The Philippine Drug Cartel

A major reason for the high cost of pharmaceuticals in the Philippines is the nature of the prevailing business environment. In the words of Roberto Pagdanganan, the head of the government trading arm, the PITC, there is a “cartelized system” of marketing and distribution. There exists a Philippine drug industry “cartel” which controls supply and sets pricing. Such pricing has little or no relation to the actual cost of production and retailing and is determined solely by what the cartel believes the market can take. The result ? Drug prices that are probably the highest in the world in relation to per capita income. For example, a 500 mg. tablet of Ponstan, a painkiller manufactured by Pfizer, costs US$0.45 in Philippines while the very same item costs only US$0.06 in India, a nearly 800% differential.

More than 60% of the retail trade in pharmaceuticals in the Philippines in controlled by one privately-owned company, Mercury Drug. Mercury Drug, with over 600 outlets all over the country, has annual sales of approximately US$1 billion. By its sheer size and economic clout, Mercury is in a position to dictate the pricing and distribution policies of the drug makers. They have to dance to Mercury’s tune or risk being left out of the party altogether.

Moreover, approximately 80% of the toll manufacturing for foreign drug companies is done by Interphil Laboratories. About 80% of wholesale distribution of medicines is handled by Zuellig Pharma/Metro Drug, a sister corporation of Interphil. With so few dominant industry players, its no wonder that a cartel evolved which now effectively controls the market.

The government has been fighting back, with limited success. It has set up the “Botica ng Bayan” program, a grassroots distribution and retailing network intended to bring cheaper generic drugs to the people who need it most. As always, such programs are hampered by bureaucratic and budgetary limitations. Whether this will loosen the cartel’s stranglehold on the Philippine pharmaceutical market remains to be seen.

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