Pharmaceuticals Philippines report 2010

PhilippinesPharma reportNovember 2010

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NOVEMBER 2010 FOCUS REPORTS S2

The Philippines Report

Despite a population of 95 million and a growing econ-omy, the Philippine pharmaceutical industry has been largely overlooked in the past—but things are about to change. The industry has been radically reshaped in

the last year, following the approval of the Universally Acces-sible 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 systematiza-tion to drug pricing in the country.

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The law is meant to in-crease 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 even to basic drugs. So far, the effects of the Cheaper Medicines Law—as it is infor-mally called—have been nega-tive on the pharmaceutical in-dustry. Reiner Gloor, president and executive director of the Pharmaceutical and Health-care Association of Philippines (PHAP), points out that “there have been no real volume in-creases, 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 US$270 million) out of the pharmaceutical market.”

Critics claim that in ad-dition 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 be-fore—a group in between rich and poor—who could only af-ford 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 medi-cines. The next step is increas-ing social support. Currently, PhilHealth, the national insur-ance, covers only 38% of the population. The recently elect-ed Aquino government, which took office on July 1, has set universal healthcare coverage by 2013 as one of its primary objectives. If it becomes real-ity, universal healthcare will further change the competitive landscape in the Philippine pharmaceutical industry.

The industry will also be reshaped by the prospective harmonisation on pharma-ceutical regulations that is currently being discussed by the Association of Southeast Asian Nations (ASEAN). The harmonisation will provide opportunities for local Phil-ippine companies to expand beyond national borders; it will also facilitate entry into

the Philippine region for for-eign pharmaceutical compa-nies. 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 Indus-try (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 histori-cally, multinationals con-trolled 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 No. 1 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 In-ternational, and Natrapharm. These companies have gained leading positions in some ther-apeutic areas, and are challeng-ing multinationals.

To that end, multination-als are coping with the chal-lenges presented by the MDRP by making modifications to existing pharmaceutical lines, and expanding their offering outside of traditional phar-maceutical products alto-gether, by moving into areas

Left to right: Edward Isaac, President, Philippine Chamber of the Pharmaceutical Industry (PCPI); Esperanza I. Cabral, M.D., Former Philippines Secretary of Health; Reiner Gloor, Executive Director, Pharmaceutical and Healthcare Association of the Philippines (PHAP)




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 Leo-poldo 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 antiplate-let 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 three to four years and we expect them to be the growth drivers for the pharma segment.” There are still a number of pharma-ceutical 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 phar-maceutical business, which currently accounts for 90% of its total revenue, Otsuka (Philippines) Pharmaceutical has diversified with the re-

cent launch of new medical devices. The company also plans on strengthening its consumer healthcare and its nutraceutical businesses—ar-eas that have strong growth potential—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 10 years.

Multinational companies are not the only ones who have diversified their produc-tion; local players have also branched out. Market leader Unilab—which was founded in 1945 as a drugstore, and evolved into the leading phar-maceutical company, with affiliates in Indonesia, Thai-

Growth from diversificationThe MDRP had negative effects on the majority of multinationals present in the Philippines—in-cluding sanofi-aventis, who saw three of its top brands affected by the law. The French multi-national succeeded during this difficult time through differentia-tion. 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, presi-dent and general manager of sanofi-aventis Philippines, “we were the very first multinational company to have launched a unibranded generics company in the Philip-pines, 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 Es-sentiale® 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 interven-tion,” Realuyo explains. The consumer healthcare busi-ness, 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 supple-ment and consumer healthcare brands can drive the growth of sanofi-aventis in the Philippines.

Carlito Realuyo, President & GM, sanofi-aventis Philippines



In the coming years, dry powder in-haler (DPI) technology is expected to be a major growth area in the phar-maceutical 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 increas-ing 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 innova-tive pharmaceutical technologies that Lloyd Laboratories has adopted over

the years, which already include mi-cronization/pellet technology, taste masking, sustained-release technol-ogy, 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, chair-man of the board of Lloyd Laborato-ries, 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 manufac-turer of DPI products in the Philip-pines and in the ASEAN region.”

Lloyd Laboratories was awarded as one of the best employers in the Philippines for 2010.

DPI – The New Frontier Of The Pharma Industry




land, Malaysia, Singapore, Hong Kong, Vietnam, and Myanmar—is now looking into consumer healthcare. In the words of Joey Maria Ochave, corporate vice presi-dent 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 phar-maceuticals only. We have started going into other businesses as well.”

in seArch of A nicheWhile the biggest players are focusing

on diversification, more nimble compa-nies are looking for a niche in which to position themselves.

Multinationals such as Novo Nord-isk and Lundbeck have chosen to focus on diabetes and central nervous system (CNS) diseases, respectively. They are prime examples of how specialization has led 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 suf-fering 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 medi-cine prices and a lack of reimbursement.

In the case of Lundbeck, specializa-tion has proven a more successful strat-egy 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 the 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 Parkin-son’s disease drug Azilect®, which will allow the company to further strengthen its position in the Philippines, and even-tually become the preferred CNS provid-er in the industry.

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

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Ethical Proprietar TOTAL % GROWTH Ethical % Growth Proprietar % Growth

Total Market Less V6V7Sales in Php 5-Year Trend

Drilling down further between Ethical and OTC, where Ethical is now at its lowest of negative 4.19% while OTC still above the line at 2.09% [Source: IMS Philippines]



the rise of genericsWhile the Philippine

pharmaceutical industry reg-istered 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 pa-tients put utmost trust in their physicians—the doc-tors’ non-endorsement of ge-nerics, derived from a limited promotional effort by the ge-nerics players, hampered the

sector’s development.However, since 2001, the

generics market has been on the rise, fuelled by the open-ing of The Generics Pharma-cy—the first generics retail pharmacy—which started franchising in 2007. The company recorded impressive growth, expanding from one store in 2007, to more than 900 in 2010. Benjamin Liu-son, president and founder of The Generics Pharmacy, be-lieves 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 1,000 stores by the end of 2010, The Generics Pharmacy is now the chain with the highest number of outlets, overtak-ing the market leader Mer-cury 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 de-velopment of pharmaceuti-cal retailing in zones that were previously devoid of

drug distribution. Histori-cally, businesses in the in-dustry 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 impor-tance of the generics seg-ment is confirmed by the number of new players that are entering the market. Sandoz, the generics arm of Swiss multinational Novar-tis, Pakistan’s Getz Pharma, and the Taiwanese corpora-tion OEP are amongst the fastest-growing companies in the Philippines. Several Indian generics players have also started operations in the country, including Tor-rent Pharma, Ranbaxy, and Lupin—the latter having acquired a 51% stake in the Philippine company Multi-care Pharmaceuticals. How-ever, Indian companies are facing additional challenges in entering the market as Filipinos are very brand con-scious, and they prefer either Western (i.e. European and American) brands, or locally manufactured products.

Tomas Marcelo G. Agana III, President & CEO, Pharex HealthCorp

Pioneering unibranded generics in the PhilippinesPharex, short for Pharmaceutical Excellence, is the generics subsidiary of Pascual Labora-tories, one of the leading Philippine pharma-ceutical companies. The company has been pioneering unibranded generics in the Philip-pines, and it is now the leader in this segment.

According to Tomas Marcelo Agana III, presi-dent and CEO of Pharex HealthCorp, unibrand-ing is an effective strategy in the Philippines since “brand loyalty remains strong for the

Filipinos, and the lower you go down in the so-cio-economic scale, the stronger the brand loy-alty 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 multibranding 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.”




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 im-proved accessibility and avail-ability of medicines. How-ever, to truly achieve greater access to medicines, more cooperation is needed be-tween the stakeholders.

Several pharmaceutical companies have already shown their commitment to this cause. Following the MDRP, a number of multi-nationals 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 De-partment of Health (DOH) to make the drug Valsartan available to public hospitals.

Janssen Pharmaceutica, a division of Johnson & John-son Philippines, volunteered a 50% discount for products used in hospitals for open heart surgery. Jane Villablan-ca, general manager of Jans-sen Pharmaceutica, affirms that in her company, “there is a high commitment to mak-ing new innovative products available through partnering with the government and doc-tors, and to delivering health-care to the people.” Janssen also launched the Family Link program, which educates families of patients suffering

from mental disorders, as well as a program that helps po-licemen deal with people suf-fering from mental diseases on the street. According to Villablanca, “these little steps have been accumulating for five years as small contribu-tions in making a huge differ-ence,” and Janssen plans to continue making a difference in the Philippines.

Another company that has been contributing to improv-ing healthcare in the Philip-pines is OEP Philippines (a subsidiary of the Taiwanese company Orient Europhar-ma). OEP entered the Philip-pines in 2003 by acquiring Elan Pharma. The company, one of the key players in the generics segment and current-ly the 24th pharmaceutical

company in the Philippines, launched several initiatives tailored to increasing access to healthcare.

JP Chang, general man-ager of OEP Philippines, ex-plains how the company has been leveraging Taiwanese expertise to improve service delivery in the Philippines: “the insufficient budget allo-cated for public hospitals lim-its service for patients. Since the healthcare programs in Taiwan are mature and suc-cessful, we are seeking to put in place collaboration pro-grams between the medical centres of the Philippines and hospitals in Taiwan for long term cooperation.” In addi-tion to inviting prominent Taiwanese doctors to the country to exchange knowl-


S9 FOCUS REPORTS NOVEMBER 2010 S9 FOCUS REPORTS NOVEMBER 2010




edge 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 pa-tients. 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 multi-national companies present in the Philippines are engaged ex-clusively in sales and marketing activities. Over the years, the MNCs which had manufactur-ing plants in the country closed down their facilities, and began to im-port from corporate production centres abroad, or turn to local contract man-ufacturers.

One prominent example of a mul-tinational that kept production in the Philippines is Glax-oSmithKline, the No. 2 pharmaceutical compa-ny in the Philippines, and No. 1 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 bring-ing 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 technologi-cal advancement and increas-ingly stringent requirements, but the ones that survived are Good Manufacturing Practices (GMP) compliant and at par with the latest technologies.

Some of these compa-nies specialise in toll manu-facturing, as in the case of Interphil Laboratories and Hizon Laboratories, the two leading players. Hizon Lab-oratories is one of the oldest pharmaceutical companies in the Philippines, estab-lished in 1898 as a manufac-turer for drugstores. Over

the years, it sur-vived 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 manufac tu r ing ,

thanks to its focus on qual-ity products and services.

Even with decreasing medicine prices, Hizon Labo-ratories has never compro-mised on quality. Rafael Hi-zon Jr, member of the third generation of the family that founded Hizon Laboratories and currently its chief execu-tive officer, points out that “at Hizon Laboratories, qual-

ity is built into the entire sys-tem 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 qual-ity of our prod-ucts.”

In their quest to maintain high quality, Hizon Laboratories has been following in-ternational stan-dards not only in developing and manufacturing products, but also in testing and evaluat-ing. As the Philippines is get-ting ready for the ASEAN harmonisation and the local FDA is applying to join the PIC/S scheme, the company is prepared for more strin-gent requirements. Hizon explains, “as part of our continuous improvement, we have already incorpo-rated 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 harmonised standards.” Hizon’s clients trust the quality of its prod-ucts and services, and the experience that comes with more than 100 years of his-tory—these are the factors that allow this local player to be the giant it is today.

WhAt’s next for the philippines?

The entire pharmaceuti-cal industry in the Philippines is now waiting to see how the market will further evolve.

The MDRP transformed the competitive dynamics, and fur-ther changes will soon follow as the new government seeks to achieve universal health-

care. But one thing is sure—the potential of the market. In a country of 95 million people, wherein only 30% of the popula-tion can currently afford medicines, the opportunities for

future growth are significant.

Novartis is al-ready taking ad-vantage of this

potential. The company has placed its South East Asian headquarters in the Philip-pines, and believes the region can be a strong epicenter for conducting research and devel-opment. “We have made signif-icant 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, espe-cially vaccines,” explains Eric Van Oppens, country president of Novartis Healthcare Philip-pines and South East Asia clus-ter head for Philippines, Singa-pore, Indonesia, Pakistan, and Bangladesh.

We will soon see if other companies will follow Novar-tis’ example, and if the Philip-pines 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 favor-able investment climate. It is clear that this formerly quiet, emerging market, has finally started to raise a clamor.

Eric Van Oppens, South East Asia Cluster Head, Country President, Novartis Healthcare Philippines

Roberto C. Taboada, General Manager, GSK Philippines

email: [email protected]

Documents

Pharmaceuticals Philippines report 2010