The Philippines' government works to reduce the cost of medicine

The pharmaceutical industry in the Philippines has been seeing stable growth for the past decade, and it looks set to continue. Though the market stood at $4.3bn in 2013, several recent and incoming changes could enable to sector to reach approximately $8bn by 2020. The increase is linked to the government’s intervention in price control and a growing acceptance of generic drug variants. The spending power of the population has also been on the rise, with per capita health care expenditure hitting $119 per person, according the World Bank, up from less than $30 in 2003.

The traditional preference of doctors and patients for high-quality, branded drugs, rather than less expensive, generic drugs that can vary in quality, means that products from the big pharmaceutical firms have achieved dominance. In the Philippines, foreign drug firms are the primary players and account for approximately 75% of the pharmaceutical market. Sanofi, GlaxoSmithKline (GSK) and Novartis are some of the biggest foreign drug firms in the Philippines.

Unlike other foreign pharmaceutical firms in the country, GSK manufactures a large proportion of its drugs in the Philippines in preparation for the domestic market or other South-east Asian countries, and other foreign producers have begun to follow suit. Novartis established its South-east Asian headquarters in the Philippines in 2009 to allow it to conduct clinical trials more conveniently for vaccines and other products. On a regional level, the Philippines remains the third-largest pharma market among ASEAN members, just after Indonesia and Thailand. Large domestic pharmaceutical firms include Natrapharm, United Laboratories, Pascual Laboratories and GV International.

Following a period of stable growth, during which foreign companies became accustomed to high margins and a steady demand for costly branded drugs, increased government intervention in the pharmaceutical market under the universal health care initiative and a growing acceptance of generic drugs have prompted a sector shake-up. Although adding another layer of complexity for all players, optimistic growth forecasts indicate the vast potential for the private sector.

COST CUTTING: In 2009, a World Health Organisation study showed that the poorest households in the Philippines spent 59% of their medical care costs on drugs. The previous government, which was already taking steps to increase accessibility and widen access, created the Universally Accessible Cheaper and Quality Medicines Act, which included the Maximum Drug Retail Price (MDRP) scheme that was implemented in August 2009. The MDRP called for a 50% price reduction on 21 molecules and set the scene for a high level of systematisation to drug pricing in the country.

The immediate call for reductions directly affected drugs like GlaxoSmithKline’s Augmentin and Pfizer’s Norvasc, and in anticipation of further cuts, many foreign drug companies voluntarily cut their prices. With multinational corporations forced to slash the price of their drugs by as much as 60%, many experienced a period of negative growth in the following years. However, the MDRP also contributed to the generics market quickly became the fastest-growing segment in the industry, building on the growth already established by cheap drugs imported from Pakistan and India. Firms like Taiwan’s Orient Europharma and Getz Pharma from Pakistan augmented their local subsidiaries alongside the generic arm of Novartis, Sandoz.

DEMANDING GENERICS: In line with the government decision to amend the National Health Insurance Act, making it mandatory for all Filipinos to be covered through PhilHealth, the national insurance body, reform has also affected the pharmaceutical industry with a heightened overall demand for drugs. Generic drugs in particular received a considerable boost from PhilHealth, as patients and hospitals have become focused on maximising the value of the government allocation of funds for each particular treatment. While doctors previously shied away from prescribing generic drugs in favour of branded drugs, new laws have made it mandatory to offer generic drugs in public hospitals. At Philippines General Hospital, a tertiary state-owned hospital that sees some 600,000 patients a year, patients are offered three options: the innovator drug, the branded variant and the generic variant. While a preference for the branded drugs remains, the cost savings of the generic variants and improving quality means that the sector will likely see a shift towards their usage.

In addition, a benefit extension in 2014 under Philippine Health Insurance Corporation (PhilHealth) to cover catastrophic diseases has increased demand for new drugs, both branded and genetic. Early stage breast and prostate cancer with low to intermediate risk, childhood acute leukaemia with standard risk, and low risk end-stage renal transplantation are now all covered by packages including designations of cash for drugs. Transparency has improved with drug reference pricing now available for public viewing on the Department of Health website, a result of better coordination between PhilHealth and the National Centre for Pharmaceutical Access and Management. The development means that there are now fewer discrepancies when hospitals are purchasing drugs and selling them to patients. The improvements in this area mean that doctors and patients have more autonomy over the tailoring of treatment, with patients paying the excess if they choose more costly treatment options.

QUALITY CONTROL: Though the historical preference for branded drugs was often based on fiscal remuneration and brand-loyalty, the preference was also based on guaranteed quality. Generic counterparts often could not live up to the same standards, which is why they were priced accordingly. However, generic drugs have come to be viewed as equally effective which can explain their increased role within the government’s universal health care programme. Accordingly, the Philippines Food and Drug Administration (FDA) is taking quality control and monitoring more seriously, obligating drug manufacturers to meet strict standards and implementing the Mexico City Principles for Voluntary Codes of Business Ethics for the Biopharmaceutical Sector.

LOOKING FORWARD: For 2015, the welcome evolution of PhilHealth continues to be the main growth story, with the entirety of the pharmaceutical industry directly plugged in. Growth is trickling down to the pharmaceutical retail and distribution sectors, with health care firms like Watsons Personal Care Stores planning to increase their share in the local retail drug sector with an expansion programme. Mercury Drug is the leader in the sector, with more than 50% of the market, Watsons is second with 6% and other firms are all fighting to supply the population with generic drugs.

Competition within the sector has been steadily increasing as pharmaceutical manufacturers attempt to grab market share by adopting new strategies to ensure they are not left behind in the field of generic drugs. Small foreign players and domestic firms that can adapt quickly will be able to capitalise on higher demand for drugs as the health sector makes progress.