ANALYSIS

I. Agencies involved

Pharmally Pharmaceutical Corporation bagged a total of ₱10.85 billion worth of contracts from three
Government Agencies: The Procurement Service-Department of Budget and Management (PS-
DBM), Department of Health (DOH), and Department of Transportation-Philippine National
Railways (DOTr-PNR). According to the report of the Commission on Audit (COA) that there were
about ₱67.32 billion deficiencies in the CoViD-19 pandemic response fund of the Department of
Health (DOH) that triggered a congressional investigation on the transfer of ₱42 billion to the PS-
DBM. Turns out to be the discovery of billions of pesos in a supply contract with Pharmally
Pharmaceutical Corporation.

II. Red flags in qualifications of Pharmally

Pharmally registered as a wholesaler, distributor, and importer of pharmaceutical items, machinery,

and equipment with the Securities and Exchange Commission (SEC) on September 4, 2019, with only
₱625,000, paid-up capital. But later in seven months, it topped the Government Procurement Policy
Board (GPPB) list of suppliers with the highest total contract by May 2020. During the first half of
2020, it bagged a total of nine contracts worth ₱8.01 billion of personal protective equipment (PPE)
items through a negotiated procurement under the Republic Act No. 9184 or the Government
Procurement Reform Act. In June 2021, Pharmally got an additional ₱774 million contract for
CoViD-19 testing kits. This led to the questioning of Pharmally’s qualifications, specifically on its
financial capability.

During the public hearing of the Senate Blue Ribbon Committee last September 10, 2020, senators
questioned how the firm with so little cash paid international suppliers of surgical face masks, face
shields, and RT-PCR testing kits supplied to PS-DBM. Linconn Ong, a director at Pharmally,
responded that the business sought the assistance of Michael Yang, President Rodrigo Duterte's
former economic adviser, who assured its interactions with international suppliers. Senators claimed
that Pharmally's money borrowing showed that corporation lacked the financial capacity to be
awarded government contracts.

Under normal circumstances, government agencies must go through competitive bidding, a seven-
step procedure that thoroughly screens companies and assesses their offers for public contracts.
Under RA 9184, negotiated procurement is allowed as long as these comply with safeguards that
guarantee the protection of the people’s money. And available only in exceptional cases, such as a
natural disaster or an emergency, such as the CoViD-19 pandemic. The government needs to take
immediate steps to prevent imminent danger to life or property, which a government agency can
directly negotiate with a technically, legally, and financially capable company. There are four
mandatory requirements for companies entering into negotiated procurement. In a Senate hearing on
Sept. 10, Lloyd Christopher Lao, the former officer in charge of PS-DBM, said that the department
requested Pharmally for three of the four needed required documents, as well as the technical
specifications of the things his office needs to purchase. He said, “There was no (other) requirement
by law.” in supply contracts during Bayanihan 1. That is why the PS-DBM did not look into
Pharmally’s net financial capacity contract (NFCC). However, the winning bidder must submit
performance security that guarantees its faithful performance of the obligation specified in the
contract. While the GPPB's guidelines do not require an NFCC for the purchase of pandemic goods
such as face masks and face shields, Senate Minority Floor Leader Franklin Drilon said: “That’s an
ordinary common sense and prudence dictate that you should not award P54 million worth of a
contract for a company with ₱625,000 capitalization.”

According to Pharmally's financial accounts filed with the SEC, the company had no business activity
from September to December 2019 before its 2020 dealings with PS-DBM. In 2019, the firm declared
a net loss of some ₱25,000, leaving it with a total cash capital of ₱599,000 by the end of the year.
Due to the absence of any business activity before the pandemic, several experts found the company a
high-risk firm to deal with.

Based on the study released by certified public accountants of non-government organizations on

September 7, 2020, they found that Pharmally’s 2019 financial statements cannot fulfill the billions of
contracts awarded in a short period due to the grossly insufficient capitalization. The company’s
NFCC would fall short of the ₱6.24 million in current working capital necessary to win the
₱54million contract granted by the PS-BDM in April 2020.

During the September 10 Senate hearing, Mon Abrea, a tax expert and chief executive officer of the
Asian Consulting Group, said that he was suspicious of how a company that had only been in
business for a year was able to secure government contracts for billions of pesos. Obtaining the
appropriate certifications and licenses to build a company's reputation and demonstrate its financial
capabilities to qualify for bidding often takes at least two years. Abrea added that Pharmally did not
disclose necessary resources in filings submitted to the SEC in 2019 and failed to declare any
inventory, equipment, and warehouse when the company registered as an importer of goods.

III. Issues on Pharmally’s supply products

When the pandemic struck in March 2020, Congress further enabled the executive branch to expedite
the acquisition of public health commodities through RA 11469, or the Bayanihan to Heal as One Act
(Bayanihan 1), and RA 11494, or the Bayanihan to Recover as One Act (Bayanihan 2). The
government must obtain the necessary items "in the most judicious, cheap, and expedient manner”.
Under Bayanihan 1, the government can expedite the purchase of these items: (a) gloves, gowns,
masks, goggles, face shields (b) surgical equipment and supplies (c) laboratory equipment and
reagents (d) testing kits (e) support and maintenance for laboratory, medical, and surgical equipment
(f) alcohols, sanitizers, tissue, thermometers, and other cleaning materials (g) common medicines
(paracetamol, vitamins, oral rehydration solutions, antihistamine) (h) other items as determined by the
Department of Health (DOH).

Pharmally is a small company owned by a Singaporean national, Huang Tzu Yen. It is a corporation
that supplies face masks, face shields, and other medical equipment to the government, is facing three
(3) allegations that its goods were, (1) Damages of delivered, (2) Tampering of the manufacturing
dates, and (3) overpricing.

a. Damages of supplies and tampering of manufactured dates

Pharmally Pharmaceutical Corporation previously won a separate procurement from PS-DBM for a
face shield contract with the DOH. The face shields were purchased in a competitive bidding process
in March 2021, in which eight potential bidders submitted their prices for the face shields. PPC,
according to the department, has delivered over 500,000 face shields. The DOH, on the other hand,
has not yet paid PPC because the procured face shields have not yet been delivered. Later on, they
found out in a report stated that Pharmally is tampering with the manufacturing dates of face shields.
The DOH is conducting a comprehensive review of procurement transactions, including the
inspection of incoming or currently housed stocks of personal protective equipment (PPE) procured
from Pharmally, either directly or indirectly, through the PS-DBM. Additional, Atty. Charade
Mercado-Grande, Undersecretary of the Health Regulation team, states that they were eager to know
the results of the investigation of tampering of the manufacturing dates of face shields that were
delivered to the DOH and if those were proven that they tampered, they should take the legal
remedies.

During the hearing of the House Good Government and Public Accountability on October 4, 2021,
Krizle Mago, Pharmally executive, incorporator, and regular affairs head, denied the allegations made
by the witness presented by Senator Risa Hontiveros at a Senate probe that the company delivered
supposedly "substandard" face shields. According to Mago, contrary to the allegations, these
damaged items are immediately sorted and disposed of properly and are thus excluded from delivery.
During the repacking process, she said that various packets with broken quantities were mixed to
produce consistent packs containing 10 face shields each. Suddenly, In the Senate hearing, a worker
who claimed to work at a Pharmally warehouse revealed that the company requested the workers to
replace certificate stickers on face shields from 2020 to this year. However, neither of the two
certificate stickers on the face shields had expired, according to Mago. Further, Deputy Speaker
Marcoleta underscored that the investigation being done by the Senate on the issue is no longer in aid
of legislation and that the Senate is already performing prosecution functions that are beyond its
jurisdiction. Deputy Speaker Marcoleta also asked if other officials of the PS-DBM have been
identified by the Senate Blue Ribbon Committee as conspiring with Pharmally regarding the
procurement of medical supplies and equipment for CoViD-19 response. Lloyd Christopher Lao, the
then OIC-Executive Director of PS-DBM when the fund transfer was made, answered in the negative.
He added that there is no evidence to prove that the PS-DBM and its officials colluded with
Pharmally in any way.

b. Overpricing

Senator Risa Hontiveros presented data to the Senate Blue Ribbon Committee on October 19, 2021,
showing that infrared thermometers were sold to the Department of Transportation (DOTr) for ₱3,200
per piece, while their catalog for the same period allegedly showed the same item being sold for only
₱2,000. Hontiveros enquired about it with Pharmally official Mohit Dargani, who claimed that the
varying costs of the items were based on different dates. Hontiveros, on the other hand, showed
Dargani that the receipt and catalog were both dated April 2020. The Senator inquired once more if
this isn't an instance of the government being harmed because Pharmally overvalued their products.
Senator Franklin Drilon, the Senate Minority Floor Leader, stated that the receipt and catalog
supplied by Hontiveros are already clear examples of Pharmally's exorbitant sales. Dargani responded
that, despite being sold in April, the more expensive commodities were acquired in March, when
costs were still high. He claimed that the higher prices should be reflected in their cost of sales
audited financial papers. However, Drilon chastised him for referring to their audited financial
statements on cost of sales while refusing to provide a copy to the Senate committee. The Senator
believes that the actual cost of sales demonstrates that Pharmally paid a low amount for the
overpriced items.

Pharmally is still at the center of the Senate's investigation into the Commission on Audit (COA)
report, which revealed ₱67.32 billion in deficiencies in the DOH’s CoViD-19 funds. Part of that
₱67.32 billion is the ₱42 billion transferred by DOH to PS-DBM, which then awarded Pharmally
contracts worth ₱8.7 billion despite having only ₱625,000 in paid-up capital.

IV. Pharmally officials’ fraudulent and suspicious acts

Pharmally has been in the center of Senate hearings into alleged corruption and abuse in the spending
of public funds during the pandemic. Because of these allegations coming out, someone must be
responsible for it. The Pharmally’s SEC records show the name of the officials under the PPC. Huang
Tzu Yen, a Singaporean native, is the chairman of Pharmally, Twinkle D. Dargani sits as a president,
Mohit C. Dargani is the corporate secretary and treasurer, Linconn Ong and Justine Garado as the
directors.

During the Senate Blue Ribbon Committee hearing, Senate Minority Leader Franklin Drilon has
requested Pharmally Pharmaceutical Corporation officials to appear in front of the Senate on the over
₱10 billion supply deals they received from the PS-DBM. Based on the Pharmally’s SEC records,
Pharmally’s headquarters were on the 22 nd floor of Fort Victoria Tower B in Fort Bonifacio, Taguig
City. According to Blue Ribbon Committee Chairperson Senator Richard Gordon, when they tried to
serve a subpoena to Pharmally officials, the guard stated that the units listed on the company's general
information sheet had been unoccupied since 2018. A corporation that has received billions of
contracts from PS-DBM was found to be using a fake address.

Executives of Pharmally were discovered to have owned luxury cars that have been questioned in the
senate investigation. Gordon showed slides revealing the model and price of vehicles allegedly owned
by three Pharmally executives during the continuation of the blue-ribbon committee's investigation
into the government's pandemic acquisitions. The cars, according to Gordon, were acquired months
after the company was given government contracts. Mohit Dargani has a Porsche 911 Turbo S worth
₱8.5 million. He pointed out that the vehicle's latest registration date with the Land Transportation
Office (LTO) is May 7, 2021. According to Gordon, who cites LTO data, Twinkle Dargani, another
official of Pharmally, owned a ₱13 million Lamborghini Urus registered to her name last December
7, 2020. Linconn Ong, Pharmally's director, owns a P13.5 million Porsche Carrera 4S with a
registration date of February 2, 2021. Ong also has a P5.9 million Lexus RCF, which he registered on
July 9, 2021.

On Wednesday, October 27, a Senate blue ribbon committee presented documents obtained from the
Bureau of Internal Revenue (BIR) that revealed prospective tax liabilities for the companies and
individuals engaged in the government's anomalous pandemic procurement. The companies and
individuals were flagged for failing to file proper income tax returns (ITRs) to the government for
several years. Mohit Dargani paid ₱97,241 in income tax despite the fact that his taxable income for
2020 was unreadable. There is also no information on income taxes in 2015, unreadable taxable
income in 2019 for a tax payment of ₱22,062. Twinkle Dargani paid only ₱1,000 in income tax in
2018, but the amount of taxable income in 2020 was again unreadable. From 2019 to the present, no
records for Pharmally Chairman Huang Tzu Yen have been located. Pharmally director Linconn
Ong's income tax returns were all unreadable. Yang, who served as President Rodrigo Duterte's
economic adviser and was Pharmally's lender and guarantor to Chinese suppliers, filed unreadable
income tax forms in 2019 and 2020. There is also no ITR filed from 2014 to 2017 based on
verification by the district collection department of revenue region 19 in Davao City and revenue
district office No.133-A in West Davao. And lastly, Lao did not appear to have filed a tax return for
the year 2020. Findings from income tax returns of Pharmally officials and other significant persons,
many of which were either incomplete, unreadable, or missing in previous years, raised even more
concern among lawmakers.

On November 15, 2021, senate security officers arrested Pharmally executives Mohit and Twinkle
Dargani as they were about to leave for Malaysia over the weekend. They were held in contempt of
court of the Senate after refusing to give over documents connected to an ongoing Senate committee
investigation into alleged irregularities in the acquisition of pandemic response supplies. The two
Pharmally executives are being held in the Senate after a failed attempt to flee to Malaysia on a
private plane from Davao City. Sen. Kiko Pangilinan said the arrest should serve as a "warning" to
everyone participating in the allegedly irregular procurement process. The former budget
undersecretary Christopher Lao and Davao-based Chinese billionaire Michael Yang, who was also
the President's economic adviser, were also charged in contempt for ignoring the hearings into the
controversial contract involving billions of pesos in overpriced CoViD-19 medical equipment.
However, the Senate's Office of the Sergeant of Arms (OSAA) has been unable to arrest Yang and
Lao.