the new DPI facility that it unveiled in 2010–the first and only one in the Philippines. The facility is the latest addition to the wide range of innovative pharmaceutical technologies that Lloyd Laboratories has adopted over the years, which already include micronization/pellet technology, taste masking, sustained-release technology, fast dissolve technology, and fixed dose combination.

 The DPI facility utilizes an advanced technology, which Lloyd Laboratories could further export to other Asian countries. Zenaida Balajadia, chairman of the board of Lloyd Laboratories, explains that “we have perfected the formulation and process for the manufacture of dry powder inhalers, and this will allow us to export a truly quality Filipino product. Once again this added investment will make Lloyd Laboratories the only manufacturer of DPI products in the Philippines and in the ASEAN region.”


 Pioneering unibranded generics in the Philippines

  Pharex, short for Pharmaceutical Excellence, is the generics subsidiary of Pascual Laboratories, one of the leading Philippine pharmaceutical companies. The company has been pioneering unibranded generics in the Philippines, and it is now the leader in this segment.

 According to Tomas Marcelo Agana III, president and CEO of Pharex HealthCorp, unibranding is an effective strategy in the Philippines since “brand loyalty remains strong for the Filipinos, and the lower you go down in the socio-economic scale, the stronger the brand loyalty is.” Unibranding, by reducing promotional efforts, also allows the company to keep costs down, and hence improves access to drugs for Filipinos. As Agana points out, “there is a place for multi-branding in the market, but we believe that unibranding is something that will sustain Pharex; something that will give us the economies of scale needed to be able to fight a more price-conscious market.”