Philippine Pharmaceutical Industry

The Philippines is currently 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 Philippine pharmaceutical market is valued at US$2.51 Billion in 2008, and forecasted to reached US$3.91 Billion by 3013. 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 total Philippine pharmaceutical market includes all products classified as drug or non-drug.

- Drugs are either ethical (Prescription) or over the counter (OTC) products use for medication or in the diagnosis, cure, mitigation, treatment or prevention of diseases in human beings; - Non-drug items include nutritionals (health foods), infant milk preparations, baby care, cosmetics, diagnostic and other medical devices.
The bulk of the pharmaceutical sales in the Philippines is from ethical or prescription drugs, which represents about 70% of

the total sales. occupy the remaining share of pie.

Over-the-counter (OTC) products account for about 24%, while nutritionals

About 85% of products are sold through drug stores ad 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 the local manufactures in the drug market is seen to rise 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 provide 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 the 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 y There is an apparent big demand for medical and pharmaceutical products in the Philippines with importation increasing at an annual average rate of 12% from 2004-2008. Importation in 2009 is projected to reach US$736 Million.

y With Philippines population projected to increase to 92.23 million by the end of 2009 from 88.27 million in 2007, increase in demand for pharmaceutical products is more likely to happen. y Also, with the expiration of the 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 the cost of medicine but wouldalso expand the domestic market. y Total family expenditures for drugs and medicines increased to Php 16,085,226 in 2000 or by 8% over a 4-year period from its 1997 level. - Average Expenditures per family is reported at Php 1,292 in 2000. - About 40% of the total expenditures in 2000 were spent by families located in the National Capital Region and its nearby cities/municipalities of Region IV.
From 1998-2005, there is steady increase in the number of hospitals, both private and government, from 1,172 to 1755, 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, specially 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

More than 490,000 college-degree graduates in 2008

- About 20% 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 manufactures 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%.

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 the total industry.

Research and Development

The industry, at present, is into compounding and manufacturing existing drugs rather than formulating breakthrough drugs.

Research and development (drug discovery and clinical trials) is the pioneering endeavor.

Contribution to the economy Percent Of GDP

The Philippines currency spends 3.4% of GDP on health but this is expected to increase to 3.6% by 2013.

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 were they are affordable. - Imposes price ceiling (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 Pilippine National Drug Formulary (PNDF) to rationalize the pharmaceutical sector to 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:

- Healthcare and wellness products covering the manufacture of drugs and medicines in accordance with the PNDF - Research and Development for in-house use, and external clients. Development Plans and Programs
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 Millennium Development Goals and Medium Term Philippine Development Plan

- Better health outcomes - More responsive health system

- More equitable healthcare system R&D support

Philippine council for Health Research and Development (PCHRD) creates and sustain an enabling environment for health research in the country.

Incentives Fiscal
4 to 8 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 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 national ; Special Investors Resident Visa.

Cost 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$)

Chemest/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

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/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 Securities And Exchange Commission (SEC).

Philippine Pharmaceutical Industry

The Philippines is currently 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 Philippine pharmaceutical market is valued at US$2.51 Billion in 2008, and forecasted to reached US$3.91 Billion by 3013. 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 total Philippine pharmaceutical market includes all products classified as drug or non-drug.

- Drugs are either ethical (Prescription) or over the counter (OTC) products use for medication or in the diagnosis, cure, mitigation, treatment or prevention of diseases in human beings; - Non-drug items include nutritionals (health foods), infant milk preparations, baby care, cosmetics, diagnostic and other medical devices.
The bulk of the pharmaceutical sales in the Philippines is from ethical or prescription drugs, which represents about 70% of

the total sales. occupy the remaining share of pie.

Over-the-counter (OTC) products account for about 24%, while nutritionals

About 85% of products are sold through drug stores ad 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 the local manufactures in the drug market is seen to rise 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 provide 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 the 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 y There is an apparent big demand for medical and pharmaceutical products in the Philippines with importation increasing at an annual average rate of 12% from 2004-2008. Importation in 2009 is projected to reach US$736 Million.

y With Philippines population projected to increase to 92.23 million by the end of 2009 from

88.27 million in 2007, increase in demand for pharmaceutical products is more likely to happen. y Also, with the expiration of the 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 the cost of medicine but wouldalso expand the domestic market. y Total family expenditures for drugs and medicines increased to Php 16,085,226 in 2000 or by 8% over a 4-year period from its 1997 level. - Average Expenditures per family is reported at Php 1,292 in 2000. - About 40% of the total expenditures in 2000 were spent by families located in the National Capital Region and its nearby cities/municipalities of Region IV.
From 1998-2005, there is steady increase in the number of hospitals, both private and government, from 1,172 to 1755, 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, specially 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

More than 490,000 college-degree graduates in 2008

- About 20% 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 manufactures 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%.

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 the total industry.

Research and Development

The industry, at present, is into compounding and manufacturing existing drugs rather than formulating breakthrough drugs. Research and development (drug discovery and clinical trials) is the pioneering endeavor.

Contribution to the economy Percent Of GDP

The Philippines currency spends 3.4% of GDP on health but this is expected to increase to 3.6% by 2013.

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 were they are affordable. - Imposes price ceiling (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 Pilippine National Drug Formulary (PNDF) to rationalize the pharmaceutical sector to 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:

- Healthcare and wellness products covering the manufacture of drugs and medicines in accordance with the PNDF - Research and Development for in-house use, and external clients. Development Plans and Programs
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 Millennium Development Goals and Medium Term Philippine Development Plan

- Better health outcomes - More responsive health system - More equitable healthcare system R&D support
Philippine council for Health Research and Development (PCHRD) creates and sustain an enabling environment for health research in the country.

Incentives Fiscal
4 to 8 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 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 national ;

Special Investors Resident Visa.

Cost 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$)

Chemest/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

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/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 Securities And Exchange Commission (SEC).