Indonesia market expanding but local producers can't keep up

Some Western drugmakers have built plants in Indonesia to tap a market with a growing population and expanding national health coverage. But a new report suggests that the better entré for local production might be to buy a facility from a domestic producer.

The report, compiled by Global Business Reports, was issued on Wednesday by CPhI South East Asia. It says that growth in the market, particularly in sales of generic drugs, is expected to soar as the national health program grows to cover most of the Indonesian population, 257.5 million by 2019, from just half today.

But the report says that many Indonesian manufacturers are operating at capacity and without the ability to expand rapidly. The report suggests this presents a big opportunity for global drugmakers to buy into local companies. Indonesian law limits outside investment to 75%.

"Indonesia has an extremely high proportion (83%) of cGMP facilities, which overseas companies will look to acquire in order to gain a foothold in the market," Global Business Reports said.

Drugmakers from around the world have seen potential in making drugs for Indonesia and for export. On Thursday, Korea's Chong Kun Dang said it had a new joint venture in Indonesia with TOTO, an affiliate of Indonesian pharmaceutical giant Mensa Group, the Korea Times reports. They intend to use it as a base to export meds to countries in Asia, the Middle East, Africa and Europe. 

Some Western drugmakers also have already made moves to get in on what they see as upside potential. In 2013, Fresenius Kabi bought controlling interest in Indonesian drugmaker Ethica Industri Farmasi and then started in on a $60 million plant to make IV generic drugs and infusion solutions. Fresenius Kabi claims to be the market leader in IV generics in Indonesia.

But the country is not without its pitfalls. Franky Sibarani, head of the Investment Coordinating Board (BKPM), recently noted that a weak rupiah had led to high prices for raw materials that must be imported from China, India, Europe and the U.S. "The country's pharmaceutical industry sources around 95% of its raw materials through imports," he pointed out.

A government-controlled Indonesian company recently took steps to strengthen its place in the market. Kimia Farma, which is 90% owned by the government, said late last year it would merge with competitor Indofarma as part of a government plan to consolidate and strengthen the sector. Adrianus Bias Prasuryo, a senior analyst at Ciptadana Securities, told Reuters that Indofarma has a stronger manufacturing operation, while Kimia brings a broader distribution network to the table. Together they will make a more "robust" company, the analyst said.

- here's the release 
- read the Korea Times story