In addition to the weak currency, rising electricity prices and an increase in the minimum wage have also hurt pharmaceutical companies, both domestic and foreign. Many drug companies saw a year-on-year decline in profits in 2013.
Inflation hits the pharmaceutical industry particularly hard because up to 96% of the materials used in drug production in Indonesia are imported. For instance, domestic pharmaceutical giant PT Kalbe Farma saw a 19% increase in the costs of goods sold in the first half of 2013. Another major Indonesian drug company, PT Kimia Farma, also saw sales increase at a slower rate than its costs of goods sold.
In addition, foreign pharmaceutical companies face a variety of roadblocks in the Indonesian market. Several laws protect the local industry from foreign competition. Decree 1010 has, since 2008, required that all pharmaceuticals registered in the country be locally produced.
This law was relaxed in 2010, allowing labeling and packaging to meet the definition of “local manufacturing.” Foreign drug companies have responded to Decree 1010 by partnering with domestic or other international companies or expanding their own local manufacturing capacity in Indonesia.
Another government restriction on foreign companies is the negative investment list, which limits the amount of foreign ownership possible in different key sectors of the economy. While this ownership percentage was capped at 75% for pharmaceutical companies, in December 2013 Indonesia raised the limit to 85%.
There are other issues with the Indonesian pharmaceutical market. Unethical promotional practices by domestic companies are common. Under the new universal healthcare rules, as well as under a previous law applying to public healthcare institutions, doctors will be required to prescribe generic drugs whenever possible.
Furthermore, there is precedent for the government-mandated generic licensing -- in 2012 the Indonesian government gave compulsory licenses for generics of several HIV drugs, including those made by Merck, Abbott Laboratories and GSK.
The government suggested in 2013 that it intended to control the prices of branded medicines and also regulated the evaluation of new drugs via a more systematic assessment to support more “rational use.” Several foreign pharmaceutical companies have indicated that they are worried about government protectionist policies.
Potential future regulation for halal-certified drugs could place further restrictions on both foreign and domestic companies. Indonesia is approximately 85% Muslim, and the Organization of Islamic Cooperation (OIC) member countries agreed in October 2013 to Indonesia’s proposal that it be the center of vaccine development and production for the group. The OIC is composed of almost 60 member states and has a collective population of about 1.7 billion.
Despite the above challenges, Indonesia still provides a significant opportunity for foreign pharmaceutical companies. The country has a comparatively high growth rate, large market, growing middle class, urbanizing population and strong demographics.
Ames Gross is president and founder of Pacific Bridge Medical, a Bethesda, Md.-based consulting firm that helps medical companies doing business in the Asia market. A recognized national and international leader in the Asian medical markets, he founded Pacific Bridge Medical in 1988, which has helped hundreds of medical companies with business development and regulatory issues in Asia.
Related Articles:
1) Indonesia Pharma Market 2014 Review
2) Healthcare Policy in Indonesia
3) Drug Registration in Indonesia
4) Pharmaceutical Company in Indonesia
5) Challenges for Drug Companies in Indonesia
Source: pacificbridgemedical.com
