Pharmaceutical firms swallow bitter pill of weak rupiah

Pharmaceutical firms swallow bitter pill of weak rupiah

JAKARTA (JP): Most local pharmaceutical companies are still
facing difficulties due to the Indonesian rupiah's continued
slump against the U.S. dollar, an industry insider said here on
Friday.

PT Darya-Varia Laboratoria president Philip A. Townsend said
the sharp depreciation of the rupiah had caused a sharp increase
in operating costs, however, most drug producers could not raise
prices to offset the high costs.

"We are forced to maintain the drug prices because, if we
raised them, the people would not be able to afford them,"
Townsend told The Jakarta Post.

Townsend said that the drug prices were extremely vulnerable
to the weakening of the local currency because around 95 percent
of raw materials for drugs are imported.

Between the end of 2000 and May this year, the rupiah
depreciated by 25 percent, from Rp 9,400 to Rp 11,500 per U.S.
dollar. This has triggered larger operating costs for the
industry, Townsend said.

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.

According to Townsend, thus far, Darya-Varia had only
increased the prices of 10 percent of its products.

"We have to struggle on during this difficult period.
Hopefully, in the long run, the rupiah will strengthen, or at
least stabilize," Townsend said.

Townsend said that continued depreciation of the local
currency, coupled with unstable political and economic
conditions, had placed the pharmaceutical industry in a very
difficult situation.

Townsend said that, faced with such challenges, many companies
had opted to squeeze their profit margin by cutting costs as much
as possible in a bid to be more efficient and productive.

"We have to be efficient to get through the difficult period.
Otherwise, we will have to close down," Townsend said.

He said many local pharmaceutical companies, especially small
and medium-scale operations, may close down due to their
inability to endure the crisis.

He said only major pharmaceutical companies would survive as
they had already instigated a number of measures to restructure
their organizations, including closing down factories or merging
with other companies in attempt to secure their position.

Pharmaceutical distributor PT Millennium Pharmacon
International's president J.R. Kosasih said that around 140 of
180 existing pharmaceutical firms could not survive for much
longer.

Kosasih said that around 70 percent of the country's
pharmaceutical market was controlled by only 40 companies, while
the majority of other companies competed for the remaining 30
percent of the total market.

"Sooner or later, the inefficient companies will collapse, as
they cannot survive against the stiff competition," he said.

He said Darya-Varia, which is 75 percent owned by Holland
Pacific BV, was projected to book a 15 percent increase in sales
this year from the Rp 430.7 billion it recorded in 2000.

Townsend said that the industry's total sales were also
expected to increase by around 15 percent, slightly lower than
the 20 percent growth achieved in the previous year.(03)