Foreign investment and the development of local CDMOs will drive growth in Indonesian pharma market

CPhI Pharma Insights report predicts growth in OTC and prescription generic drugs

The market for over-the-counter (OTC) drugs in Indonesia is expected to grow steadily over the next 1–2 years, according to a new report from CPhI.

The Pharma Insights report on the Indonesian pharma market, the result of CPhI and research partner Global Business Reports (GBR) conducting 50 interviews with thought leaders from the public and private sectors, also predicts an explosion of growth in prescription generics over the next 3–5 years as government takes on the financial burden of drug sourcing from the private sector.

Other findings are that overseas multinationals will increasingly buy domestic cGMP facilities in Indonesia as a gateway into the market and will also partner with domestic companies for product distribution.

The full in-depth study is released free of charge at CPhI South East Asia, which opened today (8 April) in Jakarta, Indonesia.

Already valued at over US$6.5bn, further investment from the government, and domestic and foreign manufacturers is set to skyrocket development of the Indonesian pharma market.

Over the next two years, domestic companies will continue to thrive, benefiting from the steep increase in consumption of OTCs. In the medium term, the report predicts that this OTC demand will become progressively more linear and the demand for prescription generics will see a sharp increase.

This change in the industry dynamic towards prescription generics is being driven by new government initiatives as they take on the financial burden of drug sourcing. Last year, Jaminan Kesehatan Nasional (JKN) – a universal healthcare programme – was implemented to enable access to drugs for an increased population of 257.5 million by 2019. Currently, only 50% of the Indonesian population is covered, meaning that there will be a huge rise in drugs spending over the next few years.

This change in the industry dynamic towards prescription generics is being driven by new government initiatives

But the report has identified a potential risk factor – many Indonesian manufacturers are already operating at capacity, and this is hindering the industry’s ability to cater for rapidly rising drug demands. Greater foreign investments will play a major role in ensuring demand does not exceed supply and the report suggests this will ultimately lead to more acquisitions and even innovative partnering models.

Indonesia has a high proportion (83%) of cGMP facilities, which overseas companies will look to acquire in order to gain a foothold in the market. Strong economic growth, and a burgeoning middle class have created a hugely attractive platform for foreign companies, with high-value (more profitable) formulations also on the rise. Collectively, this means the pharma economy will continue to experience double-digit growth for the foreseeable future.

The fact that overseas investors cannot acquire 100% of an Indonesian firm – their maximum ownership stake is limited to 75% – paves the way for more innovative forms of collaboration between local and foreign companies with partial/equal ownership and risk sharing. Domestic-foreign partnerships will enable local companies to move their businesses towards operating as regional CDMOs and give overseas manufacturers the ability to navigate Indonesia’s difficult distribution pathways, the report says.

The Indonesian pharma economy will continue to experience double-digit growth for the foreseeable future

A strong, domestic base is currently driving Indonesian pharma sales. As this industry continues to evolve, the natural progression for drug manufacturers in the country is to begin exporting to other countries within the ASEAN region. Roy Sparringa, Chairman of Badan Pengawas Obat dan Makanan (BPOM), Indonesia’s National Agency for Drug and Food Control, believes this could occur in five years if increased harmonisation across the region prevails and standardised regulations are established.

The report concludes that the Indonesian market is on the brink of a regional manufacturing boom and with market capitalisations and company values rising, the country's pharma potential will not remain an undiscovered secret much longer.

CPhI South East Asia runs until 10 April.

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