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The government is intensifying efforts to support the country’s longstagnant pharmaceutical industry after opening up the sector to foreign investment in its latest revision to the negative investment list (DNI).
The efforts were evident at a dialog on “Expediting the Development of Indonesia’s Pharmaceutical Industry” organized by the Investment Coordinating Board (BKPM) on Thursday that gathered together players in the pharmaceutical industry and its related sectors.
“Most of the existing companies make medicines, whereas the raw material businesses is small. Roughly 90 percent of raw material for the pharmaceutical industry is imported from India or China. We have to change this,” BKPM investment monitoring and implementation deputy chairman Azhar Lubis said during the event.
In a bid to encourage the raw material industry, the government has revised the DNI, which lists the sectors restricted to foreign investment. Following the revision, the government now allows 100 percent foreign ownership in pharmaceutical companies, from 85 percent previously.
Following the issuance of the regulation, no fresh interests on raw material sector have been expressed by foreign investors, Azhar said. However, there have been 18 new licenses for investments in the pharmaceutical industry issued by BKPM from January to September worth Rp 2.1 trillion.
Apart from campaigning for investment in pharmaceutical factories, the BKPM will also push research and development (R&D) in the sector to encourage new innovations in new medicines that are locally made, Azhar added, citing R&D centers in Singapore and Europe.
However, industry players said the problem with investment in the pharmaceutical sector lay in the fact that there was a relatively small number of hospitals and doctors for whom the medicines would be distributed.
“However, there have been 18 new licenses for investments in the pharmaceutical industry issued by BKPM from January to September worth Rp 2.1 trillion.”
“Boosting the industry does not only mean pushing for medicine production and factories. What’s also needed is hospitals, doctors and clinics as the infrastructure to feed the pharmaceutical industry,” said International Pharmaceutical Manufacturers Group (IPMG) executive director Parulian Simanjuntak.
Investments in the pharmaceutical sector have stagnated in recent years, reaching just Rp 8.9 trillion from January 2011 to September 2016, BKPM data shows. Also, there are only 214 pharmaceutical companies in Indonesia, most of which make medicines. Just a few of them manufacture raw material for pharmaceuticals.
“If production [of raw material] were to start in Indonesia, it would take around three years to really get going and it would definitely cost more than importing from other countries,” said Arustiyono, the director of supervision and therapeutic product distribution at the Food and Drug Monitoring Agency (BPOM).
“The research and development phase for the chemical reactions would itself take a year,” he added.
The pharmaceutical industry is 70 percent dominated by local players, including privately-owned Kalbe Farma and state-owned Kimia Farma, among others.
“The stimulus package for raw material factory investments will bring about a positive impact for the pharmaceutical industry because the source for materials will shift to local sources. This will inoculate the industry from the rupiah’s fluctuations,” Kalbe Farma corporate secretary Vidjongtius said. “In this way, medicine production costs can be more controlled. This, however, is a medium to long-term project.”
Questions & Answers
Q.What is the primary reason the government is encouraging investment in the pharmaceutical industry's raw material sector?
What is the primary reason the government is encouraging investment in the pharmaceutical industry's raw material sector?
The government aims to reduce reliance on imported raw materials, as approximately 90% are currently sourced from India or China. This shift would protect the industry from rupiah fluctuations and better control medicine production costs long-term.
Q.Has the increased foreign ownership allowance led to new investment in the raw material sector?
Has the increased foreign ownership allowance led to new investment in the raw material sector?
No fresh interests in the raw material sector have been expressed by foreign investors following the regulation change. However, 18 new licenses for pharmaceutical industry investments worth Rp 2.1 trillion were issued from January to September.
Q.What challenge do industry players identify for investment in the pharmaceutical sector, beyond production facilities?
What challenge do industry players identify for investment in the pharmaceutical sector, beyond production facilities?
Industry players believe a relatively small number of hospitals and doctors to distribute medicines is a problem. They argue that an increase in healthcare infrastructure like hospitals, doctors, and clinics is also needed.
Q.How long would it take for local raw material production to become operational and what are the initial cost implications?
How long would it take for local raw material production to become operational and what are the initial cost implications?
It would take approximately three years for raw material production to get going in Indonesia, with the R&D phase alone taking a year. Initially, it would also be more expensive than importing from other countries.
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