Moreover, now the Indonesian government is eager to provide healthcare to all Indonesians by 2019 through its universal healthcare program, demand for medicines is estimated to rise drastically (especially for the cheaper generic medicines) as tens of millions of additional Indonesians will be able to have access to government-subsidized healthcare. Therefore, it is important to encourage the development of a domestic industry that can produce raw materials needed in the pharmaceutical sector.

Back in 2016 the Indonesian government had already opened up the pharmaceutical sector to foreign investment when it revised its Negative Investment List, the document that lists the sectors restricted to foreign investment. Indonesia now allows 100 percent foreign ownership in pharmaceutical companies (from 85 percent previously), a move aimed at boosting investment.

Through the 11th economic stimulus package, released in March 2016, the Indonesian government aims to boost the domestic production of medicines' raw materials, particularly for five product categories (namely biotechnology, vaccines, herbal extracts, active pharmaceutical ingredients, and medical devices) by the drawing up of a new roadmap for the pharmaceutical industry.

Meanwhile, state-controlled pharmaceutical company Kimia Farma has been expanding into the upstream pharmaceutical sector by constructing facilities that will produce raw materials for medicines and other pharmaceutical products. Last year, Kimia Farma announced the establishment of a joint venture (named Sungwun Pharmacopia Indonesia) with the local unit of South Korea-based Sungwun Pharmacopia Co Ltd. This JV is building a medical salt factory in Lippo Cikarang Industrial Estate in Bekasi (West Java). This plant, expected to be completed before the end of 2017 and set to start commercial operations in 2018, is designed to produce active pharmaceutical ingredients (part of which is to be exported to the USA and Japan). These ingredients include: simvastatin, atorvastatin, rosuvastatin, pantoprazole, esomeprazole, rabeprazole, clopidogrel, and sarpogrelate.

Harijanto said joint ventures are a great strategy to obtain the necessary technology, knowledge and funds to establish upstream pharmaceutical factories in Indonesia.

Another state-controlled pharmaceutical firm, Kalbe Farma (the market leader in Indonesia's pharmaceutical industry), is also currently developing facilities that will curtail the amount of raw materials from abroad. Generally, however, domestic and foreign players are hesitant to develop such factories because there is uncertainty whether output can be absorbed by the domestic market.

A problem related to the development of upstream pharmaceutical factories in Indonesia is that there still is a relatively small number of hospitals, clinics and doctors in Indonesia (this is caused because still a relatively small portion of the population can afford healthcare). This implies there exists a relatively small market and this makes it unattractive to invest in costly upstream plants. However, we believe that Indonesia's hospital, healthcare and pharmaceutical industries will grow rapidly in the decades to come on the back of Indonesia's universal healthcare program, rising awareness of check-ups and medication, and growing per capital GDP (implying people will have access to more and better medicines). Therefore, it should be the right timing now to invest in upstream pharmaceutical facilities.

Problems related to Indonesia's pharmaceutical industry:

  • The number of Indonesians making use of healthcare services provided by the universal healthcare program exceeds the number of people paying their monthly premiums (causing a growing deficit)
  • A large number of healthy Indonesian workers in the private sector do not participate in the universal healthcare program
  • In the more remote areas in Indonesia the quality and quantity of infrastructure is weak, implying part of the population does not have good access to healthcare services
  • Indonesia's pharmaceutical industry is highly dependent on imports of raw materials. This implies financial troubles in times of severe rupiah depreciation
  • Indonesia has one of the lowest total expenditures on health among ASEAN countries, averaged at a mere 2.6-2.7 percent of GDP