Connecting the Dots
The inclusion of healthcare as a priority on the presidential agenda has led to knock-on
consequences that are being felt across the healthcare value chain in the Philippines.
Universal healthcare coverage (UHC) has been cemented, which has led to a shift from
branded medicines to generics, leading many players to a strategic repositioning. The most
successful players have been those who focused on a strategy that was inclusive of all
stakeholders and aligned with the presidential agenda of affordable and accessible
healthcare.
“When the new administration took over in 2010, our mantra was to include the previously overlooked poorest segment of the
population,” says Enrique Ona, secretary of health of the Philippines. “Through our Department of Social Welfare, we had identified 5.2
million households -which could include four to five family members- as part of the poor layer of society. In terms of people, that
number comes down to roughly 25 million, or a quarter of the country’s population,” said Ona. Now, the challenge of the Department of
Health (DOH) is to address the next layer of society, the so-called ‘near poor’ that are not yet enrolled in the PhilHealth scheme. “The
projected number of families from this layer is 14.7 million, essentially 58.8 million Filipinos, that should be enrolled by the end of
2014,” Ona explains.
Since 2010, the Aquino administration has reached a number of major achievements on the healthcare front. The amendment to the
National Health Insurance Act, officially called Republic Act 10606, was essential in the sense that it made it mandatory for all Filipinos
to be covered through the national insurance body PhilHealth. Officially, PhilHealth now has enrolled 83 percent of the population. “The
enrolment rate means that these are people that have come under the health insurance program at one point or another. Whether they can
avail of benefits is what our coverage rate focuses on. Our covered rate is really around 73 to 74 percent,” explains Alexander Padilla,
president and CEO of PhilHealth. “Our key priorities remain membership and benefits. In line with the President’s desire, we will have
each and every Filipino registered as part of PhilHealth. When it comes to health, the political will is certainly there”.
HIGH STAKES FOR NEW STAKEHOLDERS
To make healthcare affordable, in 2008, the government implemented the Universally Accessible Cheaper and Quality Medicines
Act, which included the Maximum Drug Retail Price (MDRP) scheme. The MDRP called for a 50 percent price reduction on 21
molecules, and introduced some systematization to drug pricing in the country. It led many multinational corporations (MNCs)
into a period of negative growth, but those with the right portfolios continued to grow.
The requirement for the industry to deliver relevant products is a question of alignment with the needs of the patients, the
government and the country at large. “We have observed a shift with many of the industry’s stakeholders, including several NGOs,
now taking a more holistic view beyond drug prices. The sector is now taking a joint approach to define a sustainable future for the
healthcare system as a whole,” says Reiner Gloor, advisor to the Pharmaceutical and Healthcare Association of the Philippines
(PHAP), an industry association largely composed of MNCs. “Now, we have reached a point where we have gained the trust of
groups that were traditionally opposed to ‘big pharma’,” explains PHAP’s executive director Teodoro ‘Ted’ Padilla. “Apart from the
NGOs, this includes institutions such as the Department of Health, the local FDA and PhilHealth.”
UHC turned the government from a mere stakeholder into an increasingly important customer, which was particularly beneficial
to local manufacturers. “We also have the feeling that the industry has changed,” explains Thelma Tobias-Go, president of the
Philippine Chamber of the Pharmaceutical Industry (PCPI), the leading industry association for -Filipino-owned, mostly generic,
manufacturers. “President Aquino has pledged to improve healthcare in the country and the Department of Health now has one of the
largest budgets in the government. The local industry has faith in President Aquino and wants to try to work with the government as
a new customer.”
UHC was a particular attempt to reduce out-of-pocket expenditures in the Philippines, which accounted for 54 percent of total
healthcare spending in 2010, according to a World Bank report published in 2012.
RELEVANCE: TO BE OR NOT TO BE?
Survival for most MNCs in the post-MDRP period meant a refocusing on a few therapeutic areas of the highest unmet medical need.
“This means knowing and understanding where your strengths as an organization lie, and what limitations exist due to the local
healthcare system at a specific point of time,” says Thomas Weigold, president and managing director of Novartis Healthcare
Philippines, the third largest MNC in the Philippines today. “The Philippines has a high unmet medical need in many different
therapeutic areas. But looking at the most relevant ones, hypertension, respiratory, diabetes kill many patients in the Philippines,
while we have innovative and quality affordable medicines to manage and control the diseases! In addition several specialty
solutions like transplant, cancer treatments or neurological medicines are needed urgently as well,” says Weigold.
“The innovators have to ask themselves: ‘What are we doing to play actively in a relevant space?’” says Beaver Tamesis, president
and managing director of MSD Philippines, a company growing in high single digits despite a flat market for MNCs. MSD followed the
demographic shift in disease profiles from predominantly infectious diseases to non-communicable diseases. Apart from diabetes,
coronary heart disease and hypertension, vaccines for rotavirus and HPV are high on the agenda. “Even contraception has seen explosive
growth of 38 to 40 percent since the controversial Reproductive Health and Responsible Parenthood Act came through,” explains
Tamesis. But he also finds relevance beyond portfolios. “We are spending a lot of efforts on patient compliance programs. We have to be
seen as partners that are relevant in reducing patient risk and keeping them out of the hospitals. We have to make sure that the impact on
patients improves”, Tamesis concludes.
CORPORATE CALLING
When AstraZeneca’s CEO Pascal Soriot took office late 2012, he set out a strategy relying heavily on emerging markets. He now looks
at the Philippines as a source of cautious growth. “In spite of a number of headwinds, we look at the Philippines as a country of large
opportunity. There is a large population and a high unmet medical need. And even though economic growth may have been deceiving in
the past, the economy has been growing rapidly for six consecutive quarters now,” says Gagan Singh, country president, AstraZeneca
Philippines.
“We have decided to stay focused on the innovative brands in the market and are constantly seeking for new launch opportunities
both from our HQ as well as in-licensing opportunities. We have strategized ourselves in such a way that enables us to keep the patient at
the center of everything we do. At the same time, we are also looking at knowledge partnerships with physicians, developing future
therapy areas and market needs, as well as clinical trials tailored to these market needs,” Singh adds. “Overall, we are buoyant about the
space we are playing in. We know that our future will be distinctly different from the past, but it will be equally glorious as our past has
been,” he concludes.
Stephen Saad and Gus Attridge, the executives that run South Africa-based MNC Aspen, Africa’s largest pharmaceutical
company, set up a subsidiary in Metro Manila in 2011, a bold and aggressive move. “The Philippines is a market where brand
equity is flourishing even as branded generics make their mark in the local pharmaceutical industry,” says Marcelina ‘Ace’
Itchon, president and CEO of Aspen Philippines. “Both scenarios are opportunities that Aspen can build on. We have the
capability to prolong the lifecycle of selected innovator products and a robust pipeline of quality and affordable medicines that
we can bring into this market in due time.” The audacity of Aspen’s top management to invest in the Philippines as its first foot
in Southeast Asian soil has paid off: in just two years, the Philippine subsidiary has grown to 111 employees and counting, and
the Philippines is now referred to as the “launch pad” to Asia within the Aspen Group.
WHAT’S RITE IN A NAME
The MDRP did not only leave the MNCs cornered in 2008: United Laboratories, the largest pharmaceutical company in the
Philippines and generics manufacturer, was also affected. But desperate times call for desperate measures, and United
Laboratories was forced to experiment with new business models.
Initially, RiteMED, one of United’s subsidiaries, followed the same model as any branded generics organization, pricing its
products 20 to 70 percent lower than their innovative equivalents, and marketing aggressively through an extensive field force.
The 2008 price cut, however, forced the company to follow the MNCs and lower its prices too. The subsidiary soon started losing
money. “It was clear that we had to make a drastic turnaround,” admits Jose Maria ‘Joey’ Ochave, senior vice president business
development group for United Laboratories.
“We moved all of RiteMED’s medical representatives to United Laboratories and used the savings generated in three ways: bringing
prices down further, a trimedia campaign for branding, and providing additional discounts to drugstores. Instead of pushing the
drugstores or the doctors to give our medicines to the patients, we targeted the patients directly,” explains Ochave. Brand loyalty, as
several reports of the market research firm Nielsen indicate, is particularly high in the Philippines and, combined with the limited
disposable incomes of the population, means opportunities for branded generics.
SALES 2 MANUFACTURING
Before the introduction of UHC, most major private hospitals in the Philippines had to rely on imported products. With the MNCs
showing only limited interest in small volumes, all too often certain products would never actually make their way to market. It was a
situation that skewed market prices upwards, with several critical care companies marketing their products at premium prices.
“We identified a gap in the products that were not available or approved by the FDA and only occupied a small market, and those
that were being exclusively marketed by large companies, where the level of competition was low and the prices augmented. We could
bring down prices in such niche markets and compete head on with existing large players,” explains J. De Ruyter ‘Toto’ Oroceo,
president and general manager of Delex Pharma International (DPI), a Filipino hospital products company. “At the end of the day, we
contribute directly to the vision of the president, the Department of Health, the FDA and our current administration to make
pharmaceutical products in the Philippines more affordable, so that also the poor layers of society can be reached.” Since its
incorporation in mid-2009, DPI has already grown to a staff of close to 100. “In three to five years, DPI will achieve PHP 1 billion (USD
22.5 million) sales revenue and will have its own manufacturing facility,” hopes Oroceo.
Traditionally, pharmaceutical marketing organizations in the Philippines have partnered with toll manufacturers for their production
needs. But many, especially those in rapidly growing niche areas, quietly dream of major investments such as their own manufacturing
plant.
On the vitamins and supplements side, for instance, the SV More Group has grown primarily on the back of its B Complex
solutions, while it selectively outsourced its manufacturing. “First of all, we have to be careful in choosing who we manufacture
through,” says Alberto Santillana, group chairman and CEO. “Hizon Laboratories and Lloyd Laboratories, both leading Philippine
toll manufacturers, are world-class players. If you work with foreign manufacturers, you have to carefully select to ensure that they
work according to quality standards. In India, for example, there are bad manufacturers in the region but also many very good ones.
We are prepared to take on South Korean manufacturers, which can be among the best.”
Today, after 25 years, Santillana is part of the group of Filipino entrepreneurs ready to invest in manufacturing. “For these
first 25 years, we did not want to take up big loans to fund an investment for manufacturing, which is why we have waited till the
point where we have sufficient resources to build our own facilities. Now we have reached the point where we can afford
manufacturing without external funding. Self-sufficiency is very important to ensure that the operating cash remains unaffected.
In three to five years, we should have completed our first manufacturing facility in collaboration with our Philippine-based
manufacturers,” adds Santillana.
The investments of local pharma companies shows their level of confidence in the Philippine economy. “In the last three years, only
about 40 percent of investments were from foreign investors. This was not the case before, when most Filipinos were investing their
money abroad. The changing dynamics imply that the Filipinos have regained confidence in the country, its leadership and its economy,”
says Gregorio Navarro, managing partner and CEO of Deloitte Philippines, Navarro Amper & Co.
From an MNC perspective, the Philippines is now indeed solely considered for marketing and sales activity. There is, however, one
remaining MNC manufacturing in the country. “Our facility in Cainta (a municipality in the Rizal province, just next to Metro Manila) is
a mid size manufacturing facility that has about 100 to 120 employees,” says Francis del Val, president and managing director of GSK
Philippines. “It manufactures products for both our pharmaceutical and consumer divisions and goes back a while: we recently
celebrated our 50 years of manufacturing in the Philippines.”
Divesting is not in the plans of GSK either, as the company to continue to manufacture in the Philippines. “We are very proud of this
manufacturing facility because it serves as a testimony to GSK’s commitment to be a partner in Filipino nation building. It also shows
that Philippine manufactured products can be world class. Our site exports to many neighboring countries and we certainly look forward
to more of that in the future, on top of catering to the increasing demand in the local market,” says del Val.
EN PRISE!
In chess, a piece is considered ‘en prise’ if it is unprotected and can be captured. In the Philippines, just like in chess, it is impossible to
understand the moves of the game in a single snapshot. To really understand what is shaking, and where the growth sits, one needs to
become part of the game.
“The IMS Health figures show around three to four percent growth in the marketplace, but we are now at a point in time where the
business models in this market are changing. The rise of generics and increasing government intervention through price controls have
introduced a certain level of complexity. Below this complexity, however, there are many positive signs, ” remarks Raymund Azurin,
chief executive of Zuellig Pharma Philippines. Distributors can be considered centerpieces on the chessboard. But how many
centerpieces can the market handle? The Zuellig Corporation and its subsidiary Metro Drug already occupy more than 80 percent of the
distribution market, but a number of niche distributors successfully made inroads too.
“In 2000, there was a significant opportunity to enter the growing dispensing business,” says Romeo ‘Romi’ Carbonel, president and
CEO of niche distributor RBC-MDC. A former vice president of AstraZeneca Philippines, at that time known as Astra, Carbonel set up
RBC-MDC 13 years ago to serve the dispensing market. “Around 1997-1998, we started recognizing that there was a growing number
of doctors with the desire to increase the financial side of their profession, by handling their diagnosis and ‘business of dispenses
products’ under one roof. Because the top distributor would not handle Astra’s dispensing business at that time, RBC took on Astra as
my its first principal,” explains Carbonel. Today, the company can celebrate39 companies as principals during its 13th anniversary since
incorporation “Now, we are investing into a new warehouse that will double our existing capacity. Our volumes are increasing and our
organic growth is tremendous,” Carbonel adds.
“In general, the Philippines differentiates itself because of its strong dispensing market,” says Minerva ‘Mini’ Carbonel, COO of the
family-owned RBC-MDC. “Before going to a hospital, most patients will see a family doctor for a small amount of money, which
generally will also dispense the medicines themselves. Today, there are roughly four to five active distribution companies that cater to
the dispensing market. Within this market, the oncology area is one of the first focal areas, as oncologists prefer to dispense the
medicines themselves.” says the COO.
THE RE-TALE: A STORY OF GENERICS
The policy shifts in favor of generic medicines were coupled with the proliferation of retail chains that heavily advertised
the availability of lower priced generic alternatives. Indeed, the biggest success stories as a result of these policy shifts are
the retail chains Generika and The Generics Pharmacy: with around 450 and 1,50 0 outlets mushrooming across the
Philippine territory respectively, access to affordable generics has changed dramatically. Their rising power changed the
interface between healthcare suppliers, patients and modern retail, especially as the healthcare indu stry is not necessarily
used to modern retail practices, such as the strong focus on above-the-line marketing activities.
“When you would go to a pharmacy in the Philippines ten years ago, you would not be able to find or buy generic medicines.
We recognized the opportunity to create a project of our own that would give access to quality affordable generic medicines to as
many communities as possible. This project would primarily be a business enterprise but it would have a strong social side – this
is Generika,” says Julien Bello, vice president of the company. “Generika is organized to make a meaningful social impact on
communities all over the country. Educating people and giving them access to quality affordable medicines is the primary
objective, as this goes a long way towards preserving their overall health at the lowest cost,” adds Teodoro Ferrer, president of
Generika.
Today, even Mercury drug the country’s dominant retail chain, is changing. From a traditional basket of premium -priced
branded medicines, its outlets now also carry generic medicines. “In terms of prices, the cost of medicine has gone down
tremendously in the country. Generic medicines are already 50 to 70 percent cheaper than their branded counterparts, while
prices are pushed down even more because of the competition in the market. This, together with the Cheaper Medicines Act
(MDRP) of 2008, has been very beneficial to the patients,” explains Bello.
MORE GOVERNMENT, MORE PRIVATE
Looking back, the ambitions of President Aquino to steer the healthcare industry in a direction of affordability and accessibility has paid
off. PhilHealth took off, prices dropped, patients saw their choices widened and both local and international companies found ways to
grow through relevance and niche strategies.
However, much work remains to be done. “The inclusion of UHC on the presidential agenda has been a giant leap forward.
Now, the political promise should follow – or come in parallel with – an upgrading of the country’s health systems,” believes
Kenneth Hartigan-Go, acting director general of the Food and Drug Administration (FDA) of the Philippines. “We should also
require operational managers to support the six building blocks for health systems as articulated by the World Health
Organization (WHO) in 2007: health awareness, health financing, information & communication technology applications in
health, human resource management in health, clinical service delivery between clinical and public health, and access to
products,” says Hartigan-Go.
In the next phase, the Philippines will need to find more way to improve the overall quality of healthcare in the Philippines.
“A great avenue forward, which still remains largely unexplored when it comes to healthcare facilities, would be privatization,”
remarks Ramonito ‘Monching’ Tampos, president and managing director of the German-headquartered MNC Merck. Already,
real estate mammoths such as Ayala Land, Greenfield Development Corporation (part of United Laboratories) and Metro Pacific
Investment Corporation are seeking control of private hospitals across the country.
Furthermore, there will need to be a change as to how healthcare is funded in the Philippines, in order to
move away from the out-of-pocket model. “Statistics show that only 30 percent of the population can afford
to buy medicine,” says Tampos. “Another question is then to find out how this percentage will evolve with
the implementation of PhilHealth and universal healthcare.” All eyes are now turned towards 2016, when
presidential elections will select the successor to current President Benigno ‘Noynoy’ Aquino III who will
have the difficult task of setting the future direction of the healthcare sector in the Philippines.