Why do medicines cost more in RP?

For years Americans living in border-states have been slipping across to Canada to buy medicine. Reason: value for money. Constrained by profit ceilings and a weaker currency, Canadian pharmacies sell drugs at only a fraction of the cost in the U.S. Chairman Roberto Pagdanganan of the government-owned Philippine International Trading Corp. wishes that the archipelago had a land border with India and Pakistan. He has discovered that medicines made there by the same companies operating in the RP, with same efficacy, costs only from a third to a thirtieth of local price tags.

Pagdanganan has a dozen samples. A 500mg tablet of the painkiller Ponstan, made by Pfizer, sells for P21.82 in RP, but only the equivalent of P2.61 in India and P1.38 in Pakistan. The antibiotic Dalacin C 150mg, also by Pfizer, is P37.18 in RP, P23.16 in India, and P8.26 in Pakistan. Imodium 2mg capsule for diarrhea, by Janssen, is P10.70 in RP, P3.05 in India, P1.83 in Pakistan. The rest (please see table):

Why the sickeningly higher prices of curatives in the Philippines? Trying hard to keep his cool, Pagdanganan blames three cartels in the pharmaceutical industry. A full 80 percent of contracted manufacturing, he says, is done by only one factory, Interphil Inc. Its sister company Zuellig Corp. in turn controls 80 percent of wholesaling. And Mercury Drugstore chain holds 70 percent of retail.

There’s an easy tendency for the makers who hold the drug patents, and the biggest factory, distributor, and retailer to conspire to push prices up for profit, Pagdanganan laments. "Their pricing strategy has been for big profit alone," Pagdanganan shakes his head. "They’ve been at it years and can’t switch to, say, volume." He who rides the tiger is afraid to dismount, he reminds. Whereas 30 percent of Filipinos could afford medicines in 2000, only less than 20 percent bought in 2005.

The Pharmaceuticals and Healthcare Association of the Philippines is quick to defend itself from chatter of monopolism. Assistant vice president Eufe Tantia explains that Interphil and Zuellig happen to be dominant only because they came ahead and invested big. That left relative newcomers, although global giants, dependent on the two to mix, package and promote their pills, bottles and vials. But not for long, Tantia adds. Three drug makers, all PHAP members, are putting up factories and sales forces to rival Interphil-Zuellig. As for Mercury, Tantia says, any druggist naturally would keep in stock mostly hot-selling brands, that is, those well promoted by advertising or prescribing.

Tantia concedes that prices can be much less in India and Pakistan. But that’s because, he says, cheap raw materials readily are available there. Economies of scale come into play too. Given India’s population of a little over a billion, drug companies can sell low but still achieve target revenues through sheer volume.

Pagdanganan pooh-poohs the retorts. If raw materials were so cheap and abundant in India and Pakistan, he says, then drug firms logically would be buying there. Yet they source these, again at higher rates, from the mother companies. Pagdanganan adds that "yes, there are 13 Indians to every Filipino, but how come the total sales of drugs in India in 2004 was $4 billion, but in the Philippines $2 billion?" The 2:1 correspondence, he avers, is another proof that drug firms price their wares simply for margins than to expand the market. Pharmaceutical revenues grew ten percent last year, but actual volume of preparations sold dropped five percent.

Pagdanganan’s cure for high medicine prices is parallel importation. Following the example of Sen. Mar Roxas as trade secretary in 2000, he buys from India and Pakistan brands whose patents have expired, for resale only at actual cost of purchase plus shipping. His outlets include 1,500 mobile pharmacies called Botica ng Bayan, 8,000, barangay public drugstores, and government hospitals. So far Pagdanganan has gathered 52 brands of antibiotics, antihistamines, antispasmodics, anticonvulsants, anti-emetics, vitamins, analgesics, dermatological preparations, and medicines for diabetes, hypertension, viral infection, and asthma. All sell for only one-fourth to one-half of the price in regular stores.

There’s a risk in parallel importation, though. One can be sued, as what happened to Pagdanganan when he bought from India 40 capsules of a Pfizer drug for lab testing preparatory to sale when the patent expires in June 2007.

Speaking of which, 2007 can be a year for bringing down drug prices. Filipino legislators have but to take the cue from their U.S. counterpart. As the U.S. Congress adjourned last month for midterm elections, two bills zipped through it into law. One would allow Americans visiting Canada to bring back a 90-day supply of medicines. The other would stop Customs from seizing packages containing prescription drugs from Canadian sellers. With more and more people procuring drugs via the Internet and India, the source of cheap medicine, fast becoming an IT hub, then maybe....

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