Pharma row

Just when we thought all is well in the pharmaceutical sector, the Filipino’s dream for more affordable medicine suffers another blow.

Over the weekend, the local banking sector is talking in nervous hushed tones regarding trouble that is brewing in the pharmaceutical industry’s distribution business. And the row threatens to adversely affect the prices not just of medicines and vitamins, but also of infant milk formula.

At the center of the controversy is the Europe-based Diethelm Keller Siber Hegner group which reportedly has a solid foothold in the global marketing and distribution business. But the sordid details of the apparent misadventure of the conglomerate in the country may have seriously damaged the good international reputation of its corporate name.

Our colleagues told us that the entry of Diethelm Keller Siber Hegner group (DKSH) into the Philippine pharmaceutical industry was at first a welcome development. It was seen as the end of a virtual monopoly in the distribution of pharmaceutical products. Senator Mar Roxas earlier pointed out that distribution costs are a major component of the prohibitive prices of drugs manufactured by multinationals in the country.

Before the entry of the DKSH in the country, our colleagues explained that the distribution of pharmaceutical products was the stronghold of the Zuellig group, with virtually no competition.

We were told that DKSH initially performed well and was on expansion mode in the country for a couple of years or so, bagging major clients.We are yet to confirm this, but we were told the major clients included the like of industry giants Novartis and Johnson & Johnson. A host of small Filipino pharmaceutical firms were likewise included in the client list.

The entry of the DKSH made for a duopoly in the pharma distribution sector. Whether in the pharmaceutical or power industry, where there is competition, the public wins.

But it appears things turned sour for the European corporate giant. Banking sector sources say it started to turn in huge losses which could not be stopped nor explained. Towards the end of its saga in the country, its expatriate executives reportedly disappeared one-by-one, packing their bags and catching flights out of the country in a manner and style seen only in James Bond movies.

Problem: The significant exposure of several local banks reportedly running to a billion peso to DKSH.

Worse, the bungled management may have a telling blow on fellow multinationals Novartis and Johnson & Johnson. When the two, together with other small Filipino pharmaceutical companies tapped the services of the European conglomerate, it may have been done at the displeasure of the erstwhile distribution monopoly – fellow Swiss company Zuellig.

Guess what. It is possible, the banking sources say, that Novartis, J&J and the rest may now have returned to Zuellig for its distribution requirements. The speculation is the once-again-a-monopoly firm might "penalize" the two for dumping it in favor of the other Swiss conglomerate.

And guess who will get the "penalty". Filipino consumers again?

We hope not. Consumers had absolutely nothing to do with their choice of distributor. They absolutely had nothing to do with the mess left behind by Diethelm Keller Siber Hegner. They should not be penalized.

The prognosis is the reported debacle in the Philippines suffered by the over-a-century-old group might have damaged its reputation worldwide. A related view is that it might not spare even the Edward Keller group which has been in the country since the turn of the 20th century.

This is unfortunate. But that is what happens when a conglomerate leaves behind massive losses that, at the end of the day, affects not just its books, but also the local banking industry and prices of the medicines we buy.

Strong fundamentals

The immediate rebound of the stock market following the initial shock triggered by heavy sell-offs in the United States and China, has confirmed once again that the country’s economy on the Arroyo watch is deeply rooted in strong fundamentals.

Economic analysts believe that strong macroeconomic fundamentals — thanks to the tough economic reforms put in place by the President — had buttressed the economy from external shocks. The strong peso, the low interest rates, the slow inflation rate and the improving fiscal outlook, they point out, are the main reasons behind the market’s quick recovery.

In fact, the Philippine stock market has remained as the strongest performer in Southeast Asia since the start of the year, proving that its bull run is not a mere fluke but is a result of the deepening investor confidence in the economy.

The benchmark Philippine Stock Exchange index has already exceeded the performance of emerging markets in the region except Vietnam, which has already gained 16 percent year-to-date.

The PSEi has already grown by almost seven percent so far this year and is expected to rise further on improving economic fundamentals and a possible sovereign credit ratings upgrade, according to analysts.

Net foreign buying in the Philippine Stock Exchange almost tripled in the year 2006 compared with the net foreign buying in 2005, while its stock offering proceeds for 2006 grew by double digits compared with the total capital it raised in the previous year.

As PSE president and CEO Francis Lim had said, the stock market closed 2006 with the biggest amount of capital raised since 1994, when the PSE was granted a license to operate as a stock exchange.

Lim added that the heightened interest of foreign investors, which resulted to the stock market’s impressive performance in 2006 "is proof that economic reforms being implemented by the government, especially its efforts to manage the budget deficit, tame inflation and stabilize interest rates have once again paid off."

Even the local currency has emerged as Asia ’s best-performing currency, strengthening by 6.3 percent in the last six months, according to a recent assessment made by Bear Stearns and Co. Inc.

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