Impact Analysis of RA 9502 "Cheaper Medicine Bill"

The recent implementation of Republic Act (RA) 9502, otherwise known as the Cheaper Medicine Bill, initially covering 22 pharmaceutical products, has created much confusion, fear, resistance and uncertainty over a large swat of the healthcare industry in the Philippines.

The multinationals who were the primary target of the law reacted in a mixed manner with some companies fully complying and even expanding the list to include other products while other companies partially complying and even challenging the law. One valid argument that these companies offer is that the law is irrelevant since even before its implementation there are already alternative (me-too) products in the market that are priced way below the Maximum Retail Prices (MRP) making this law selective and arbitrary.

Hospitals may be hit hard since the bulk of the revenue that sustains its operation are coming from sales of medicines. To recover lost revenues, hospitals may be compelled to increase other hospital fees such as room and laboratory fees. In effect in-patients will not feel the benefit of this law since whatever savings they will get from medicines will simply be offset by increase in other hospital fees.

Local pharmaceutical players (Dealers and distributors) may have to reassess their pricing structure since they cannot leverage anymore on the huge price disparity that their products previously enjoy versus the innovator brands. On the upside however these companies will welcome provisions in this law that allows registration of products before the expiration of patents of innovator brands.

Other expected outcome:

• Affected products are expected to suffer lower revenues but are likely to generate higher unit sales
• To lower cost & cover up expected revenue short fall, affected companies will be compelled to realign A&P priorities, fast tract product launches & initiate cost cutting measures
• Production of affected products will most likely be outsourced & marketed by third party marketing companies to minimize cost
• Competing Generics & branded generics will be adversely affected in terms of lower volume & thinner margins which may force many local companies to by pass importers/traders & directly source from manufacturers
• Importers and traders will be forced to diversify product sources to get the lowest price and/or go into direct marketing since passing on their products to dealers may not be competitive any more.
• Collateral impact will likewise be felt by products not included in the list but sharing similar indications, therapeutic class or spectrum of activity in the case of antibiotics. For example, Augmentin may exert competitive pressure on cephalosphorins which may lead to lower prices of cephalosporin brands.
• The bill which also allows early registration of generic me-too products before patent expiration of innovator brands will lead to quicker market penetration of competition.