While Indonesia has long been a large and important pharmaceuticals market, the prospect of enhanced spending on health in the years ahead has made it an even more attractive destination for investors. Indeed, with government plans to institute universal health coverage, along with increased private sector interest and growing purchasing power among the population, Indonesia is already bringing in major international pharmaceuticals company investment.

Government efforts to bring health costs down and support the domestic pharmaceuticals industry have boosted prospects for local firms. Currently, imported and often higher-quality drugs are relatively expensive and beyond the reach of many ordinary Indonesians, who purchase generic varieties of variable standard.

Building a local industry that can create greater value-added requires more investment in research and development (R&D) and in cultivating local human resources, which have proven challenging. “We have to ensure the availability of innovative drugs and the highest product quality and safety,” Torsten Rieck, the president director of Boehringer Ingelheim in Indonesia, told OBG, acknowledging that unbranded generics are currently the only choice for a large share of population without insurance coverage.

THE PLAYERS: Among the locals, the largest companies are Indofarma (INAF), Kimia Farma (KAEF), Sanbe Farma, Rajawali Nusantara Indonesia (RNI) and Kalbe Farma (KLBF). Foreign manufacturers are also permitted, although restricted to owning no more than 75% of their Indonesian subsidiary. Two of the larger internationals in the market are Pfizer and GlaxoSmithKline.

Indonesia has also become something of a focus for bio-pharmaceuticals, given its diverse ecosystem and variety of plants. Firms such as Soho Group, which works in cooperation with a number of government agricultural units and universities on herbal extracts, and Biofarma, which has had success recently in influenza vaccines, are strong examples. Meanwhile, Pfizer, which ranks fifth in terms of market share, according to a 2012 report by IMS, an international sector research firm, announced in early 2012 a new, $3m investment into increasing production of generic drugs at its Indonesian factory. This is in anticipation of rising demand once the new health insurance system comes into effect. Indeed, the arrival of the new system is causing many to focus on mass-market generics, products in which volume is key to profitability.

MARKET BREAKDOWN: According to the second-quarter 2012 figures from IMS, the country’s total pharmaceuticals market was worth $4.6bn, up from $4bn in the second quarter of 2011 – an increase of around 14%. A large part of this was taken by non-regulated (known as non-panel) over-the-counter (OTC) sales, typically at roadside stalls. OTC sales totalled an estimated $1.9bn in the second quarter of 2012, according to IMS, up from $1.6bn in the same period of 2011. Of the total market, multinationals accounted for Rp13.2trn ($1.3bn) in the second quarter of 2012, up from Rp12trn ($1.2bn) in the first six months of the year before, or 9.5% growth. Non-panel OTC sales in this segment shrank by 2.9% over the period, although regulated OTC sales in hospitals, pharmacies and drug stores showed increases, with pharmacy sales up 11.7%. Local manufacturers saw non-panel OTC sales rise 19.2% over the period, with total sales up 15.1%, between the second quarter of 2011 and the second quarter of 2012.

RAW MATERIALS: Local medicines are growing market share, but many raw materials are imported. This exposes firms to foreign exchange risk and stunts R&D and product innovation. Packaging tends to be the main activity of local players, whether connected to internationals or entirely local. “Developing natural resources for medicinal uses would greatly benefit Indonesia, as we have a variety of viable plants. Research is ongoing, but it needs government support it,” Hasbullah Thabrany, professor at the Centre for Health Economics and Policy at Universitas Indonesia, told OBG. With cheaper, more available and better medicines an important goal for health planners, the coming years could be crucial.