Pharmaceutical Market in Indonesia is Projected to Reach $17.6 Billion by 2020; Reveals New Report

A Growing Urban Population, Increased Government Healthcare Spending and an Increasing Life Expectancy are The Key Drivers of Growth in the Indonesian Healthcare Market; However Counterfeit Medicines and The Increasing Use of Generics with the Aim of Reducing Healthcare Expenditure, May have a Negative Effect

The pharmaceutical market in Indonesia was worth approximately $3.1 billion in 2008 and is projected to reach approximately $17.6 billion by 2020 at a Compound Annual Growth Rate (CAGR) of 10.2% (Sudharta et al., 2010). This growth is expected to be due to the introduction of government healthcare reimbursement programs such as Jamkesmas and the Family Hope Program (Program Keluarga Harapan, PKH). Approximately 26.1% of the population was covered by health insurance in 2007, which increased to 65% in 2011. This increase is mainly due to efficient implementation of the government healthcare reimbursement program Jamkesmas and the introduction of an operational assistance health fund in 2010. Therapeutic segments such as anti-infectives and respiratory are expected to grow in the future due to the rising incidence of communicable diseases such as Tuberculosis (TB), Human Immunodeficiency Virus (HIV), Acquired Immune Deficiency Syndrome (AIDS), pneumonia and leprosy (MoHRI, 2011).

Multinational Companies (MNCs) will increase their presence in the pharmaceutical market as they offer largely patented drugs, which are covered by free pricing policies. A lack of R&D activity from domestic manufacturers has limited their ability to offer generic drugs. The generic market itself is undergoing rapid expansion, driven by government incentives and the loss of patent protection for several high-volume products. The government has introduced two laws to promote the use of generics. Physicians in government health facilities should prescribe unbranded generic drugs to all patients wherever possible, and the government has also regulated the price of almost 500 generic drugs (Kalbe Farma, 2011; Kalbe Farma, 2013).

In 2008, OTC drugs accounted for approximately 43% of the pharmaceutical market, which increased to an estimated 48% in 2013 due to an increase in self-medication as a result of increase in cases of minor ailments and limited insurance coverage.

Counterfeit medicines are however expected to restrict growth, and accounted for approximately 25% of the Indonesian pharmaceutical market in 2005 (WHO, 2005). As a result, the National Agency of Drug and Food Control (NA-DFC), or Badan Pengawas Obat dan Makanan, has strengthened its investigations in an attempt to reduce their influence in the pharmaceutical market (WHO, 2005).

In 2010, according to US Commercial Service estimates, Indonesia’s medical device market was worth approximately $573m. Indonesia manufactures a range of medical equipment such as hospital beds, disposable supplies and wheelchairs; however, it imports more than 90% of its medical devices as the domestic industry is poorly developed. In 2010, according to US Commercial Service estimates, total imports in the medical device market were worth $543m, an increase of 7% over 2009. In 2010, the US accounted for the highest proportion of medical device imports in Indonesia, with 20% (ITA, 2014).

In 2012, the Association of Southeast Asian Nations (ASEAN) Medical Device Directive (AMDD) was introduced by the Medical Device Product Working Group (MDPWG) and is to be fully exercised by all member states by 2015. It will bring much-needed uniformity to the medical device registration system and increase foreign investment in the Indonesian market

Non-Efficient and Non-Transparent Intellectual Property (IP) Protection for Pharmaceutical Products and Medical Devices Leaves Major Loopholes in Indonesia’s Healthcare System

The Directorate General of Intellectual Property (DGIP) is a centralized authority which registers Intellectual Property Rights (IPR), and works under the Ministry of Justice and Human Rights.

The country’s regulatory system for IP enforcement is problematic on a number of levels, due to inadequate observation and enforcement and a lack of an effective customs recordal system to discourage infringement of IP rights. Laws and practices are substantially unaligned with the wider international standards established by the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) that inform other countries’ IP laws. Infringement is common, and penalties can be imprisonment for up to seven years and/or a fine of approximately IDR5 billion ($450,000), but in practice only minor charges are imposed (Eurocham, 2014). Although improvements have been made to the civil court system for IP cases in the last 10 years, self-help is often the main option. This creates major barriers to foreign investment in the Indonesian healthcare market, and its growing economy demands a much more efficient legal system to deal with the current scenario. The government has introduced a national IP task force (TimNas) to facilitate proper IP enforcement.

Increasing Access to Healthcare Facilities and Reimbursement Provides a Strong Base for the Healthcare Market

The overall healthcare system in Indonesia is in a stage of development. Healthcare spending increased from 2.2% of GDP in 2002 to 2.7% in 2011 and services and medicines provided by public hospitals are either subsidized or available free of charge (The World Bank, 2014n). Due to the increase in spending on healthcare, insurance coverage has also begun to expand. The provincial governments are currently responsible for filling the gap between the real cost of health insurance and the budget allocated to it by the central government. In 2005, the Ministry of Health (MoHRI) launched a mandatory insurance scheme known as Askeskin, of which the main aim was to offer coverage to the poor population and to provide associated Askeskin cards. In 2008, in order to expand the level of insurance coverage, MoHRI converted Askeskin into Jamkesmas, which is fully funded by the central government. As of 2011, Jamkesmas covered 76.4 million people. In the same year, approximately 65% of the population was insured under an insurance scheme; others include Jamkesmas, Jamsostek, Jamkesda, Askes, Taspen and private insurance (MoHRI, 2011). Coverage is growing due to an increase in purchasing power and government initiatives. In January 2014, the government launched a universal healthcare scheme, Jaminan Kesehatan Nasional (JKN), which aims to provide health insurance to all Indonesians by 2019 and into which all existing government healthcare schemes will be merged.

Government Initiatives Combined with Increasing Political Stability and Investments by Global Players will Drive Economic Growth

Indonesia has emerged from the 1997 Asian financial crisis as an economically strong and politically stable economy. The economic crisis triggered changes in Indonesia`s political environment, resulting in several changes in economic policy. In 2013, Indonesia’s GDP was valued at approximately $867.5 billion (IMF, 2013a). Its strong and consistent economic performance in the last decade is due to its efficient and sound financial sector. The main contributors to its economy are a growing industrial base, mining and minerals, substantial agricultural resources and a large labor force.

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