Indonesia is the largest economy in the ASEAN (Association of Southeast Asian Nations) region with over five percent annual GDP growth in recent years (Indonesia’s economy grew 5.02 percent annually in 2019) and is expected to break into the world’s topten economies by 2030. With an estimated population of 250 million and per capita gross domestic product (GDP) of around US$900 billion, Indonesia is the fourth most populous country in the world and the 16th largest economy. It is the largest economy in Southeast Asia and ranks sixth among other Asian countries. When the roll out of an ambitious universal healthcare plan, aiming to cover the entire population by 2019, is added into the equation, it is clear that Indonesia cannot be ignored by the international investment community.
The Indonesian pharmaceutical industry, with a current value more than USD 5.6 billion. Driven by increased government healthcare spending and growing life expectancy, the Indonesian pharmaceutical market value will climb from approximately $5 billion in 2013 to $9.9 billion by 2020. This growth is led by local players which make up nine of the country’s top ten companies, account for more than 70 percent of the industry’s value and around 95 percent of its volume. This anomaly only happen in Indonesia among the Southeast Asian Country, where the pharmaceutical market dominated by pharma multi national company (MNC) from US and Europe. Indonesia pharmaceutical market at 2020 is predicted similar as in 2014.
The highest proportion of ASEAN over the counter medicine (OTC) sales (40.0%) comes from Indonesia, indicating the propensity of domestic consumers towards self medication. OTC manufacturers can expect growing demand during the medium to long terms. The middle-income local population increasingly prefers branded generics to lower-cost, unbranded drugs, creating opportunities for generic manufacturers and importers in Indonesia. The Indonesian government has been pushing for self-sufficient drug production and opening the pharmaceutical industry to foreign investment. More foreign participants are expected to enter the Indonesian pharmaceutical market. Local drug manufacturers such as the Darya-Varia group, Konimex, and Tempo Scan Pacific control about 75% of over-the-counter (OTC) medicines and are expected to continue their dominance over the market. OTC medicines covered 40% of the total pharmaceutical market in Indonesia in 2014.
One significant driver of significant pharmaceutical growth is the rollout
of Indonesia’s Universal Healthcare Program (JKN). In the 2019 JKN cover up to 83% Indonesian population, estimated 224 millions people. The government has adopted a cost-driven approach when selecting which healthcare solutions to list in JKN; a move which has positively impacted domestic companies since they can offer more cost attractive solutions than their MNC peers, which are more focused on innovative, and therefore costly, drugs. The generic segment remains the most attractive. Local and multinational drug manufacturers are expecting consumption to grow due to the strong post-JKN demand from government-run hospitals after 2014. Private hospitals are increasingly accepting JKN patients; demand for generic pharmaceuticals will grow in this space. It is estimated that drug spends as a percentage of the total healthcare expenditure will be close to 19% after the fully implementation of JKN. Consumables are expected to expand at a compound annual growth rate (CAGR) of 12.8% from 2013 to 2019. The medical imaging market is expected to expand at a CAGR of 18.2% from 2013 to 2019. Domestic consumption of the
following are expected to increase:
• X-ray films
• Consumables such as gloves, chemicals, and catheters
• CT/MRI equipment and consumables associated with advanced imaging procedures
With the implementation of JKN in 2014, companies are now anticipating new purchasing processes to be chalked out by the government, more insurance from the insurance sector, and better accessibility for patients. Indonesia still requires some focus on infrastructure and skilled manpower. Bureaucracy and regulations have been limiting foreign investors in the country. In an effort to boost domestic and foreign direct investment, the Indonesian government launched the online single submission (OSS) licensing system in 2018. The OSS licensing system should make business registration in Indonesia easier as several key permits – the location permit, environmental permit and building permit – can be obtained within one hour of submitting all required data. After these permits are completed, then the business permit as well as the operational/commercial permit will be activated. This allows investors to immediately start preparations to run their business in Indonesia while awaiting formal documents. Generics drugs will evolve into a huge market due to the high demand for low cost medicines and strong government support. Multinational pharmaceutical companies will be expected to compete with local manufacturers when it comes to winning tenders in the public sector
Indonesian pharmaceutical market is fragmented, there are no single pharmaceutical company has dominant market share. Based on 2016 data the largest dominant market share only 12% (PT Kalbe Farma) from total market share. PT Kalbe Farma had the highest share in the pharmaceutical market in 2015 among domestic companies.
In 2014, more than 40% of pharmaceutical sales are OTC, indicating that Indonesians favour self-medication. Due to the high occurrence of communicable diseases and epidemics, drugs are in demand as a countermeasure. Use of self-medication/OTC medicines: Consumers tend to use self-management methods as a first step and may delay prescription medication.
Over The Counter drug market in IndonesiaIndonesia remains a tricky market for MNCs because local players still dominate some 70 percent of the pharmaceutical value and the pressures on the public purse are clear for all to see..Nevertheless, when you peer deeper into how the industry is organized, it becomes clear that the local players are actually dominating the OTC segment, whereas the prescription market is much more finely balanced with 45 percent of the branded prescription medicines value in the hands of MNCs.
Pharmaceutical Market Indonesia Opportunity
The Indonesian government’s healthcare insurance policy mandates the use of biosimilars/generics because they are cheaper. Generics manufacturers are promoted more than originators and the latter is left with the burden of proof on more expensive innovator brands to show that they are, in fact, safer,
more effective, or have better quality control. Government funds are mostly used to support vaccines and anti-infectious drugs (the latter with a high priority). The promotion of generics along with vaccines remain a high opportunity segment for investors.