The Philippines has the second highest drug prices in Asia, second to Japan Medicines in the Philippines cost

3.4 to 184 times higher than the international reference prices (WPRO)-WHO, 2007:3). Furthermore, Filipino consumers are paying more than twice the price of the same branded offpatent drugs that are being sold in India and Pakistan. The cost of some vital medicines sold in the Philippines is 259 percent to 1600 percent higher than counterpart drugs sold in India, Pakistan and Thailand. Local prot margins range from 1000 percent to 2860 percent. How does the current market structure of the pharmaceutical industry leads to higher prices of medicines? Manufacturing level-pharmaceutical industry is controlled by foreign owned corporations 80% of Toll manufacturing is handled by Interphil Laboratories Zuellig Pharmaceuticals, Inc. together with its subsidiary Metro Drug Inc. distributes around 80% of the drugs sold in the market Zuellig Pharmaceuticals, Inc Laboratories totalling 70%. owns the majority stocks of Interphil

In its simplest sense, market failures occur when individuals or firms in pursuit of their self-interest, cause inefficiencies and inequities in how the market operates. This paper will look at monopoly, a form of market failure to explain the issue of high drug prices in the Philippines. As Solon and Banzon (1999:90) claim, the prices of drugs and medicines are considered to be at levels that produce inequities as well as inefficiencies.

Despite the increasing number of players in the pharmaceutical sector, only a few have control of the majority of the market. The issue that arises out of this arrangement manufacturing level, the pharmaceutical industry is that at the is controlled by

foreign-owned corporations, while the toll manufacturing and distribution is being controlled by only a few players, the biggest of which is Zuellig Pharmaceuticals, Inc. and Interphil Laboratories. At the drugstore level, majority (62.7%) is owned by chain drugstores. Mercury Drug, Inc. dominates the retail market, cornering 80% of the total sales of drug retailers (Esguerra & Oprecio, 2004). Furthermore, at the retail levels, particularly on chain drugstores, prices are marked up by 7-15%, while private hospital pharmacies mark up prices by 15-30%. The dominance of a few players in the pharmaceutical market increases the market power of these companies in dictating drug prices.

The Philippine Pharmaceutical Industry The dominance of multinational corporations in the application of intellectual property law in the Philippines is visibly apparent in its pharmaceutical industry. In terms of market revenue share, this is clearly illustrated in the schedule below:

Based on the schedule, at least 60% of the market is controlled by the multinational companies. This clearly establishes the marketing and distribution power of the multinationals in the Philippines. Only United Laboratories and Pascual Laboratories are owned by Filipinos. The rest of the market revenues share of around 17% were earned by various small and medium sized pharmaceutical companies some of which are still foreign owned but which may not be classified as multinational companies. At present, rough industry estimates pegged the Philippine pharmaceuticd industry market at around P85 billion with the market revenue sharing still the same as the trends of the previous years which shows a clear dominance by the multinationals. The multinational companies justify their dominance of the Philippine pharmaceutical market on the ground that the drugs or medicines that they produce are of good quality with its efficacy and safety assured. Hence, the consumers patronize it more. In relation to the alleged high prices that they impose, they justify such because of the quality and the need to recoup their research and development costs in relation to each successful patent which is given exclusive rights by the intellectual property law of the. Philippines. In other words, the strength of the multinationals lies in the patents of the drugs or medicines. On the other hand, Filipino pharmaceutical companies, a significant majority of which are small and medium sized corporations, contend that there are a lot of barriers to a level playing field in the Philippine pharmaceutical market. As much as they acknowledge that they do not have that much capital, they especially note that, unlike the intellectual property laws of other countries, the intellectual property laws of the Philippines are designed in favor of heavily protecting the patents of the multinationals. Thus, granting more marketing monopoly in favor of the multinationals. It was manifested by the representative of the local pharmaceutical companies that every time they consider coming up with a generic drug or medicine, a significant risk they consider is the possibility and costs of a lawsuit that may be filed by a multinational. Also, they noted that their resources are limited in terms of checking which patents filed by the amultinationals are truly innovative or actually frivolous. Patent protection further increases the likelihood of high drug prices. Similarly, the quality of drugs attributed to it also increases the likelihood of monopolies. (Office of the WHO-Philippines, undated). Although patent protection is recognized as instrumental in promoting the invention, development and marketing of new drugs, by providing incentives for research and development, it has also added to the apparent monopoly of the pharmaceutical industry . The patent holder by virtue of the protection afforded to his product, is granted exclusive right to manufacture the product or use the process, thus granting monopoly rights on the holder (Kraft, 2006:12). This monopoly in pharmaceutical patents by the mncs may be clearly seen in the following schedules.

As may be seen from the abovestated information, the strict intellectual property laws of the Philippines are largely protecting the monopolies of the multinationals or foreign owners since almost all of the pharmaceutical' patents are foreign owned and all by multinationals from the developed world. It is posited that as a general rule for developing countries, the fewer patents granted on medicines, the better, so that monopolies are limited and generic versions can be introduced without delay. How does monopoly of MNCs in pharmaceutical patents lead to higher prices of medicines? How does government policy correct the monopoly of MNCs in the pharmaceutical industry? To understand further the impact of the monopoly of the multinationals over the Philippine pharmaceutical industry, a comparison of drugs and medicine prices, particularly those sold by the same multinational companies, in other countries must be made. This may be understood better in the following illustrative tables:

It is argued by the multinationals that economies-of-scale and recovery of research and development costs justify the differences in pricing strategy in the Philippines and in India. On this aspect, other participants in the hearing noted that what determines the pricing strategy of pharmaceutical companies is the maximum capability of the market to absorb the highest possible price. It has been determined that the protection given by the Intellectual Properly Code of the Philippines in favor of the inventors has resulted in a significant imbalance between supply and demand of drugs and medicines. Specifically, it was also posited by most of the participants that the market dominance of the multinational companies has caused artificial barriers to the fair trade of drugs and medicines which consequently led to the high prices and lack of access of drugs and medicines to the detriment of millions and millions of Filipinos. One then is made to ask whether the issue with the drug regulation in the Philippines is a result of market failure particularly

the monopolistic tendencies and structures of the Philippine pharmaceutical industry? Or is the fault solely the governments, as a result of lack of capacity in the implementation of the different programs? Or worse, could it be that it is a conglomeration of both market failure and government failure?