Indonesia Pharmaceuticals and Healthcare Report Q2 2008

While Indonesia's healthcare indicators have improved in recent years, in line with economic development, the country remains one of the poorest in its immediate neighbourhood. Nevertheless, the fact that people are living longer means that fewer individuals of wage-earning age are dying and more children are surviving, which is resulting in a more buoyant workforce. Therefore, despite the low per capita consumption of pharmaceuticals, rising population numbers should boost demand for medical services, resulting in the pharmaceutical market reaching the value of US$3.75bn in 2012, growing at around 5-6% per annum. Sales of traditional herbal medicines, known as jamu, are expected to considerably outpace those of conventional pharmaceuticals in terms of annual growth, threatening the value of the over-the-counter (OTC) sector.

However, benefits of healthcare sector modernisation will largely be negated by the deficiencies of the country's patent protection and sizeable counterfeit industry. Foreign companies will also be disadvantaged by the fact that the national essential-drugs list inclusion criteria are opaque, while the majority of the population continues to be forced to pay out of pocket for medical products. Overall, Indonesia occupies a joint twelfth position in BMI's Q208 Pharmaceutical Business Environment Ranking table, alongside Thailand. Among other obstacles to business, widespread corruption and legal barriers to foreign investments are often cited as key issues of concern by foreign companies.

In the meantime, the government is aiming to encourage and protect local manufacturing, in which it has a considerable stake. Authorities are planning to merge Kimia Farma and Bio Farma as a means of achieving operational efficiencies and cost control. While BMI understands the rationale behind the strategy, very few synergies exist between the two firms, limiting potential gains. Despite such issues, the government may potentially include other companies in the merged entity in the face of intensified competition within the sector.

Similarly, in January 2008, two state-run Indonesian pharmaceutical companies contracted a Chinese active pharmaceutical ingredient (API) supplier to provide them with bulk antibiotics, in order to protect themselves from rising costs of raw materials on which they are dependent. By getting a firm commitment from CSPC, Kimia Farma and Indofarm hope to provide a continuous and affordable supply of drugs to the Indonesian market, which has suffered shortages of various antibiotics over the last few years.