Country Report: The Philippines
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, which took office on July 1, 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.
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 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 International, and Natrapharm. These companies have gained leading positions in some therapeutic areas, and are challenging multinationals.
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 such as 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 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 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 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 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.
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, expanding 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 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, Pakistan's 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 is needed between the stakeholders.
Several pharmaceutical companies have already shown their commitment to this cause. 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, which educates families of patients suffering from mental disorders, as well as a program that helps policemen deal with people suffering from mental diseases on 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.
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 harmonised 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.
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.
This sponsored supplement was produced by Focus Reports.
Project Director: Elyse Deutscher.
Editorial Coordinator: Federica Torgneur.