Drug prices hinge on SEC cases - Gotcha

Going by numerous user complaints, House Minority Leader Sonny Belmonte was right to question the new 10-percent tax on cellphones with no impositions on phone companies to improve services.

A common complaint is the voice-mail racket. Callers pay to leave voice messages on subscribers' cellphones. Then, subscribers are charged for accessing the messages. To make things worse, cellphone companies alert subscribers about urgent messages -- then charge them for the call.

Some cellphone firms install voice-mail features in SIM cards of supposedly cheap but modern units. The catch: because of poor reception and frequent dead spots, callers are forced to leave voice messages. So pre-paid subscribers' cellcards run out faster than they should. They're stuck with the voice-mail feature because cellphone firms refuse to deactivate it.

A corporate war is raging between Swiss giant Zuellig and minority owners of Interphil Laboratories, RP's biggest drug-maker. At first glance, the fight seems to be an internal matter: minority rights versus supposed prerogatives of Zuellig-designated managers. On closer look, however, it is a public issue. Medicine prices depend on its outcome, especially since Interphil makes 90 percent of all drugs sold by competing foreign and Filipino firms.

Records from the Securities and Exchange Commission show that minority owners Necisto Sytengco and Government Service Insurance System are questioning Zuellig managers for signing contracts that favor the Swiss drug firm. Sytengco further is asking the Zuellig majority to open Interphil's books to minority owners. GSIS is demanding to get its board seat back.

The three cases have been pending for years. In the first, Sytengco and GSIS board nominee Oscar Inocentes are asking Interphil to scrap "sweetheart deals" its managers signed with Zuellig. Among such deals are management contracts, hefty officers' pay, insurance purchases from Zuellig, and leases of Zuellig warehouses. The minority owners say the contracts are unfavorable to Interphil yet beneficial only to Zuellig -- in violation of the majority's fiduciary duty.

SEC records show Zuellig Group's 70-percent headlock on publicly-listed Interphil through Zuellig Corp., 10.97; Zuellig Pharma, 31.66; Interpharma Holdings, 24.65; managers' proxies, 2.72. They also show interlocking ownership: Zuellig Corp. owns 99.99 percent of Zuellig Pharma and 99.8 percent of Interpharma Holdings. Eight director-officers from the three Zuellig firms sit in Interphil's nine-man board.

In their complaint, Sytengco and GSIS said the automatic renewal each year of Interpharma's P4.2-million contract to manage Interphil is against the law. They also asked why the P10.5-million annual pay of Zuellig's top-five managers in Interphil is bigger than the firm's net income of P7.8 million in 1999, as it also was in preceding years. They said the managers signed a warehousing deal with Zuellig Pharma in which Interphil pays not only for floor but also air space above it; this, although Interphil has vacant warehouses of its own. They added that at a time of price cuts, Interphil managers insured the firm's assets at higher premium rates with Federal Phoenix Assurance, another Zuellig Group company, through Zuellig Insurance Brokers Inc.

In a second complaint, Sytengco is asking Zuellig managers in Interphil to open their finance books. This, because he said they filed a disclosure of the contracts with SEC only in 1996, and merely as marginal note at that. He said they made further disclosures in 1997 only because he raised a howl. He complained that although he has given Interphil a downpayment for the audit he is entitled to for free as a minority owner, the managers have not opened their books.

GSIS in a separate complaint is demanding that it be given back the board seat it has held since it bought Interphil shares in 1994. Although Sytengco lent GSIS enough proxie votes, it lost the seat in last year's stockholders' meeting simply because the Zuellig majority-directors did not nominate the GSIS trustee. Instead, they put in their eighth man.

Trade Sec. Mar Roxas has questioned Interphil's "inordinate economic control" of the pharmaceutical industry. Through a business called tolling, most of the 654 Filipino and foreign firms go to Interphil to have their branded drugs manufactured and packaged. Industry bigwigs say Interphil's control of the business grew to 95 percent in 1999, when close to a dozen drug makers padlocked their Manila factories and scaled down as mere distributors. Six small rivals share the remaining five percent of the tolling business.

Insiders say the tolling business is a no-lose proposition. Interphil bills clients on cost-plus basis; meaning, it tacks on a profit margin to labor, material and management costs of drug-making. They say Interphil charges one of the highest tolling fees in Asia, three times more than most ASEAN capitals. Yet the minority owners are complaining about meager profits year in and year out, insinuating that Zuellig Group siphons off Interphil earnings.

The minority's complaints could compel the Group to disclose how much profit it has been raking in all these years of high medicine prices.

Such disclosure will allow government to find ways to bring prices down.

GSIS' bid to recover its board seat could also put it in a position to influence drug pricing. The money it invested in Interphil came from contributions of 1.5 million low-paid government employees who, like most everyone else, cannot afford to buy medicines. Its board nominee should protect not only their financial but also socioeconomic interests.

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