Pharmaceutical industry growth slower next year on higher costs

Pharmaceutical industry growth slower next year on higher costs

The Jakarta Post, Jakarta

Increasing production costs and the need to comply with global
manufacturing standards will hamper sales in the coming year, an
industry player warned last week.

"There are several problems the industry must address. First
is the need to improve effectiveness and comply with good
manufacturing practices in order to gain acceptance in the global
market," said Ferry Soetikno, managing director of Dexa Medica,
which is among the top pharmaceutical companies in the country.

The pharmaceutical industry is also coping with a more than 10
percent increase in production costs since October, when the
government raised fuel prices by an average of 126 percent, which
resulted in rising inflation.

Also weighing down the industry are increases in regional
minimum wages and fluctuations in the rupiah at a time when
pharmaceutical companies still import about 95 percent of their
raw materials.

"The growth rate (for the industry next year) will likely fall
to a single digit," Ferry said.

The industry currently has a total market value of Rp 22
trillion (about US$2.2 billion) and boasts average annual growth
of 12 percent.

There are about 200 drug manufacturers in the country, 60 of
which dominate about 80 percent of market share, while the other
manufacturers scramble for the remaining 20 percent.

Another potential stumbling block for the industry is its
market structure. There are currently some 2,200 agents and
distributors in the industry, creating numerous levels of
distribution before the products finally reach the end-customers.

There are more distributors in Indonesia than in India, which
has more than 13,000 drug manufacturers, making it among the
largest drug manufacturers in the region.

So many distributors creates inefficiency in Indonesia's
pharmaceutical industry and results in higher costs for
companies.

According to Kalbe Farma corporate secretary Vidjongtius, if
Indonesia hopes to compete in the regional market it must improve
its price competitiveness, especially when the ASEAN Free Trade
Area comes into full effect in January 2008.

Within ASEAN, there are more than 600 drug manufacturers with
total sales of some $6.25 billion.

Kalbe Farma currently operates six pharmaceutical
manufacturing sites, producing about 400 products and controlling
approximately 14 percent of the total domestic market.

Eight percent of the company's total sales come from the
regional market, through its eight representative offices in the
ASEAN region.

Kalbe Farma plans to merge with Enseval and Dankos
Laboratories, which would make it a major player in the Southeast
Asian pharmaceutical market with a capitalization of more than $1
billion.

The company has said that increasing investment in research
and development is crucial to the development of the local
industry.

Currently, most drug manufacturers here allocate a mere 1
percent of their total sales for R&D, compared to at least 10
percent by drug manufacturers in developed countries.

Ferry of Dexa Medica agreed, saying drug manufacturers here
must begin putting more money into research.