With the introduction of universal health care in Indonesia on January 1, 2014, the pharmaceutical sector in the country is set for a boost. While the roll-out of the programme will be slow, a much expanded proportion of the population will be able to receive increasingly advanced and innovative drugs for their ailments.
The Big Project
The World Bank has estimated that the universal health care programme will cost between $16bn and $19bn a year by the time it is fully implemented in 2019. From 2009-13, the compound annual growth rate of the sector was 12%. It is expected that this rate will hold steady through to 2017 and that the overall market in pharmaceuticals will double in value in the five years following the introduction of the programme. However, sector participation presents many challenges. According to Decision Resources, a pharmaceutical advisory and research company, universal health care will lead to downward pressures on reimbursement rates and pricing for medicines as the government works hard to keep its costs under control. Decision Resources also believes that protectionism is a concern as the government seeks to promote the development of domestic industry. Decree 1010, issued in 2008, requires foreign companies either to manufacture locally or partner with local companies, while foreign investors are limited to 75% equity in a local drugs company. When Decree 1010 was passed, 23 of the 29 foreign companies selling in the country had to restructure their operations to meet this requirement in two years. More than 75% of the country's pharmaceuticals are produced domestically, while local companies are firmly in control of the market. Kalbe Pharmaceutical, the country's largest drugs maker, has a 17% share in generic drugs and 12% overall. The next five largest companies are local: Sanbe (with a 6% market share), Soho, Dexa Medica, Pharos and Tempo. Novartis comes in at number seven and GlaxoSmithKline at number eight, both with market shares of 3%.
Distribution is also a challenge owing to the geography of the archipelago, making it difficult to get medicines to the market. Regulations have also made the process more complicated than necessary. Under Decree 1010, local distributors are no longer able to register imported drugs, becoming instead strictly distribution companies. In June 2011, further restrictions were placed on the sector. Pharmaceutical companies present in the country without manufacturing capacity would only receive licences for five years; they were previously licensed indefinitely.
The government has been tipping the scales in favour of local producers. The health care programme is required to use generics or biosimilars, making the market less attractive to the holders of valuable patents.
The country in general seems to have a natural bias toward generics, with many believing that brand name drugs only have superior packaging and better promotion. In 2012, the government issued seven compulsory licences on hepatitis and HIV drugs, overriding existing patents owned by Merck, GlaxoSmithKline and Bristol-Myers Squib. It seems the government has mixed views on liberalisation in the sector as well. In late 2013, the Investment Coordinating Board said that foreigners would be allowed to own 85% of Indonesian pharmaceutical companies, up from 75%. But once the 2013 Negative List was finalised, the 10% increase was absent.
However, the demand created by the country’s demographic and economic indicators will create new opportunities, while the national health care programme is sure to increase business for all participants involved. As the market matures, the appreciation for branded pharmaceuticals should rise accordingly. Private hospitals that cater to both affluent locals and foreigners are quickly developing, and are likely to demand the best medicines available on the market.
International pharmaceutical companies, recognising these possibilities, have become increasingly active in the sector. For instance, Merck opened a packaging plant in the country in October 2012, while in 2013, Fresenius Kabi, a German company, signed a joint venture with Soho to manufacture intravenous generics.
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