Indonesian Pharma Market Poised for Strong Growth

Indonesia is believed to be pharma’s next hot economy, according to a recent CPhI Pharma Insights report based on research conducted by CPhI in collaboration with Global Business Reports. The study will be available free of charge at CPhI South East Asia, which is due to take place at the Jakarta International Expo, Indonesia, from April 8–10.

The Indonesian pharma market is valued at $6.5 billion. The sector recorded 85% growth from 2007 to 2013, with domestic companies holding 70% of the market share compared to the 30% owned by multinationals. The Indonesian pharma market is set for huge growth, says the report. It is, therefore, anticipated that overseas companies will soon be flocking into the region with foreign investments that could lead to innovative partnerships with domestic manufacturers in the long term. Investment from the local government will also help boost drug development.

From OTCs to prescription generic drugs

During the next two years, domestic players will benefit from the increasing demand for over-the-counter (OTC) drugs. The report, however, predicts that the growth curve for OTCs will gradually become more linear. Consumption of prescription generic drugs, on the other hand, will see a sharp increase over the coming three to five years. This move towards prescription generic drugs is perceived to be driven by new government initiatives as they take on the financial burden of drug sourcing from the private sector.

The report, however, highlights that most of the local manufacturers are already operating at full capacity, and this could hinder the industry’s ability to cater for the rapidly rising demand for high-quality, low-cost generic drugs. Roy Sparring, chairman of Badan Pengawas Obat and Makanan (BPOM), which is Indonesia’s National Agency for Drug and Food Control, commented in the report that “BPOM welcomes investment into Indonesia’s pharmaceutical industry.” As foreign investments are important in ensuring that supply meets demand, the report postulates that this situation will result in more acquisitions and innovative partnering models. 

It is likely that more international pharma firms will buy domestic facilities in Indonesia to help navigate the landscape as the demand for prescription generic drugs escalates. The fact that 83% of the local companies are cGMP certified makes it even more appealing to overseas multinationals looking to penetrate the Indonesian market.

However, foreign investors cannot acquire 100% of an Indonesian firm; their maximum ownership stake 75%. Consequently, there will be more innovative forms of collaboration between local and foreign companies with partial or equal ownership and risk sharing. Such partnerships allow local players to move their businesses towards operating as regional CDMOs and give overseas manufacturers the ability to navigate Indonesia’s challenging distribution pathways.

Domestic players are currently driving the pharma market in Indonesia, but as the industry evolves, Indonesian manufacturers could so be exporting to other ASEAN countries. Sparringa believes that this progression could occur within the next five years if there is increased harmonization across the region and provided standardized regulations are established.

The Indonesian pharma market is on the brink of a regional manufacturing boom. According to Chris Kilbee, group director of pharma, “partnership are set to play a major role in advancing this market into a major international drug exporter for ASEAN countries.” He adds that “foreign-domestic partnering will allow local manufacturers access to new technologies and provide the opportunity for companies to develop into regional CDMOs.”