Cablegate: Philippines Imposes Pharmaceutical Drug Price Controls

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FM AMEMBASSY MANILA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 5147
INFO RUEATRS/DEPT OF TREASURY WASHDC IMMEDIATE
RUCPDOC/USDOC WASHDC IMMEDIATE
RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION IMMEDIATE
RUCNASE/ASEAN MEMBER COLLECTIVE IMMEDIATE

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

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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

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