Do we want investors, or not?

PH lures pharma, MNCs in import substitution tack” ran a headline in Malaya last week. There are measures in Congress (House Bill No. 3252 by Iloilo Rep. Ferjenel Biron and Senate Bill No. 1582 by Sen. Miguel Zubiri) proposing the establishment of a Drug Price Regulatory Board that would impose price controls on selected medicines. There was a similar measure under the Arroyo administration that forced a massive price reduction in a range of medicines. It led to the pharmaceutical industry losing an estimated P12 billion in what it had been promised was a free, open market where competition would keep prices in check. And it was working successfully. Competitive brands were available at much lower prices: generics versus branded.

The news item quoted Trade Secretary Ramon Lopez as saying: “This import substitution strategy calls for the ‘purposive encouragement of importables to be done here’ with pharmaceuticals as one of the many consumer goods that the Philippines imports heavily but can easily make here, if only the brands or the producers tap the country as their hub. There are some products we believe can be manufactured here so we will try to encourage … say a foreign brand or an MNC (we can tell them) instead of just selling in the Philippines and us importing, for them to put up a plant here … and make that a toll manufacturing [center].”

Lopez added that a manufacturing facility will generate additional jobs and boost the Philippines’ capability to manufacture drugs. I wholeheartedly agree. He went on to say that Philippine trade officials are currently in talks with pharmaceutical MNCs as part of the government’s aggressive strategy to attract foreign investors. But these trade officials will definitely have a hard time convincing foreigners to invest here when there’s serious talk of implementing measures that foster an uncertain and restrictive regulatory environment.

The intent is for MNCs to produce here specific brands for sale both domestically and for export, but under the hammer in Congress are fiscal incentives. The Department of Finance is, rightly, seeking an examination of incentives offered, and reducing these to only those where the need is genuine to attract investment. The thing is, while that is being done we don’t know what the outcome will be. No one invests in uncertainty, and uncertainty is certainly what we have today.

I’d like to suggest to Congressman Biron and Senator Zubiri that they withdraw their bills. The basic intent — give Filipinos cheaper medicines — is admirable. But the method — government-determined pricing — is not. As we saw before when prices were forced down, the intent was to give Filipinos cheaper medicines. But subsequent research found that the public didn’t really benefit as expected.

As I wrote in an earlier column (July 6), “The Cheaper Medicines Act does not seem to have resulted in significantly reducing the financial burden of medicine costs among households. Respondents from all socioeconomic classes claimed that their expenditures for medicines were still heavy. The law has had little effect on low income respondents (Class DE) who rarely buy branded medicines, but avail themselves of free medicines from government health centers or purchase low cost generics.”

The study was conducted by the Department of Health. It was titled “The Impact of Cheaper Medicines Act (CMA) on Households in Metro Manila: A Qualitative Study” and principally written by Dr. Eleonara de Guzman.

Another bill trying for similar control will undoubtedly have a similar result but, additionally, negate any attempt of Secretary Lopez to get manufacturing here. Companies just won’t come. Recall that on the sidelines of the recent Asean Summit, President Duterte told Indian Prime Minister Narendra Modi that he hoped Indian investors would be interested to produce medicines in the Philippines. We won’t attract these investors if we have laws that impose price controls on medicines.

My guess is that 60-70 percent of Filipinos can’t afford drugs at any price. So this law, if passed, would not affect them at all. And they’re the ones we want to help. PhilHealth has the money and clout (due to volume) to get very good deals, and then give the medicines for free. That’s the way to go.

If you want to control prices, don’t expect investment.

E-mail: [email protected]. Read my previous columns: www.wallacebusinessforum.com.