The Indonesian Pharmacy Industry

Indonesia’s pharmaceutical sector has been growing steadily with double digit compound growth since 2009 and projections of 14% growth for 2011 according to the Indonesian Pharma- ceutical Association. The high growth figures are a reflection of the rising disposable incomes of the population, but placed into context the value of the market itself is very small for a country of 240 million people. The lack of health- care coverage, low quality of services on offer and the high cost of drugs relative to average wages has given rise to trends such as self medication and going abroad for treatment for those who can afford it.

Indonesia is a highly attractive market for the pharmaceutical industry given its large population as the fourth most populous country in the world, but spending on healthcare is very low. Indonesians spend on average $17 USD per capita on pharmaceuticals; 25% below that of the Philippines while total spending on healthcare is $52 USD a year, compared to $300 in Malaysia, according to the World Economic Forum (2010). In terms of consumer prefer- ences, sales for over the counter drugs are growing faster than that of prescrip- tion drugs with growth at 17.3% and 9.9% respectively for 2010, but the latter has the dominant market share at $2.4 billion

USD or 54.5% of total consumption for 2010 (Statistics Indonesia). Vitamin and nutritional supplements are also growing in popularity among more health conscious consumers. Total sales reached $4.4 billion USD at the end of 2010 (out of $700 billion globally), an increase of 11% from 2009.

The sector is highly competitive and heavily fragmented among more than 200 companies, 35 of which are foreign owned including the world’s largest producers such as Pfizer and GSK. The local producers are dominant in the market, making up 79% of total market share. Of the top ten companies, 7 of them are local companies with Kalbe Pharma leading the pack at 14% of the market. The top three global drug producers namely Pfizer, Bayer and GSK collectively hold only 8% of the market. The sector is heavily concentrated among the top companies with around 20 companies accountable for 80% of total production and locally produced drugs making up 75% of total consump- tion. State Owned Enterprises play a key role in generics and vaccine production through Kimia Pharma, Indofarma and Bio Farma.

The wide availability of counterfeit drugs is a major problem in Indonesia with the total amount in circulation estimated at 15-20% of the total drugs on the market

according to the International Pharma- ceutical Manufacturers Group. The Indonesian Pharmaceutical Association states that 95% of locally produced drugs are being consumed domestically, with the remaining 5% exported. Yet, exports of Indonesia’s pharmaceutical products have been growing over the past five years by an average of 15% from 2005-2010. State owned Bio Farma produces the world’s cheapest polio vaccine and has recently seen a surge in exports, mainly to India where animal based vaccines cannot be produced due to religious reasons. Kalbe Pharma has been present in Africa for 15 years, beginning with Nigeria and since expanding into Zimbabwe, Mozambique and Ghana with production facilities in Nigeria from 2005.

The real impact on the industry will come with the eventual introduction of a national social security system that will grant coverage to an estimated 50% of the population that is currently uninsured. However, boosting the competitiveness of the pharmaceutical manufacturing sector is a necessity to keep drug prices down and within reach of the general population to avoid local producers losing out to imports from India and China.

Global Business Guide Indonesia – 2012