Indonesia Pharmaceuticals and Healthcare Report Q1 2007

Indonesia remains one of the less developed pharmaceutical markets of South East Asia, holding a relatively poor long-term potential. The country's healthcare system suffers from funding shortages, with patients consequently unable to receive greater and more equitable access to healthcare. A universal insurance system has yet to be introduced, although the government and employers, rather than consumers, are directly footing up to 775% of the total drugs bill. Nevertheless, the market is likely to experience a modest upward growth, reaching around US$1.71bn by 2011 from an estimated US$1.29bn in 2006. As incomes are forecast to remain low in the medium term, investment rather than private consumption will be key to growth, which will mostly be felt in the branded and prescription, rather than over-thecounter (OTC) and generics segments. In terms of prescription medicines, antibiotics will remain bestsellers, due to the epidemiological profile. Inflation will also reduce purchasing power in the short term, but market growth is expected to resume its previous strong upward trend later in the forecast period. Moreover, rising healthcare demand and rapid population growth will provide opportunities for the Indonesian drug market.

BMI's Business Environment Rankings for Asia place Indonesia 11th out of the 14 Asian markets surveyed, ahead only of the Philippines, Vietnam and Pakistan. The low ranking primarily reflects the country's poor regulatory system, which is characterised by a lengthy and complicated drug registration process and substandard intellectual property (IP) protection. In addition, the sizeable counterfeit and substandard drugs sector continue to pose a significant threat to foreign company activity in the country: it is estimated that fake products account for up to 20% of total drug sales. Finally, the uncertain political and economic environment, which has negatively impacted drug production costs, is unlikely to improve significantly in the immediate future. The pharmaceutical industry consists of local companies, largely generics producers, some direct foreign presence, and imports, mostly from multinational companies, such as Sanofi-Aventis, Bayer, Bristol- Myers Squibb (BMS) and Schering-Plough. Some local companies are a considerable force, with one of the more prominent players being PT Kalbe Farma, which is expanding through acquisition. However, Indonesia is heavily reliant on imports of raw materials, leaving the domestic industry vulnerable to foreign-currency fluctuations.