Governance, Business Ethics, Risk Management, and Internal Control

A Case Study of Unethical Practices of Pharmally Pharmaceutical

Corporation Amidst the Pandemic in the Philippines.
Our Lady of Fatima University

BSA 3YA-1

I. PROBLEMS:

It was January 20, 2020 when the Coronavirus disease (COVID-19) was reported to have its first human case in
the Philippines. 2 months after, dated March 12, 2020, President Rodrigo Duterte announced the suspension of all
land, sea and air travel to and from Metro Manila as things are starting to got out of hand with the virus outbreak.
Also, all public gatherings have been banned, as well as classes are being suspended, making the entire country faced
into a lockdown. The said restriction took effect starting March 15 until April 14. But later on, this situation went as
to now, with us still being into nationwide lockdown for 2 years with some changes in restriction policies.

Philippines’ response to Covid-19 became a hot topic when after months of battling the said virus, medical
frontliners revealed a lot of issue regarding the current situation of our country. This concerns not just the general
public, but also the government officials. And this is where the people saw something about the funding, and
allocation that the government, particularly the Department of Budget and Management (DBM) assign with. One of
the issue is about the presence of Pharmally Pharmaceutical Corporation (Pharmally) which is known who supplies
materials that we needed for the virus. The procurement service of the Department of Budget and Management (PS-
DBM) was now being called out as there are some findings of possible deceitful acts or transactions they have made
starting the said outbreak. Names, entities, positions and amounts piqued the interest of the general public, and
exposed a lot of unethical practices that the Pharmally, together with the government, have done. What went wrong
with PS-DBM in response to the pandemic needs of our frontliners?

I.1. BILLION-PESO CONTRACTS

When the Philippines was on lockdown and having a hard time getting medical supplies during March 2020,
Pharmally Pharmaceuticals Corporation edged out other suppliers and bagged a total of ₱8.7 billion worth of
contracts despite the fact that the company is just starting its operation. Their financial statement is said to be
suspicious as they only had small amount of capital before bagging billion-worth COVID-19 contracts. The company
is considered not eligible to bid since Philippine Procurement Law requires a Net Financial Contracting Capacity
(NFCC) which should at least be equal to the project budget. Also, they were registered in Securities and Exchange
Commission (SEC) in September 2019 just before the pandemic broke out. For the senators, this is a clear evidence
that Pharmally is too small for big ticket procurements, wherein they got almost half of those nine contracts.

I.2 BAYANIHAN 1

In the first transaction with Pharmally, they delivered 500,000 face masks to the procurement service 3 hours
after the DBM merely requested for a quotation, which shows that they have sent the masks ahead of time. The
Bayanihan 1 was not yet in effect when the PS-DBM bought the said face masks, and took effect the day after the
delivery of face masks. Yet, the Senate of Blue Ribbon Committee asked the former PS-DBM head whether the
requirement to identify a firm’s NFCC was suspended when Pharmally was tapped last March 25, 2020, and he
responded that it was suspended by the Bayanihan 1.

I.3 OVERPRICING

For the allegation of overpricing, it is said that the Department of Health (DOH) transferred billion peso
pandemic funds to an office under the Department of Budget and Management (DBM) for the purchase of the said
supplies, a move described by senators as questionable. The PS-DBM bought test kits from Pharmally worth ₱1,720
per unit, which were almost twice the price of the original manufacturer. Also, a purchase was priced at ₱27.72 per
face mask and ₱120 per face shield which seems to be overpriced if we compare it to the cited Memorandum Order
released by the DOH containing the Suggested Retail Price (SRP).

I.4 NEAR-EXPIRED TEST KITS

There are also findings that the PS-DBM bought near-expired test kits for double mark-up. DOH already
defended that most test kits only had 6 months shelf life, but this particular supply was delivered to the PS-DBM with
only 2 months remaining before expiration. It also turned out that DOH could not use all those kits as approximately
3% of 379,719 test kits were used and the remaining 97% of tests kits were left expired. We could already use those
to test a lot of Filipinos, yet it’s a pity that a spending as big as that just went to waste due to its shelf life capacity not
being investigated thoroughly.

I.5 LUXURIOUS SPENDINGS

Luxury cars bought by Pharmally executives also bared in Senate probe as they allegedly “made a killing” from
getting the billion-worth of government contracts for pandemic supplies. Three (3) top executives of the
undercapitalized corporation purchased brand-new luxury vehicles with their windfall, according to Sen. Richard
Gordon. The first one is Mohit Dargani which is the Corp. Secretary/Treasurer, bought a Porsche 911 Turbo S. Next
is his sister Twinkle Dargani, who is the President of the company, bought a Lamborghini. And lastly, Linconn Ong,
the director of the company who bought a Porsche Carrera 4S and a Porsche Cayenne VR6. All of which amounted
to more than ₱50 Million. That is a big amount of money for less than a year of income which raises a red flag.

I.6 TAXES

It is also a topic now in Pharmally about their tax returns. In 2020, income tax returns filled by Pharmally
Director Linconn Ong, officials and President Duterte’s former Economic adviser and Pharmally’s financier and
guarantor to Chinese suppliers Michael Yang are either unreadable or incomplete. While former PS-DBM chief
Lloyd Christopher Lao didn’t file tax returns particularly the year 2020. Its key officials, network suppliers along
with Yang, and Lao were flagged for failing to file a proper income tax return (ITR) to the government throughout
several years. No record were found for Pharmally Chairman Huang Tzu Yen from 2019 until the present.