PHILIPPINES IMPOSES PHARMACEUTICAL DRUG PRICE CONTROLS

UNCLAS SECTION 01 OF 02 MANILA 001923 C O R R E C T E D C O P Y / REMOVED COLLECTIVE ADDRESSEE SENSITIVE SIPDIS STATE FOR EAP/MTS, EAP/EP, AND EEB/TPP STATE PASS USTR FOR BWEISEL, BKLEIN, AND RBAE STATE PASS USAID, OPIC, USDA BANGKOK FOR JENNIFER NESS TREASURY FOR OASIA USDOC FOR 4430/ITA/MAC USDOC PASS USPTO E.O. 12958: N/A TAGS: ETRD KIPR EINV ECON RP SUBJECT: PHILIPPINES IMPOSES PHARMACEUTICAL DRUG PRICE CONTROLS REF: A) MANILA 1060 B) MANILA 0468 MANILA 00001923 001.2 OF 002 ¶1. (SBU) Summary: Government pressure on multinational pharmaceutical firms resulted in a 50 percent price reduction for 21 key medicines in the Philippines, phased in beginning August 15. President Macapagal-Arroyo had to issue an executive order forcing price drops on five of these medicines when companies balked during negotiations. Pharmaceutical firms and most retailers are complying with the new pricing regime, but at least one multinational may appeal the executive order. Local generic manufacturers do not like price controls for different reasons, fearing lower-priced brand name medicines will cut into their market. The research pharmaceutical industry, already suffering from lax enfocement of intellectual property rights (IPR),considers this as further eterioration of their sector's investment climate in the Philippines. End summary. Prescription Drug Price Reductions Commence ¶2. (SBU) Prescription drug price reductions commenced on August 15 for big retail outlets and will be fully implemented by September 15, 2009 for small retail drug outlets that do not have computerized inventory systems. This initiative stemmed from the passage of the Universally Affordable & Cheaper Medicines Act (Republic Act 9502) by the Philippine Congress, in June 2008. Spurred by the legislation, officials of the Departments of Health (DOH) and Department of Trade & Industry (DTI) sought to negotiate voluntary 50 percent price reductions on 21 prescription drugs from members of the Pharmaceutical and Healthcare Association of the Philippines (PHAP). These drugs, according to the DoH, are medicines that treat many of the leading causes of illness and mortality in the country. ¶3. (SBU) However, the government and pharmaceutical firms reached an impasse on five prescription drugs: amlodipine (anti-hypertension), atorvastatin (anti-cholesterol),azythromycin (antibiotic), cytarabine and doxorubicin (anti-cancer). Executives from Pfizer (not a PHAP member) told emboffs that the government did not consult sufficiently during this process, and did not select drugs that would have the greatest benefit for the Philippine masses. They also claimed there was no market study or economic analysis justifying the government's price reduction of 50 percent. Pfizer is particularly affected by the executive order because the drugs included constitute the bulk of the company's business in the Philippines. Private Hospitals Tried to Delay Implementation ¶4. (SBU) Members of the Private Hospitals Association of the Philippines publicly opposed the timeline for implementing price controls and threatened to go on a hospital "holiday" a week prior to the implementation of the executive order. They claimed they were not informed of the deadline, and wanted a postponement to dispose of inventory in hospital pharmacies that were bought at a higher price. An official of the DOH responded that the private hospitals trade association never expressed such concerns during the public consultations that took place. Nonetheless, the DOH assured hospital executives that pharmaceutical companies ould compensate them for any losses through rebates, reimbursements or other similar mechanisms. In return, private hospitals assured the DOH that they would not go on a hospital holiday. Local Drug Firms Also Not in Favor ¶5. (SBU) Contacts at domestic generics pharmaceutical firms and drug distributors profess that the majority of local drug companies are against the new pricing regime. These controls have significantly reduced their cost advantage over brand-name medicines, and some claim they will lose market share as former generics consumers choose to pay the smaller additional cost to purchase cheaper brand name pharmaceuticals. Multinational Drug Firms and Pharmacies Comply, Grudgingly ¶6. (SBU) Pfizer officials told us they will comply with the executive decree, but added that they are considering whether to appeal the order. GlaxoSmithKline, Sanofi Aventis, Baxter, Bayer, Boeringer Ingelheim, and Wyeth also opposed mandatory price controls, but avoided compulsory reductions by offering voluntary price drops on 16 essential medicines. These and other PHAP firms MANILA 00001923 002.2 OF 002 also cut prices 10 to 50 percent on 22 other prescription medicines that are now available in the market. PHAP President Oscar Aragon said that their group is working with government, and is committed to helping Filipinos gain access to cheaper essential drugs. At the same time, Pfizer executives told us they were planning on reducing operations in the Philippines, due to expected lower profits. Additionally, there are some PHAP member firms that will delay expansion plans and maximize existing operations; others will bring their generic divisions into the country to minimize the impact on their branded medicines and also to take advantage of the market opportunity. Comment ¶7. (SBU) Although the government conducted public consultations on the implementation of this law, industry officials have a point about the lack of thorough scientific or economic studies underlying the government's actions to halve the price of these medicines. On the other hand, there is intense pressure for the current government to reduce medicine prices as the election season is nearing (reftel A),and calls for affordable medicines increase from civil society groups (reftel B). Prescription medication prices in the Philippines are the second highest in Asia (next to Japan),in a country where about a third of the population subsists below the official poverty line. In this instance, some multinational companies failed to recognize that cheaper medicine for the masses is an emotional and political issue. When price controls were placed on several of their most profitable products, it affected some companies' whole business model. Investment, and therefore, job creation by research pharmaceutical companies in the Philippines, will continue to be inhibited by such government market interventions. Furthermore, Philippine civil society's and government's success in lowering prices might encourage further interventions. KENNEY