PHILIPPINE PHARMACEUTICAL INDUSTRY

May 2011

Introduction
The Philippine pharmaceutical market is valued at US$2.51 Billion (Php111.6 Billion) in 2008, and forecasted to reach US$3.91 Billion by 2013. In terms of the overall market this is comparable to Pakistan and Thailand, and in terms of per capita, it is similar to China and Iran. The Philippines is continuously ranked as the 11th most attractive pharmaceutical market in the Asia-Pacific region, and the third biggest market in ASEAN after Indonesia and Thailand. The local market includes all products classified as drug or non-drug. Drugs are either ethical (prescription) or over-the-counter (OTC) products used for medication or in the diagnosis, cure, mitigation, treatment or prevention of diseases in human beings, while non-drug items include nutritionals (health food), infant milk preparations, baby care, cosmetics, diagnostic and other medical devices. The bulk of the sales in the Philippines is from ethical or prescription drugs, which represents about 70% of the total sales. Over-the-counter (OTC) products account for about 24%, while nutritionals occupy the remaining share of the pie. About 85% of products are sold through drug stores and 15% are distributed to end-users in hospitals and doctors clinics. Fourteen (14) of the Top 20 pharmaceutical companies in the world have manufacturing facilities in the Philippines. The share of local manufacturers in the drug market is seen to rise to 38% and will likely continue to expand through 2010 and beyond. Multinational drug companies are expected to grow by 4% in 2009. Pharmaceutical patents and trademarks are well-secured in the country. The Intellectual Property Code of the Philippines provides harsh penalties for infringement of patent and trademark rights. The recently approved Universally Accessible Cheaper and Quality Medicines Act of 2008, while it will result in lower prices, will increase consumption as more people will be able to afford the needed pharmaceuticals for their health and wellness.

Market Opportunity
Increase in demand/consumption There is an apparent big demand for medicinal and pharmaceutical products in the Philippines with importation increasing at an annual average rate of 11.34% from 2005-2010. With Philippine population projected to increase to 94.01 million by the end of 2010 from 88.57 million in August 2007, increase in demand for pharmaceutical products is more likely to happen. Also, with the expiration of a number of patents in 2009, as well as those that had lapsed over the past 2-3 years, local manufacturers will have the opportunity to start introducing generic versions of patented drugs. This would not only reduce
Philippine Importation of Medicinal & Pharmaceutical Products (US$Billion, FOB)

0.800 0.700 0.600 0.500 0.400 0.300 0.200 0.100 2005 2006 2007 2008 0.458 0.584 0.521 0.657

0.723

0.783

2009

2010

Source of Data: NSO

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PHILIPPINE PHARMACEUTICAL INDUSTRY

May 2011

the cost of medicine but would also expand the domestic market. Total family expenditures for drugs and medicine increased to Php 39.04 Billion in 2009 from Php 33.323 Billion in 2006 or by 17% over a 3-year period. - About 45% of the total expenditures in 2009 were spent by families living in the National Capital Region and its nearby cities/municipalities of Regions III and IV. From 1998-2005, there is a steady increase in the number of hospitals, both private and government, from 1,172 to 1,755, or an increase of about 50% over a period of 7 years. From 2001-2006, there is also an increase in the number of medical practitioners, specifically medical doctors, from 44,238 to 45,555, or an increase of about 3% over a period of 5 years.

Philippine Advantage
Human resources Availability About 470,000 college-degree graduates in 2009 - About 38% are graduates of medical/natural science and engineering/technology courses suitable for the pharmaceutical sector. - Over 20,000 per year of new licensed medical and allied sciences practitioners, and more than 25,000 new licensed engineers/year Annual growth rate of tertiary level graduates estimated at 3.8%. Quality Literacy rate of 92%, one of the highest in the world due to a culture-based desire to be educated and skilled to attain a better quality of life. 3rd largest English-speaking country in the world Highly-educated, flexible, productive, loyal, dedicated with excellent work ethics and attention to detail Surveys of executives in the Asian region have consistently ranked both skilled and unskilled Filipino workers high in terms of quality of work, communication capabilities and receptiveness to technology transfer. Pioneering Market for Research and Development Existing manufacturers are concentrated on the manufacture of products discovered and developed outside the Philippines, and about 90% of the raw materials used are imported. A pharmaceutical activity concentrated on research and development and discovery of new drugs are a pioneering activity.

Industry Potentials
Growths Number of industry players From 373 total registered pharmaceutical companies in 2003 to 471 in 2007, or an increase of 26% in 5 years. - Local companies from 208 in 2003 to 240 in 2007, or an increase of 15% - Foreign companies from 165 in 2003 to 231 in 2007, or an increase of 40%. Sales

Sales of pharmaceuticals increased by an average of 9.6% per year based on the 2004-2008 performance of the industry. In terms of counting units (CU) or the number of tablets, capsules, milliliters sold, sales increased from 36 billion CU in 2003 to 45 billion CU in 2007, or an increase of 25%.

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PHILIPPINE PHARMACEUTICAL INDUSTRY

May 2011

Market share Philippines share in the world pharmaceutical market in 2007 was placed at 0.31%. Within Asia-Pacific region, the Philippines contributed 3.9% in 2007. New Product Introductions In 2002 to 2007, there were about 240 new products introduced into the market by both foreign and local pharmaceutical companies. Leading Therapeutic Classes Top 20 therapeutic classes amount to Php53.09 Billion or 51% of total industry.

Rank 1 2 3 4 5 6 7 8 9 10

Top 10 Therapeutic Classes in the Philippines Therapeutic Classes Indication Calcium Antagonists Non-narcotic Analgesics Infant Formulas Cephalosporins & Combination Broad Spectrum Penicillin Anti-rheumatic Non-steroidal Analgesics Oral Anti-diabetics Multivitamins + Minerals Expectorants Cholesterol & Triglyceride Regulator Hypertension Pain Relief Nutrition Supplemen Infection Infection Pain Relief Diabetes Vitamin Supplement Cough Hyper-cholesterolem

Research and Development The industry, at present, is into compounding and manufacturing existing drugs rather than formulating breakthrough drugs. Research and development (drug discovery) is a pioneering endeavor. Contribution to the economy Percent of GDP The Philippines currently spends 3.4% of GDP on health but this is expected to increase to 3.6% by 2013.

Source of Data: Pharmaceutical & Healthcare Association of the Philippines Factbook, Nov. 2008

Government Support
Enabling laws/policies Universally Accessible Cheaper & Quality Medicines Act of 2008 (R.A. 9502) - Allows parallel importation of patented medicines from other countries where they are affordable - Imposes price ceilings (Maximum Drug Retail Price) on essential drugs upon the recommendation of the Department of Health Philippine Generics Act of 1988 (R.A. 6675) - mandates the implementation of the Philippine National Drug Formulary (PNDF) to rationalize the pharmaceutical sector and give consumers more informed choice and greater cost savings. Intellectual Property Code of the Philippines (R.A. 8293) Special Law on Counterfeit Drugs (R.A. 8203) 2010 Investment Priorities Plan - provides fiscal and non-fiscal incentives for: - Drugs and medicines covering the manufacture of chemical compounds or biological substances, other than food, intended for use in the treatment, prevention or diagnosis of disease in humans and animals, including (1) articles recognized in official Pharmacopoeia or national drug formulary; (2) articles intended for use as a component of the articles in (1) above; and (3) herbal and/or
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May 2011

traditional drugs which are articles of plant or animal origin used in alternative medicine. Research and development for commercial and in-house R&D activities.

Development Plans and Programs Department of Health Administrative Order No. 2010-0036 - The Aquino Health Agenda: Achieving Universal Health Care for All Filipinos focused on three (3) major strategies: - Financial risk protection through expansion in National Health Insurance Program (NHIP) enrolment and benefit delivery; - Improved access to quality hospitals and health care facilities; - Attainment of the health-related Millennium Development Goals (MDGs) FOURmula ONE for Health Roadmap for Health Sector Reforms in the Philippines 2005-2010 in consonance with health system goals identified by the World Health Organization, the MDGs and Medium-Term Philippine Development Plan (MTPDP) - Better health outcomes - More responsive health system - More equitable healthcare system R&D support Philippine Council for Health Research and Development (PCHRD) creates and sustains an enabling environment for health research in the country.

Incentives
Fiscal 4 to 8 years Income Tax Holiday (ITH); Special 5% tax rate on gross income after the lapse of ITH (for IT Park/Eco-zone locators); Tax and duty exemption on imported capital equipment (for IT Park/Eco-zone locators); Duty-free importation of capital equipment (for BOI-registered firms under E.O. 528); Exemption from 12% input VAT on allowable local purchase of goods and services, e.g., communication charges (for IT Park/Eco-zone locators); Additional deduction for labor expense. Non-fiscal Unrestricted use of consigned equipment; Exemption from wharfage dues and export tax, duty, impost and fees; Employment of foreign nationals; Special Investors Resident Visa.

Costs of Doing Business

Average Manufacturing Cost Cost of Goods makes up at least 49% of the total cost Operating and Selling Expenses account for 40% Employee salaries and benefits is at least 7% of the operating and selling expenses Research and development or clinical trials, make up only an average of less than 1% of the total cost. Salaries and wages (Basic, Annual Average, US$) Chemist/Q.A. Analyst 2,750 3,750 Chemical Engineer/Supervisor 3,250 4,500 Plant Manager/Department Head 5,000 7,500 Maintenance Technician 2,250 2,500 Medical Sales Representative 2,500 3,000
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PHILIPPINE PHARMACEUTICAL INDUSTRY

May 2011

Average Manufacturer/Trader Cost Structure

Rentals, lease, acquisition (average, US$) Commercial space lease 2.0-9.0/sq.m. Office space rental NCR: 10-12/sq.m.; Regional/Provincial: 5.0-6.0/sq.m. Within an economic zone lease of lots 0.40/sq.m Outside NCR lease of lots 62.5 104.17/sq.m./month Business Permits/Licenses License to Operate and Product Registration from Bureau of Food and Drugs (BFAD); Environmental Compliance Certificate from Environmental Management Bureau (EMB); Registration of Incorporation from the Securities and Exchange Commission (SEC).

NET SALES 1 COST OF GOODS MANUFACTURED AND SOLD 2 OPERATING AND SELLING EXPENSES 2.1 General Management Costs 2.2 Selling Costs 2.2.1 Salaries and benefits 2.2.2 Travel and motorization 2.2.3 Other selling costs 2.3 Advertising and Promotion 2.3.1 Literature and documentation 2.3.2 Samples 2.3.3 Scientific seminars 2.3.4 Ads (OTC and ethical drugs) 2.3.5 Entertainment and representation 2.3.6 Other promo and advertising expenses 2.4 R&D (Clinical trials, etc.) 2.5 Royalties 2.6 Interest and bank charges 2.7 Other operating and selling expenses 3 CORPORATE TAX 4 NET PROFITS Source: PHAP Factbook ,July 2003 0.47 2.18 2.56 1.37 0.43 4.52 0.61 0.70 1.00 3.01 7.45 3.70 6.10 11.53 6.40 17.25

100% 49.2 40.5

3.3 7.0

Contacts
Board of Investments Industry and Investments Building 385 Sen. Gil J. Puyat Avenue, Makati City 1200 Tel. No. (+632) 896-8907 Fax No. (+632) 895-3521 E-mail Address: EMCagatan@boi.gov.ph Website: www.boi.gov.ph Food and Drug Administration (FDA) Ms. Nazarita T. Tacandong, RPh, MPA Director IV Civic Drive, Filinvest Corporate City Alabang, Muntinlupa City 1781 Tel. No. (+632) 809-4390 locals 2183 & 2184 Fax No. (+632) 807-0751 E-mail address: bfad@bfad.gov.ph Website: www.bfad.gov.ph National Drug Policy Pharmaceutical Management Unit Department of Health G/F, Building 12, San Lazaro Compound, Rizal Avenue, Sta. Cruz, Manila 1003 Tel. No. (+632) 743-8301 local 1101 up to 1103 Fax No. (+632) 749-8490 E-mail Address: ndppmu50@yahoo.com Website: www.doh.gov.ph/ndp-pmu50/

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PHILIPPINE PHARMACEUTICAL INDUSTRY

May 2011

Intellectual Property Office of the Philippines Director General Adrian S. Cristobal, Jr. IP Philippines Building Sen. Gil J. Puyat Avenue, Makati City Tel. No. (+632) 752-5450 to 65 local 201 to 205 Fax No. (+632) 897-1724 E-mail Address: dittb@ipophil.gov.ph or mail@ipophil.gov.ph. Website: www.ipophil.gov.ph Philippine Chamber of the Pharmaceutical Industry, Inc. Mr. Edward I. Isaac - President Unit 1207 President Tower, 81 Timog Avenue, Quezon City Fax No. (+632) 929-5184 Philippine Pharmaceutical Manufacturers Association Ms. Sally Nolasco President Room 1217 Cityland 10 Tower II 6817 Ayala Avenue cor. H.V. dela Costa St., Makati City Tel. No. (+632) 893-4230 Fax No. (+632) 753-1040 E-mail Address: info@ppma1950.com Pharmaceutical and Healthcare Association of the Philippines Mr. Reiner W. Gloor Unit 501 One Corporate Plaza 845 Pasay Road, Makati City Tel. No. (+632) 815-0325; 816-7334; 816-7373 Fax No. (+632) 819-2702 E-mail Address: phap7346@phap.org.ph

Industry Studies Department Board of Investments