A population of 260 million, a national health care program that has still yet to cover the whole country - but is coming close to - and economic policies that are gradually becoming more and more progressive translates to a lot of opportunities for players in the pharmaceuticals and medical devices industry.
In April of this year, PT Bayer Indonesia celebrated the shipment of its 3,000th export container of health products to Europe from its factory in Cimanggis, Depok. This shipment rounded up the Rp. 3.9 trillion (roughly US$275 million at current exchange rates) in export value the company has accrued over the past few years.
The company鈥檚 export has grown exponentially from the past decade when it exported to fewer than 10 countries. Bayer had, in the period from 2017 to 2019, invested some Rp 1.6 trillion to expand the production capacity of its Indonesian factories. Senior Bayer representative at the ASEAN region, Ernst Coppens, said the investment was affirmation of the company鈥檚 faith that Indonesia can become a leading pharmaceutical producing country in the world.
Bayer isn鈥檛 the only company to put faith in Indonesia鈥檚 potential. Last year, President Joko 鈥淛okowi鈥� Widodo himself inaugurated the factory launch of PT Kalbio Global Medika, a joint-venture company between publicly listed Indonesian company PT Kalbe Farma and leading South Korean biotechnology R&D company, Genexine Inc., which will create both pharmaceutical ingredients and ready-to-use drugs using biotechnology. Meanwhile, PT Kimia Farma Sungwin Pharmacopia, a joint venture between state-owned PT Kimia Farma and South Korea鈥檚 Sungwun Pharmacopia Co. Ltd., has been able to produce eight Active Pharmaceutical Ingredients (API) as well as seven high function chemicals used as ingredients for cosmetics and food supplements.
The examples above illustrate the constant forward trajectory of Indonesia鈥檚 pharmaceutical and medical devices sector. Indonesia currently stands as the largest market in ASEAN with a market value that is expected to hit over $10 billion by 2021 under a forecasted growth rate of between 12 to 13 percent annually. And that鈥檚 under a healthcare expenditure that is 3% of GDP, one of the lowest in the region and below the ASEAN country average of 4%, despite growing at a CAGR of 14% in the last five years.
Nasional (National Health Insurance) program or JKN. Launched in 2016, the nation-wide health coverage has, as of the end of 2018, covered roughly 77% of the population, or over 200 million Indonesians, and is expected to reach full coverage by this year or the next. The program has been a boon for pharmaceutical and medical devices companies operating in Indonesia and overseas as it is expected to continue driving healthcare expenditure upwards. In 2018, the country has injected Rp. 10.5 trillion to cover hospital medical expenses for JKN participants alone.
This is also why the ability to produce their own medicine is an important issue for Indonesians. Despite being home to more than 30,000 medicinal plants out of the globally known 40,000 medicinal plants, the country still needs to import 95% of its API. This is due to a lack of investment in research and development among local pharmaceuticals, as well as, to some extent, a restrictive foreign investment policy that limits foreign ownership of local pharmaceuticals and medical devices manufacturers. Fortunately, in conjunction with the launch of the JKN, the nation has opened its pharmaceutical industry to 100% foreign ownership, reflecting the government鈥檚 commitment to push to pharmaceutical and medical devices industry forward.
This impetus will go a long way in meeting the challenges faced by the implementation of the JKN. As mentioned, the program is already facing late payments from hospitals to pharmaceutical and medical device providers. Meanwhile, the fact that the country still imports over 95% of its API is a major bottleneck in pushing the cost of drugs down. In this regard, the government is planning to introduce a super deductible tax policy of up to 200% for vocational programs and up to 300% for research and innovation development.
It is clear that the private sector has a significant role to play in the development of Indonesia鈥檚 pharmaceutical and medical devices industry, as exemplified by the companies mentioned earlier in this article. The prescription for success lies in finding the right business partner and in having first-hand knowledge of the local conditions.