A Business Research Proposal in
Establishing a Private Local Owned
Pharmaceutical Company
Southwestern UniversityDepartment of Graduate School
Research and Statistics (REST)
Submitted by:Wayne Chavit and Karl QuipanesMBA-Ex Batch 11
BUSINESS OPPORTUNITIES INTHE PHILIPPINE
PHARMACEUTICALS MARKET
A Business Research Proposal in Establishing a Private Local Owned Pharmaceutical Company
3
Manila
Region Population % Market %
LUZON 36.3 M 42 32,912B 31
M.MANILA 11.4 M 14 43,912B 41
VISAYAS 17.4 M 20 15,620B 15
MINDANAO 20.7 M 24 13,595B 13
TOTAL 85.8 M 100 106,039B 100
I.PHILIPPINE DEMOGRAPHIC
AND SOCIO-ECONOMIC PROFILE
REGIONALGROUP
TOTALPOPULATION
% SHARE TOTOTAL
NCR 11,394,158 13.30
REST OF 36,311,284 42.30
VISAYAS 17,404,060 20.30
MINDANAO 20,713,352 24.10
TOTAL 85,822,854 100.00
ESTIMATED POPULATION BY REGIONAL GROUP
Field Health Service Information System 2006
AGE GROUP % SHARE TO TOTAL
Young Dependents (0-14 yrs) 37.00
Economically Active (15-64 yrs) 59.20
Old Dependents (65 yrs and above)
3.80
TOTAL 100.00
AGE STRUCTURE OF POPULATION
NSO, 2000 Census of Population and Housing
GENDER AVERAGE LIFE EXPECTANCY
MALE 70.00
FEMALE 75.50
AVERAGE 72.75
AVERAGE LIFE EXPECTANCY BY GENDER
2005 Estimate, National Statistics Office (NSO)
CATEGORY % SHARE TOTOTAL
Young old (60-69 yrs) 60.37
Old old (70-79) 29.29
Oldest old ( 80 yrs above) 10.34
TOTAL 100.00
POPULATION AGED 60 AND ABOVE2005 Estimate, National Statistics Office (NSO)
Number of Senior Citizens estimated at 6.3%of total projected population in 2005
(Expected to be more than 10% by 2020)
Annual Population Growth Rate(1995-2005)
2.0 %
Population Residing in Urban Areas (2005) Population Residing in Rural Areas (2005)
63.0 %37.0 %
Population Living on less than US$1/day (2000)
15.5 %
SELECTED POPULATION STATISTICSWorld Health Report 2007, National Statistics Office (NSO)
THE GOOD NEWS….
GNP Growth Rates Region
7.3 %5.9 %
Gross International Reserves (GIR) US$ 36.6 Billion
Inflation Rates Average 2007 March 2008
2.8 %6.4 %
Interest Rates Savings Deposit (ave. 2007) Time Deposit (short-term) Bank Lending Average (2007)
2.2 %3.4 %
8.68 %
Selected Economic Data (March 2008)
THE NOT-SO-GOOD-NEWS….NSO Poverty Statistics
Annual Per Capita Poverty Threshold (2006) PhP 15,057.00
Poverty Incidence (2006) Families Population
26.9 %32.9 %
Magnitude of Poor, in Millions (2006) Families Population
4.727.6
Poverty Threshold for Family of 5 (2006) Monthly Daily Per Capita
PhP 6,274.00PhP 209.00PhP 41.80
Selected Economic Data (March 2008)(Contd)
Poverty Threshold for Family of 5 (2006) National Capital Region
PhP 6,274.00PhP 8,569.00
Food Threshold for Family of 5 (2006) Monthly Daily
PhP 4,177.00PhP 139.00
Poor Filipinos Residing In Rural Areas (2003)Poor Filipinos in the Agricultural Sector (2003)
77 %68 %
POVERTY STATISTICSNational Statistical Coordination Board
(NSCB)
Expenditure Item All Groups Lower 30 % Upper 70 %
Food 41.4 59.1 39.3
Rent 12.7 9.0 13.2
Fuel/Light/Water 7.6 7.3 7.7
Transpo/Communication 8.2 3.8 8.7
Education 4.4 1.3 4.7
Medical Care 2.9 1.7 3.0
Personal Care/Effects 3.7 3.7 3.7
Alcoholic Beverages 0.7 1.2 .06
Tobacco 0.9 1.7 0.8
DISTRIBUTION OF FAMILY EXPENDITURES (2006)
Selected Expenditures, % Share to Total
II.THE PHILIPPINE
PHARMACEUTICALS MARKET
SALES BY MAJOR CHANNELTOTAL SALES (2007) = PhP 105.9 Billion
DRUGSTORES 89%
HOSPITALS 11%
* HOSPITAL 11% - 90% private, 10% government
Source: IMS, Dec 2007
SALES BY REGIONAL GROUP
MINDANAO: 12.8%
VISAYAS: 14.7%
LUZON: 31.1%
METRO MANILA: 41.5%
Source: IMS, Dec 2007
ETHICAL AND PROPRIETARY MARKET
PROPRIETARY: 28.4%
ETHICAL: 71.6%
Source: IMS, Dec 2007
BRANDED AND UNBRANDED MARKET
UNBRANDED: 4%
BRANDED: 96%
Source: IMS, Dec 2007
SALES BY SOURCE (VALUE)
MULTINATIONAL COS: 69%
LOCAL: 31%
Source: IMS, Dec 2006
SALES SOURCE (VOLUME)
MULTINATIONAL COS: 55%
LOCAL: 45%
Source: IMS, Dec 2006
PRODUCT SOURCING (2006)MARKET
90B
LOCAL54B (75%)
IMPORTED36B (25%)
COMPANY-OWNEDFACTORIES (31B)
THIRD PARTYMANUF (23B)
UNILAB30% (20B)
OTHERS(3B)
GLAXO-SMITHKLINE
5% (8B)
INTERPHIL25% (18B)
OTHERS3% (5B)
IMPORTED BULK /LOCALLY PACKED
(8B)
IMPORTED FINISHED
GOODS (28B)
COMPANY-OWNEDFACTORIES (1B)
THIRD PARTYMANUF (7B)
INTERPHIL3% (6B)
OTHERS(1B)
PRODUCT COMPOSITION (2006)
MARKET90B
PRESCRIPTION MEDS(63B)
OTC/VIT SUPLMNTS / HOME REMEDIES
(27B)
HERBALS /ALTRNTVE MEDS (1B)
BRANDED / PATENTED
(10B)
GENERICSOFF-PATENT (53B)
LOCAL BRANDS(16B)
MULTINATIONAL COBRANDS (11B)
UNBRANDED GENERICS
(3B)
BRANDED GENERICS(50B)
ORIGINATOR BRANDS(40B)
MEE-TO BRANDS(10B)
DISTRIBUTION CHANNELS (2006)BRAND/PRODUCT
OWNERS
DISTRIBUTION(90B)
WHOLESALERS(10B)
RETAIL CHAINS(60B)
HOSPITALS/INSTITUTIONS
(10B)
GOVERNMENT(10B)
MERCURY DRUG(40B)
INDEPENDENT STORES (20B)
DEMAND CREATION
MARKET
PRESCRIPTION
OTC / HERBALS
DOCTORS /PRESCRIPTION
S
DETAILING
TECH TRAINING /
SEMINARS
DOCTORS ADS / PROMOSCOMPANY-
OWNEDOUTLETS
DETAILING / MED REPS / SAMPLES
PHILIPPINE PHARMACEUTICAL MARKET
•60% of toll manufacturing for Multinational Companies by IINTERPHIL LABORATORIES•80% of wholesale distribution through ZUELLIG and METRO DRUG• 60% of retails sale through MERCURY DRUG chain with over 670 outlets• Philippines medicine prices are one of the
highest in the world in relation to per capita income
THERAPEUTIC CLASS SALES (PhP Billion)
% SHARE
Cardiovascular and Hematopeic 17.8 22.3Antibiotics/Other Chemoterepeutics 11.7 14.6Neuro-muscular 11.4 14.3Respiratory 10.5 13.2Vitamins & Minerals / Nutrition 10.2 12.7Gastro Intestinal System 5.4 6.8Dermatologicals / Topicals 3.2 4.0Endocrine & Metabolism 2.9 3.7Chemotherapy 1.8 2.3Genito-Urinary 1.7 2.1Hormones 1.2 1.5Eye and Ear 1.0 1.2Immunosuppressive Agents 0.5 0.6Vaccines & Gamma Globulins 0.3 0.4Anesthetics 0.1 0.2 TOTAL 79.8 100.0
TOP THERAPEUTIC CLASSES (IMS, 2007)
Sales and Market Share
THERAPEUTIC CLASS SALES (PhP Billion)
% GROWTH
Chemotherapy 1.8 89.1Anaesthetics 0.1 69.3Vaccines & Gamma Globulins 0.3 65.3Cardiovascular & Hematopeic 17.8 55.8Endocrine & Metabolism 2.9 49.1Immunosuppressive Agents 0.5 47.5Gastro-Intestinal System 5.4 38.6Vitamins & Minerals / Nutrition 10.2 28.5Dermatologicals 3.2 27.9Neuro – Muscular 11.4 27.7Genito – Urinary 1.7 25.6Eye and Ear 1.0 25.0Respiratory 10.5 23.8Hormones 1.2 22.7Antibiotics 11.7 16.9 TOTAL 79.8 100.0
TOP THERAPEUTIC CLASSES (IMS, 2007)
Growth Rates 2004-2007
BRAND CO SALES SHARE GROWTH
1 NORVASC PFZ 1.768 1.67 28.662 VENTOLIN GSK 1.324 1.25 2.20
3 CEELIN PED 1.176 1.11 1.66
4 BIOGESIC BIM 1.017 0.96 7.65
5 SOLMUX WMT 0.983 0.93 -0.526 NEOZEP MY 0.969 0.91 11.61
7 ENERVON C UNA 0.952 0.90 9.01
8 ALAXAN TPM 0.851 0.80 0.81
9 PLAVIX S.A 0.795 0.75 5.56
10 AUGMENTIN GSK 0.743 0.70 -3.52
TOP 20 PRODUCTS (IMS, 2007)Value (P Billion), Market Share (%), Growth Rate ’06 (%)
BRAND CO SALES SHARE
GROWTH
11 NEOBLOC GXI 0.673 0.64 11.2512 MYRA E MY 0.660 0.62 23.3213 LIPITOR PFZ 0.637 0.60 11.7114 ENSURE ABT 0.601 0.57 49.1715 XENICAL ROC 0.590 0.56 25.3416 SERETIDE GSK 0.577 0.54 29.4217 ZEGEN UNA 0.573 0.54 27.5018 CENTRUM WYC 0.562 0.53 20.3719 TAZOCIN WYE 0.527 0.50 -7.8020 FLANAX ROC 0.516 0.49 41.80
TOP 20 PRODUCTS (IMS, 2007)Value (P Billion), Market Share (%), Growth Rate ’06 (%)
CORPORATIONSALES
P Billion%
SHARE%
GROWTHRANK% GR
1 UNITED LAB * 22.689 21.50 17.9 6
2 GLAXO SMITHKLINE 8.654 8.20 1.8 16
3 PFIZER INC. 7.148 6.77 16.8 7
4 WYETH 6.566 6.22 8.5 8
5 SANOFI-AVENTIS 4.417 4.19 2.1 15
6 ABBOTT LAB 4.064 3.85 26.7 2
7 ASTRAZENECA 3.741 3.54 -5.8 19
8 ROCHE 3.407 3.23 22.7 3
9 NOVARTIS 3.288 3.12 -2.4 18
10 JOHNSON 3.158 2.99 2.22 14
TOP 20 CORPORATIONS (Based on sales)MAT (Figures as of Nov 2007)
CORPORATION SALESP
Billion
% SHARE
% GROWT
H
RANK% GR
11 BOIE INGELHEIM 3.007 2.85 4.2 13
12 MYERS SQB 2.794 2.65 -7.6 20
13 BAYER PHARMA 2.373 2.25 6.4 10
14 PASCUAL LABS * 2.314 2.19 19.6 4
15 SCHERING PLOUGH 2.203 2.09 5.8 11
16 NATRAPHARM * 1.755 1.66 45.9 1
17 MERCK SHARP & DOHME 1.608 1.52 4.2 12
18 SERVIER PHILS 1.565 1.48 8.2 9
19 MERCK INC. 1.153 1.09 0.6 17
20 GX INTERNATIONAL * 1.099 1.04 19.5 5
TOP 20 CORPORATIONS (Based on sales)
MAT (Figures as of Nov 2007)
* Filipino owned companies
CORPORATION SALESP Billion
%SHARE
%GROWT
H TOTAL PHARMA MARKET 105.529 100.0 11.0 TOP GENERICS COMPANIES 30.374 28.8 18.3 TOP COS. LESS UNILAB 7.685 7.3 19.5
1 UNITED LABORATORIES 22.689 21.5 17.92 PASCUAL LABS 2.314 2.2 19.53 GX INTERNATIONAL 1.099 1.0 19.54 INTERMED MARKETING 0.888 0.8 -3.55 NATRAPHARM 1.755 1.7 45.86 OEP 469 0.4 43.47 CATHAY DRUG CO. 405 0.4 38.28 BIOLAB CO. LTD. 251 0.2 13.69 SANDOZ 502 0.5 -18.0
TOP GENERICS COMPANIES (Based on sales)MAT (Figures as of Nov 2007)
PROFILE OF THE HOSPITAL SECTOR
•Accounts for 11% of total market sales•1,928 hospitals, of which 1,146 are private•Private hospitals continue to be the most important market for multinational companies•Listing in Essential Drugs List (EDL) required only for procurement by government hospitals•Tenders required mainly in government hospitals•Hospital pharmacies cater mostly to in-patients•Mark-ups between 20-30%
PROFILE OF THE DRUGSTORE SECTOR
• Accounts for 89% of total market sales• Approximately 10,000 licensed retail drugstores, less than half of which are active•Mercury Drug, the major pharmacy chain, has 670 stores nationwide and more than 60% share of retail •Mark-ups average from 8-10% (20-50% on generics)•Agrees to sell medicines by the blister•Plays an important role in influencing buying brand •(But) patient-prompted switching is growing
DOCTOR BEHAVIOR
•Among factors which influence brand choice, personal relationship is said to be the most important•Scientific attributes of the drug and reputation of brand owner/manufacturer also influences prescription behavior•Growing acceptance of generics in the informed market sector•Average call duration on a medical specialist is from 1-2 minutes•Specialist able to see up to 40 Medical Representatives per day•Average cost of a Med Rep call on a GP is said to be PhP 500.00 (approximately US$12)
PATIENT BEHAVIOR
•Very strongly influenced by doctors’ recommendation or prescription•Majority, if not all, of healthcare expenditures still out-of-pocket•Usually purchases out of the hospital•Average purchase is a weekly dose•Poor compliance due to high cost of treatment•Greater awareness of generics as a choice, especially among the informed patient sector
III.Market Dynamics
MARKET DYNAMICSSome Insights
PUBLIC HEALTCARE REMAINS LARGELY UNDER-FUNDED AND INEFFICIENT:
•Less than 2% of Filipinos have sufficient Insurance Coverage•Budget Allocation for health is only US$31 per capita, approximately 3% of GDP•Less-than-efficient reimbursement scheme•No price regulation or control•70% of the population has no regular access to essential medicinces (2000 WHO survey)
MARKET DYNAMICSSome Insights
ACCESS TO HEALTHCARE AND MEDICINE HAS BECOME A MAJOR POLITICAL AND SOCIAL ISSUE:
•Greater consumer awareness of high drug prices•Government parallel importation program•On-going efforts to develop an alternative retail distribution network run by the private sector•Universal Accessible Cheaper and Quality Medicines Act of 2008, among other reforms
MARKET DYNAMICSSome Insights
PATENTS ON 80-90% OF ESSENTIAL DRUGS HAVE EXPIRED, BUT KNOWLEDGE REGARDING STATUS VERY LIMITED
LOCAL INDUSTRY HAS CAPABILITIES TO MANUFACTURE ONLY AROUND 200 MEDICINES OF THE MORE THAN 600 IN THE ESSENTIAL DRUGS LIST
PRIMARILY A BRAND-CONSCIOUS PRESCRIPTION MARKET(BUT) BRANDED GENERICS SECTOR GAINING GROUND
o29% market share w/c is growing around 20% annuallyoGrowth fueled by increased acceptance by drs/patients
oAggressive entry of Indian and other foreign suppliers
oDownward shift in prices observed
IV.STATEMENT OF OBJECTIVESAFFORDABLE, AVAILABLE, ACCESSIBLE
KEY OBJECTIVES•MARKET ECONOMICAL MEDICINES THAT HAVE A DIFFERENCE; PROVE BIO-ASSAYS/BIO-EQUIVALENCE, EFFICACY AND SAFETY
•WIN OPINION LEADERS, KEY MEDICAL SOCIETIES, TRAINING HOSPITALS, GOVERNMENT HEALTH AGENCIES AND POLICYMAKERS•BUNDLE BRANDS AND UNIQUE SERVICES FOR DISEASE MANAGEMENT
•FOCUS ON BEING THE PROVIDER OF QUALITY MEDICINES AND AN AFFORDABLE PRICE
•STARTING WITH THE MOST IN-DEMAND PRODUCTS, COMPANY WILL GRADUALLY ADD MORE PRODUCTS, STARTING ON THE SECOND YEAR AND SO ON AS THE COMPANY PROGRESSES
Specific Objectives
1. AFFORDABILITY•Offer most competitive prices without sacrificing quality•PRICE POINTS:
BRANDED: position 30% lowerBRANDED-GENERIC: position 50% lowerGENERIC: position 60% lower
•Highly-Inflated mark-ups in the local pharmaceutical industry will allow reasonable reduction in margins, achieving the target prices and getting recognition as the price leader
2. AVAILABILITY•Aggressive promotional and sales/marketing campaign to create awareness:
Print and Media Direct-mail to buying groupsAds in trade publicationsPoint-of-sale materials on retail outletsMedical Representative
•The application of an effective and efficient Inventory Control system will ensure product availability at all times
3. ACCESSIBILITY•Products will be offered at all drugstores•Assistance in creating cooperatives to encourage the establishment of more drugstores; a network of privately owned and operated accredited pharmacies that offer affordable medicines•Direct sales and distribution strategy to target areas where accessibility is inadequate•Multi-level Network Marketing (on permitted products) can be applied to create livelihood, and further enhance accessibility
V.SALES PROJECTIONS
YR% PROJECTED TO BE ACQUIRED FROM THE
INDUSTRY (PhP100B/yr)AMOUNT
(PhP)HALF OF PROJECTED
SALES
1 .025 % 250,000,000 125,000,000
2 .050 % 500,000,000 250,000,000
3 1.00 % 1,000,000,000 500,000,000
4 1.20 % 1,200,000,000 600,000,000
5 1.50 % 1,500,000,000 750,000,000
An investment of PhP50M is needed to successfully launch the start-up company. Allocation of the 50M funds is as follows:
40% = PhP20M – operations60% = PhP30M – inventory•Company will do an average mark-up of 300-400%, which still
gives us prices 30-60% lower than competition•the 30M inventory marked-up will equal PhP125M•for the first year, company projects a 2x inventory turn-around,
making the annual sales at PhP250M
5 YEAR SALES PROJECTION:
YR 1 YR 2 YR 3 YR 4 YR 5
INVENTORY TURN-AROUND/YR2x 3x 4x 4x 4x
PROJECTED INVENTORY TURN-AROUND:
SOURCES OF SALES YR 1 YR 2 YR 3 YR 4 YR 5
DOCTORS 30% 50% 50% 50% 50% DRUGSTORES 50% 40% 45% 45% 45% INSTITUTIONAL 20% 10% 5% 5% 5%
SALES BREAKDOWN:
CURRENT ENTRY OF COMPANY
Multinational Companies
70 % 50 %
Unilab
20 % 25%
Local Manufacturers
10 % 10 %
New Players 15 %
INDUSTRY MARKET SHARE: MANUFACTURERS:
* FORECAST BASED ON LONG –TERM EFFECT OF COMPANY’S ENTRY IN THE MARKET
PROFIT AND LOSS STATEMENT In PhP Millions
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
GROSS SALES 100%
250 500 1,000 1,200 1,500
COG (62.5) (125) (250) (300) (375)GROSS PROFIT 187.5 375 750 900 1,125LESS EXPENSESMKTG EXPENSESSamples 5% (12.5) 3% (15) 2% (20) 2% (24) 2% (30)Ads 20% (50) 15
%(75) 10% (100) 8.4
%(100.8) 6.7
%(100.5)
POP/Giveaways 7.5% (18.75) 5% (25) 3% (30) 3% (36) 3% (45)Scientific Lectures .2% (0.5) .1% (0.5) .1% (0.5) 0.1
%(0.5) .1% (0.5)
Key Opinion LeaderDevelopments
.2% (0.5) .1% (0.5) .1% (0.5) 0.1%
(0.5) .1% (0.5)
Sponsorships/Special Projects
10% (25) 10%
(50) 7.5%
(75) 6.3%
(75) 5% (75)
ADMIN EXPENSESSales & Incentives 10% (25) 10
%(50) 7.5
%(75) 6.2
%(75) 5% (75)
Wages & Salaries 3% (7.5) 3% (15) 2% (20) 2% (24) 2% (30)Misc: Mgmt , equip, Rental, licenses, etc.
2% (5) 3% (15) 2% (20) 2% (24) 2% (30)
NET PROFIT 42.75 129.1 409 540.2 738.5
BIBLIOGRAPH: • With the permission of Hon. Teddie Elson E. Rivera, Former UnderSecretary of Department of Agrarian Reform (DAR) and Vice President of Philippine International Trading Corporation(PITC)• National Statistics Office, 2000, 2005, 2008• National Statistical Coordination Board(NSCB), 2003, 2006, 2008 • International Market Survey(IMS), 2006, 2007