A brooding volcano

Mayon Volcano is the perfect analogy for the brooding discontent among many sectors involved in the manufacture, distribution and sale of medicines in the Philippines.

I make the analogy between Mayon Volcano and all the people directly or indirectly involved in the production and sale of medicines because I recently returned from Naga City where I had a chance conversation with leaders of the Drug Stores Association of the Philippines (DSAP). Just like Mayon Volcano, these ladies were a very unhappy and grumbling lot.

For sometime now, I have quietly recorded information gathered from many sectors involved in the “medicine” business and I guess it’s about time people got an update as to how and what the “Cheaper Medicines Act” and the Maximum Retail Price or MRP on medicines has achieved.

First and foremost, we now realize that “medicines” in the Philippines is not the sole territory or concern of the Pharmaceutical Industry. Legislators and government concentrated on controlling pharmaceutical companies but disregarded the impact of the law on companies that distribute medicines, wholesalers, retailers, hospitals.

Everybody wanted cheaper medicines but had no idea what impact MRP would have on car dealers, hotels, restaurants, airlines, car limo services, events organizers, production companies, artists and ad agencies.

The second thing the legislators and DOH officials may have ignored were the many complications concerning rebates on price differences, Senior Citizen discounts, impact on the generics industry, impact on tax collections and collateral incomes of related sectors. Most of them did not even believe that their action would actually result in retrenchments, which has started to happen.

My discovery started when I sincerely tried to get all the reasons why medicines in the Philippines were expensive. The answers I got from everybody were: cost of electricity, highly unionized labor which meant higher labor costs, taxes, distribution, and government policies that restricted more efficient or economical forms of promoting product information.

That’s when a very feisty lady told me to my face that I did not really know enough. It was right under my nose, but we all tend to see things that are at a distance. Bordering on seething frustration the lady blurted out: We have to give each employee a car! We have to provide samples for every doctor!

In her case, the company she works for has about 75 to a 100 people who call on doctors everyday. Those 75 to 100 cars don’t run on water or air and they are not self-healing vehicles, so costs pile up. All that has to be factored in to their costs.

As an incentive most company employees have the buy back option on their brand new car after four or five years. Because of the 50 percent forced reduction on prices and the announcement that a second wave or list for reduction will be due in about two months, many pharmaceutical companies have lengthened the waiting period to buy back from four years to six years.

This means that car dealers who could predict annual fleet sales can now predict an equivalent loss in sales like the Pharmaceuticals will at year-end.

Because the BFAD prohibits drug companies from advertising (except branded generics) companies must invest on product launches, round table presentations, scientific seminars and the likes. This has been good for hotels, restaurants and airlines that have serviced many of the requirements of drug companies year-round.

But because of the MRP, the disposable income of drug companies has evaporated and so have the sales of many hotels nationwide as well as the restaurants and airlines that earn millions of pesos from the business activity of Pharmaceutical companies.

This week several event organizers who handled “segments” at the DSAP convention lamented that most of the Pharmaceutical companies have scrapped their events for the year and are now concentrating on intimate or man-to-man presentations.

As a result, actors, actresses, singers, bands and event hosts have lost a major source of income. Writers, video producers and production companies have also started to lose at least 30 to 40 percent of their regular income due to the Pharmaceutical industry cut backs.

Along the mainstream of business, one pharmaceutical company has retrenched 70 employees. Soon to follow is another company who will disengage with a distributor who has 150 employees specially assigned to the foreign company. I am told that a third company is just waiting to follow with their announcement.

While the Pharmaceutical companies have stayed low while licking their wounds, it seems that Hospital organizations and the Drug Store Association have decided to go to court due to the financial injury caused by the Cheaper medicines Act, the MRP and the insistence of the DOH that drug stores should still give a 20 percent Senior Citizen discount in spite of the 50 percent forced reduction or MRP.

A DSAP member asked “ how can we do that? We only have an average mark up of 5 to 10 percent on medicines. Then the government imposed a 50 percent reduction on the product price, now they want us to add another 20 percent discount for seniors. In return we get a tax deduction of 30 percent in exchange for a 70 percent loss!”

Unfortunately, reports indicate that the MRP only benefitted the rich because they were the only ones who bought the expensive medicines. The majority simply don’t have the cash or won’t spend the cash. The problem that many generic companies face is that the forced price reduction on branded medicines now threatens their profitability because customers with money now find branded medicines competitive and attractive.

In the end, the Cheaper Medicines Act and the MRP will certainly create competition between Branded Medicines and Branded Generics. Unfortunately that competition will also kill the small generics companies. MRP has certainly brought us cheaper medicines…. along with unemployment and business losses.

In the words of a famous government official: “We’ll let the next administration worry about that”.