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)