Opportunities, await drug companies

The Jakarta Post, Jakarta

Trade liberalization among the Association of Southeast Asian Nations (ASEAN) members and a government plan to subsidize health care costs for the poor offer opportunities for the pharmaceutical industry here to speed up growth in the coming years, say industry executives.

"The implementation of the ASEAN free trade on pharmaceutical products at the end of 2008 will challenge the pharmaceutical industry here to meet the demand for medicine of about 600 million people," said managing director of Dexa Medica Ferry Soetikno over the weekend.

He was referring to the ASEAN Free Trade Agreement (AFTA), which will allow duty-free pharmaceutical products to be traded between ASEAN members in less than four years.

Indonesia's exports of pharmaceutical products to other ASEAN members reach about US$30 million a year, accounting for about 30 percent of the nation's total exports of pharmaceutical products to 80 countries per annum.

Besides Indonesia, ASEAN also groups Brunei, Cambodia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

With the total market size of pharmaceutical products among its members valued at about $5 billion per year, the ASEAN market is too big a carrot for local players to miss out on, Ferry said.

In addition, plans to provide free health services -- which include subsidized medicine -- for the poor starting this year, as a result of a recent increase in domestic fuel prices, would create an additional market of millions of customers.

Still, in order to take advantage of the opportunity offered by the AFTA and government subsidy, plenty of work still needs to be done.

"The pharmaceutical industry needs to improve efficiency, boost production, expand the distribution network and improve human resources," Ferry said.

Failure to do that would result in Indonesian producers lagging behind others in the region, and leaving them impotent to compete even in their own market.

Ferry acknowledged that mergers among local companies would be one of the most feasible solutions, as it would help improve the efficiency of the industry, not to mention that merging would strengthen their capital base and help them reduce costs for research and development.

There are 198 pharmaceutical companies in the country, of which four are state-owned, 31 foreign joint ventures and the remainder private domestic companies.

The Food and Drug Monitoring Agency (BPOM) estimates total sales of pharmaceutical products in Indonesia at $2 billion a year, of which 50 percent is dominated by foreign joint ventures.

Meanwhile, Erwin Tenggono, managing director of distributor PT Anugrah Argon Medica, said distributors could play a vital role in speeding up growth in the pharmaceutical industry.

Despite a government ruling allowing drug manufacturers to distribute their products directly to retail outlets, Erwin said producers would still rely on distributors that have strong distribution networks nationwide, including in remote areas.

There are more than 2,200 distributors in the country compared to the 198 pharmaceutical producers.(004)