Local pharmaceutical firms struggle hard to survive

Local pharmaceutical firms struggle hard to survive

Rendi A. Witular
The Jakarta Post
Jakarta

During the last five years, from the start of the economic
crisis in 1997 until 2001, 25 local pharmaceutical manufacturers
went bankrupt, leaving more than 12,500 employees jobless.

Strict competition due to a small market size, complicated
import clearance and the slump of the Indonesian rupiah against
the U.S. dollar, which until now has yet to be stable, are the
bitter pills for the local industry to swallow.

Most of the bankrupt companies have shifted their business to
produce food supplements or medicinal herbs which have less
crowded markets.

Chairman of the Indonesian Pharmaceutical Federation (GPFI),
Anthony Ch. Sunarjo, said that currently there were 198
pharmaceutical producers operating in the country from 223 in
early 1997.

"The country's overall drug market size grows by around 20
percent every year, but the value is still small. This year's
market value is estimated to stand around Rp 15.2 trillion
(US$1.5 billion)," said Anthony.

If compared to other South East Asian countries the Indonesian
market value is the same as the Philippines and Thailand, around
$1.5 billion.

However, if compared to the average consumption of drugs per
person, Indonesia is the lowest.

With a population of 210 million the country's consumption of
drugs only reached $7.1 per person, while the Philippines was
$19.2 with its population of 78 million and Thailand $23.8 with a
population of 63 million.

GPFI predicted that this year, the market size would grow only
by 25 percent or two percentage points below the 27 percent
growth rate booked last year.

GPFI said that around 70 percent of the market volume was
controlled by 35 foreign manufacturers including the world's
giants Pfizer, Roche, Aventis, Novartis and Mead Johnson.

Anthony feared that more local pharmaceutical companies,
especially small- and medium-sized operations, would be forced to
close due to their inability to compete.

Local manufacturers are currently unable to compete with
foreign companies due to the lack of investment and research
resources for inventing new medicine. Local companies can only
copy the foreign companies and sell at lower prices.

"All drugs made by local manufacturers are copies of those
owned by foreign manufacturers in which the patent had expired.
Local companies buy the formula and change the name of the
drugs," said Anthony.

To invent one new product, a multinational manufacturer can
spend between $350 to $400 million. The annual budget allocated
for research can reach $2.5 billion, which is higher than the
Indonesian market value.

Local manufactures are a bit lifted in sales by their ability
to export the cheap, copied drugs to other poor or developing
countries such as Myanmar, Vietnam, Laos, Cambodia in Asia, and
Nigeria and Uganda in Africa.

However, the value is still small, around $80 million per
year, and mostly non-prescription drugs.

According to GPFI, the country's five biggest pharmaceutical
manufacturers in terms of market share were Kalbefarma,
Sanbefarma, Dexamedika, Kimiafarma and Indofarma. The last two
companies are owned by the state.

Currently, local industries have also been seriously hurt by
corrupt customs officials that make it difficult to legally
import drugs as well as allowing many illegal drugs to flood the
country after bribes are paid.

Around 95 percent of raw material for the industry are
imported, which makes the timing of import clearance very
important for an company to run efficiently and compete with
others, foreign or domestic.

Moreover, the local industry is also threatened by cheaper,
smuggled and fake products which have continued to pour into the
country since 1998, usually aided and abetted by paid off
officials.

Anthony explained that many of the fake products were being
manufactured locally as the manufacturers had been able to
illegally ship in the machinery and raw materials required to
produce them.

Due to the plight, GPFI had earlier urged the government to
immediately reapply the pre-shipment import inspection (PSI)
system to eliminate such practices.

The dependency of the pharmaceutical industry on imported raw
materials, has made them vulnerable to the fluctuation of
country's currency against the U.S. dollar.

"With so much of our material imported, all bought in dollars,
the local firms find it difficult to reduce production costs and
the price of the products," said Anthony.

Pharmaceutical prices in Indonesia have increased by 200
percent since late 1997, far lower than the 500 percent increase
in operating costs during the same period.

Faced with such challenges, many companies have opted to
squeeze out some profit by cutting costs as much as possible in a
bid to be more efficient and productive.

GPFI members, to this point, only include firms with legal
operating licenses, comprising 198 manufacturers, 2,500
distributors, 6,500 dispensaries and 5,000 drug stores.

While those operating illegally are estimated to have reached
100,000.

Eyebox

Indonesian market value (in billion rupiah)

1998 1999 2000 2001 *2002

Audited
Dispensaries 2,038 2,571 2,966 3,339 3,961
Drugs stores 1,028 1,510 1,831 1,974 2,275
Hospitals 800 1,021 1,180 1,495 1,852
Total 3,866 5,102 5,977 6,808 8,088

Non-audited
Tenders 642 1,335 2,069 2,833 3,545
Other stores 509 1,123 1,898 2,988 3,597
(non-licensed)
Total 1,151 2,458 3,967 5,821 7,142

Overall total 5,017 7,560 9,944 12,629 15,230

* Projection

Source: the Indonesian Pharmaceutical Federation