Thursday, 19 July 2012

FOCUS: Juan de la Cruz: Bawal magkasakit! Multinational drug companies: It’s More Fun in the Philippines!

 Amlodipine, a generic drug (left) and its branded counterpart Norvasc.


IN RECENT years, the issue of high drug prices in the Philippines has merited a lot of discussions in various fora even in tri-media. I, myself, had written a paper on this topic way back in 2004 I think, with support from the PCHRD, the research arm of the Department of Science and Technology.  

Many other papers and treatises have also been written on this topic, and government interventions, in different forms, have been undertaken. Still, drug prices remain high in the Philippines. What gives?

First. Let’s look at the givens:

1. The Philippines is an importing country when it comes to
drugs and medicines. We buy the raw materials abroad, and then what we do here is compound it - i.e. put it in tablet form, capsules, syrups etc. That means the price of the drug sold here is to a great extent, determined by the price raw materials are bought from the source (which is abroad). That also means that the price of drugs and medicines is subject to the vicissitudes of foreign exchange.

2. The government spends so little for health care - less than 5% of the budget. That means Juan de la Cruz bears almost all the burden in spending for his health.

People waiting for their turn to be served at the prescription counter of a drug store. 

3. The Philippines is a poor country - more than 40% of the population are below the poverty line. Poverty is the biggest cause of disease, so it’s the poor who is sicker. But they don’t have money to buy medicines, with almost all of what they earn being spent on food. There is a need for increased government spending on health care, and complementarily, bring the cost of medicine within the reach of the poor. 

4. The pharmaceutical industry is controlled by multinationals.

5. We adhere to patent laws and have given multinational drug companies a 25-year protection for innovator drugs (that means nobody can copy or produce a copy of that drug - generic equivalent - in 25 years). Swerte!

Having said that, let us look at the consequences of these givens.

While the generic share of the pharmaceutical market is observed to be increasing, pure generics drugs comprise only 4.4% of the total pharmaceutical market, while the branded generics - or generics sold by multinational companies themselves comprise the rest of the generics market which is from 20-30%.  

The Generics Pharmacy is now the biggest outlet for generic drugs.

Multination drug companies, therefore, still lord it over. That means they can do almost anything  in terms of product cost. Since their bottomline is profit, all is fair in love and war, so to speak, they do what they can do to increase their profit, namely:

Transfer pricing:  Subsidiaries of multinational companies in the Philippines buy their raw materials from their mother company at much higher prices than those prevailing in the market. The local subsidiary will report large expenses for raw materials, lower profits, and therefore lower taxes. In truth, however, profits were “hidden” through transfer pricing (pinasa lang sa mother company ang profits). Companies can also sell their products here at higher prices claiming high cost of raw materials.

Buying low, selling high. Multinational companies also buy their raw materials from other sources. Even if they bought the raw materials at low prices, multinationals tend to price their products higher than local companies, riding on the perception which they foster through promotions that their products are of “higher” quality than those of others.  

In local parlance, parehong binili sa Divisoria, pero ‘yung isa presyong pang-Rustan’s, ‘yung isa presyong Divisoria.

Excessive promotional expenses to promote brands. Promotional activities targeted at prescribers (doctors) include among others, dining-outs, gifts, cash payouts, sponsorship of overseas trips or continuing medical education, even building and furnishing of clinics. These promotional activities surely affect the prescribing behavior of doctors (brand loyalty, prescribing frequency).  

These promotional expenses are added to the cost of drugs, of course. Non-industry sources estimate these expenses to range from 18% to 45% of sales. So, how would you feel knowing that of a P100 peso branded tablet, P47 went to pay the doctors and “artistas” to promote the brand?


Pricing strategies to increase profit. Because of market exclusivity, prices of new drugs, especially those with therapeutic advance, can be launched at prices higher than levels expected to generate reasonable profits because the premium price is expected to reflect the “superiority” of the product.   

For new products with little therapeutic gain (i.e. has more or less the same effect like other existing drugs, or with just little advantage), prices are at par with existing drugs, but in time,  with more doctors prescribing it, prices are increased at a rate higher than other drugs.   

Mark ups. And then, of course, mark-ups are seen at all points of the chain:  profit on raw materials – 12-15% excluding transfer price; distributor’s mark-up-15-25%, drugstore’s mark-up -25-30% - mas malaki kung sa Mercury bibili.  

Pricing up to what the market can bear.  Sky is the limit when it comes to the price of drugs. Up to what the  market can bear.  That means  that  it is not farfetched for multinationals to sell , say, amlodipine in the Philippines  at  five times higher or more,  than the its price in, say Pakistan or Malaysia so long as profits  are realized because consumers are willing to pay such price. 

The Philippine Daily Inquirer reported that drugmaker Pfizer realized  P1.2 billiion annual sales of Norvasc alone, because of its market exclusivity due to the patent law which gives it monopoly for 25 years. The same drug and brand is sold in Pakistan at just over P8, while here, it is sold at nearly P50! Do not expect social conscience from  these companies.

Sell where it is profitable. 
Sales and profits of drug companies come mostly from the national capital region, that is why there is scarcity of drugs and medicines in non-urban areas in the provinces. So sorry na lang sa iba diyan. No money, no honey. In these  underserved areas where doctors are scarce and medicines scarcer, we see , what we doctors call,  the Mona Lisas –  people who  just  “lie there, and they die there”!

What government has done/ not done, to address the problem of high drug prices.

I say, government has done  little.

1. The Generics Law was passed in 1989, after stiff opposition from Multinational companies  and even  from associations of doctors!   

It mandates that the generic name of the drug be placed on the prescription, but doctors have the choice to add below it the name of the brand they prefer if they so desire. This clause is obviously to appease the doctor’s who feel government is encroaching on their right to prescribe to their patients. 

What the law actually envisions is for the patient to have a choice of what to buy, based on their financial capability, all things being equal- that is generics drugs are supposed to be bioequivalent with branded drugs.  

And up to now, doctors take up the issue of bioavailability, even when there is assurance that generic drugs in the market are as effective as branded drugs. Multinational companies and even many doctors try to influence consumer minds about price - cheap drugs, poor quality; more expensive drugs, high quality.

To date, there is little monitoring to compliance of doctors regarding prescribing of generic drugs, and unofficial reports peg compliance at a low 30%. That means majority of doctors do not put the generic name, only the brand of the medicine.

There is also low incentive for more generic firms to enter the market  to increase the players in the generics market.

1. Government has embarked on parallel importation of drugs from neighboring countries - India, Pakistan, Taiwan, Hong Kong, etc. Parallel importation means importing of branded drugs manufactured in other countries even when the same drug is available in the Philippines, albeit at higher cost. 

Thus, for example, while Nifedipine, for example is being sold in the Philippines, the government imported Nifedipine  made in India for use in government run facilities, because it is cheaper than the ones being sold here.  

Problem with this is that government also imports drugs which already have generic equivalents in the local market, competing with generic drug companies in the process. Parallel importation should be confined to on-patent drugs only so as not to compete with local generic companies. 

3.  The government, under former president Gloria Arroyo, has asked drug companies to voluntarily reduce prices of some commonly purchased drugs. Of course, since this is voluntary, only some drugs are included. And up to when this reduction is maintained, depends on the companies themselves. Very limited impact on drug prices

4. Government has not increased its budget for health care, that means Juan de la cruz will still buy at market price  nearly all the medicines he needs when he gets sick.
Prescriptions for affordable drug prices

Realistically, I see that  making  drug prices affordable  to the majority of Filipino  cannot be achieved in the short term, as long as majority of the populace remain poor (government has little money to subsidize medicines for the many who cannot afford to pay), as long as  the drug industry remains in the clutches and firm stronghold of multinational companies, and as long as government lacks political will to look at the legal options that are available to break that stronghold such as antitrust laws, anti- transfer pricing, and reduction of market exclusivity by reducing the number of  years a drug is on patent. 

But there are other doable things: It may try to reduce unethical promotion of drugs in the media. It should also take the lead in promoting generic drugs to show that costlier is not better, and cheaper does not mean low quality. 

Related to this, it should increase the number of offices and monitoring points of the Food and Drug Authority so as to monitor better the quality of drugs sold- both generic and branded.  

Give more incentives for investments in the generic drugs industry, especially if they establish in under-served communities. It can remind doctors, through its government agencies such as the Professional Regulations Commission that doctors  should be bound by ethical standards such as not receiving monetary gifts or perks  in exchange for prescribing certain drugs, and to comply with the provisions of the Generics Law. 

Until all of these have come to fruition, Juan de la Cruz will continue to remind himself and his kababayans: Bawal magkasakit! And multinational drug companies sing and laugh all the way to the bank, telling other companies to come, follow them, because “It’s more fun in the Philippines!"

 (Dr Emma P Valencia is a physician and a health policy analyst and researcher. She also writes essays and poems when she is not busy with her work on health. She lives with her 85-year-old aunt and seven dogs.)

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