Indonesia pharmaceutical market update, 2013
Pacific Bridge Medical
In our market access themed month, Ames Gross provides an overview of the healthcare environment in Indonesia and discusses market access challenges in this region.
Indonesia is home to 250 million people and one of the fastest growing pharmaceutical markets in Asia. The market is currently worth $5 billion, roughly the same size as the pharmaceutical market in Taiwan. But while Taiwan has a much more mature economy, Indonesia’s economy is still developing at a rapid pace. GDP growth in 2013 is set to reach 6.2 percent, and growth in the drug industry is set to reach 12–13 percent.
Pharmaceutical spending per capita in Indonesia is increasing rapidly. Historically, Indonesia has had one of the lowest rates of drug consumption in Asia. In 2010, pharmaceutical spending per capita was just $18, compared to $47 in the Philippines and $104 in Vietnam. But as per capita income goes up over the next decade, Indonesians will be spending more and more on healthcare. By 2014, it is expected that the average Indonesian will spend $125 per year on their healthcare needs.
Nearly 75 percent of Indonesia’s drug needs are met by domestic companies. Foreign companies make up the remaining 25 percent. Kalbe Pharma –Indonesia’s largest domestic drug manufacturer – holds 15 percent of market share. Together, Bayer, Pfizer and GlaxoSmithKline hold 8 percent of market share.
Indonesia has great promise in terms of market size, but it is saddled with numerous rules that protect domestic drug firms. For example, a 2008 law mandates that all drugs registered in Indonesia must be locally manufactured. Another law limits foreign ownership in domestic drug companies to 75 percent. These laws have discouraged foreign investment in Indonesia’s pharmaceutical market.
“By 2014, it is expected that the average Indonesian will spend $125 per year on their healthcare needs.”
Lately, there has been talk of overturning the foreign ownership law and of modifying the 2008 Ministry of Health Decree. In December 2010, for example, the Indonesian government changed the definition of “local manufacturing” to include packaging and labeling activities. This has made it easier for foreign drug companies to meet domestic production requirements.
Indonesia’s healthcare climate is changing rapidly. In the last few years, the government has passed laws to establish a system of universal healthcare, upgrade public healthcare facilities and increase domestic spending on healthcare.
For example, in 2010, Indonesia’s Ministry of Health (MOH) announced plans to add more than 100,000 hospital beds and hundreds of hospitals through the year 2020. Indonesia currently has only six hospital beds and fewer than three physicians per 10,000 people. By comparison, the US has 34 beds and 27 physicians per 10,000 people.
Planned infrastructure expansions should double the value of Indonesia’s healthcare industry from $25 billion to an estimated $50 billion. In addition, the MOH is spending $3.27 billion to improve its primary healthcare system in 2013. Most of this money will pay for worker training and for updating the 1,937 community healthcare centers that the Ministry has deemed inadequate.
In 2011, the MOH announced a plan to establish a national health insurance system by 2014. Under the current system, just over 150 million Indonesians have health insurance. Under the new plan – the Social Security Providers Law (BPJS) – all of Indonesia’s citizens will be fully covered by 2019.
For foreign pharmaceutical companies, this means many opportunities but also numerous challenges. Details of the plan, including reimbursements for generics versus brand name medicines, have not yet been made public. Indonesia’s industry association for foreign drug manufacturers –the International Pharmaceutical Manufacturers Group (IPMG) – has said that the lack of clear rules has already led to confusion in the pharmaceutical and healthcare industries.
“For foreign pharmaceutical companies, this means many opportunities but also numerous challenges.”
Entering the market
According to Indonesia’s 2008 Ministry of Health Decree on the “Registration of Drugs,” the following regulations became official at the end of 2010:
• Almost all pharmaceutical products registered in Indonesia must be manufactured in country.
• The only exceptions are patented products and drugs that cannot be manufactured in Indonesia.
• Foreign applicants for product registration must have an Indonesian manufacturing facility or appoint an intermediary.
In order to register a drug in Indonesia, applicants must submit their materials to the National Agency of Drug and Food Control (NADFC). The NADFC is responsible for pre-market evaluation of pharmaceutical products, regulations, standardization and GMP certification. Drugs are evaluated based on their risk, quality, safety and efficacy, as well as the needs of the Indonesian public. All drugs are divided into four classes:
• Narcotics (Category O)
• Prescription medicines (Category G)
• OTC medicines with warning labels (Category W)
• General OTC products (Category F)
If the applicant is not the product license holder (for example, if the applicant is an Indonesian drug manufacturer filing on behalf of a foreign pharmaceutical company), they must provide written authorization from the foreign manufacturer. In addition, applicants must provide:
• A manufacturing license
• A valid GMP certificate
• Data from the last GMP inspection
• A drug master file (in the case of new chemical entities, first generic drugs and generics for serious illnesses such as cancer or cardiovascular disease)
• A manufacturing site master file
• Other documentation, as required
Applicants are required to follow the ASEAN Common Technical Documents (CTD) format in order to be certified. They must also adhere to ASEAN standards in the case of non-clinical and clinical studies, product specification, stability studies, bioequivalent studies and GMP standards.
“More and more foreign drug companies are looking to Indonesia for future profits.”
Drug registration can take anywhere from one to three years. According to the NADFC, the evaluation of export-only drugs and “me-too” drugs takes 40 working days. It takes 100 working days for NADFC to evaluate orphan drugs and drugs that require local clinical trials. It takes 150 working days to evaluate drugs with new indications and drugs that have already been marketed in other ASEAN countries. Finally, it takes NADFC 300 working days to evaluate new drugs, biological and biotherapeutic products not covered in the other categories.
Labeling and advertising
All pharmaceutical products sold in Indonesia must state their chemical or generic name along with their brand name on the packaging. In addition, they must bear labels declaring whether they contain non-halal (non-porcine) materials or have undergone processes that encounter non-halal materials. OTC medicines must be labeled in Indonesian.
The NADFC regulates all drug advertising and approves all advertising materials. While general OTC medicines can be advertised (as long as they include required warning labels), there is a ban on direct to customer advertising for prescription medicines. Further, the NADFC regulates spending limits on the promotion of pharmaceutical products.
Distribution and pricing
The distribution of drugs takes place through wholesalers, who sell to both pharmacies and hospitals. Wholesalers distribute their products through Indonesia’s 11,000 pharmacies and 7,000 registered outlets. In addition, they also distribute OTC medications through Indonesia’s 1.9 million retail outlets. Currently, wholesale licenses in Indonesia do not expire. After June 28, 2013, they will be valid for only five years.
Wholesalers in Indonesia typically mark up factory prices by about 10 percent. Retail outlets then raise drug prices another 20–30 percent over wholesale prices.
Most generic pricing is controlled by a series of national regulations. Drugs on Indonesia’s Essential Drug List have a maximum retail margin of 50 percent. Special, quality assured generics (called OGB generics) have regulated retail prices. Prices are set at the same low levels throughout Indonesia, irrespective of transport and inventory holding costs.
To further curb rising healthcare costs, the Indonesian government passed a law in January 2010 that requires doctors at all state run medical facilities to prescribe unbranded generics whenever possible.
Foreign companies in Indonesia
More and more foreign drug companies are looking to Indonesia for future profits. Despite restrictions on manufacturing and ownership, more than 50 international pharmaceutical companies have business in Indonesia. Wyeth, Sanofi and Merck all have a considerable presence in the country. In October 2012, Merck opened a $21 million packaging plant in Indonesia. It expects annual sales in the country to go up 13–18 percent in 2013.
Other Western companies, like Novo Nordisk and Novartis, are heavily engaged in community outreach and education activities. For example, Novo Nordisk recently launched an extensive diabetes education campaign for doctors, healthcare professionals and the public. Novartis is running a similar program for communicable diseases.
But if restrictions on foreign ownership are lifted, many foreign pharmaceutical executives have said they would like to expand their Indonesian operations. Novartis’ president recently revealed that the company would be interested in opening R&,D facilities in Indonesia, as long as they do not have to worry about Indonesian ownership requirements.
Currently, foreign ownership in domestic drug companies is limited to 75 percent. The other 25 percent of a company must be owned by an Indonesian national. Since early 2009, Indonesia’s MOH has hinted that it wants to drop restrictions on foreign ownership of Indonesian pharmaceutical firms. This has not yet taken place, but it is expected to within the next several years.
Ames Gross will be providing an overview of the healthcare environment in the Philippines on 9th May!
About the author:
Ames Gross is president and founder of Pacific Bridge Medical, a Bethesda, Md.-based consulting firm that helps medical companies doing business in the Asian market (www.pacificbridgemedical.com). A recognized national and international leader in the Asian medical markets, he founded Pacific Bridge Medical in 1988, which has helped hundreds of medical companies with business development and regulatory issues in Asia.
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