Indonesia is one of the the fast-growing economies within the ASEAN region, representing one of the most attractive up-and-coming markets for pharmaceutical companies looking to expand across the Asia-Pacific region.
As a sizeable population that is witnessing a rapid expansion of the middle class, Indonesia is poised to become a key market of growth in this region for the healthcare industry.
As the fourth most populous country in the world, and given its increasing health awareness, Indonesia is considered as one the largest market for healthcare. The country is affluent in natural resources and is developing itself as an industrial base. Indonesia is seen as a large potential market for healthcare service due to its favourable demographics. Rising wealth, demand for quality healthcare and an increase in the number of hospitals are some of the factors supporting the growth of the healthcare industry in Indonesia.
With an average annual growth rate of six per cent in 2014-2018, the potential of Indonesia’s pharmaceutical market is being boosted by authorities aim to provide universal health coverage in 2014. Healthcare spending in Indonesia is projected to reach US$21.71 billion in 2015.The government economic plan aims to increase GDP per capita from US $3,000 now to US $15,000 by 2025.
In particular, the Indonesian market has grown through government efforts to provide universal healthcare. When the initiative was announced in 2010, it included the allowance of 100 per cent foreign ownership of pharmaceutical companies, resulting in sales of the pharmaceutical sector experiencing nearly twice the growth rate of gross domestic product. Currently, under Indonesia's Social Security Organising Body (BPJS), the healthcare scheme is set to become the world's largest by 2019.
Indonesia has taken a significant step in its efforts to roll out universal healthcare. The goal of Indonesia's universal health care programme, known locally as Jaminan Kesehatan Nasional (JKN) is to provide health insurance to the country's estimated 250 million people in five years, or by January 2019. But faced with the immense challenge of implementing such a scheme in the world’s fourth most populous country, the government is phasing the introduction carefully.
In the first stage of the programme’s implementation , the JKN will cover 121.6 million Indonesians. The figure includes 86.4 million people already enrolled in the Jamkesmas, the fully state-funded health insurance for Indonesians categorised as poor and near-poor, or those living on less than Rp233,000 (US$24) a month. Another 11million of the tally are those already qualified for the Jamkesda programme, a scheme run by local governments. In addition, there are 16 million civil servants and their families already covered by PT Askes, seven million covered by Jamsostek, the health insurance for private sector workers, and 1.2 million members of Asabri, the social insurance for the military and their dependants.
The JKN's achievement is to integrate the various state-owned health insurance schemes into a single payer, quasi-government organisation, dubbed BPJS-Health, which will administer the JKN. Under a similar scheme for other benefits, another super administrator, BPJS-Employment, will provide pension, occupational injury benefits, provident funds and death benefits by 2015 .
The JKN covers comprehensive benefits, from infectious diseases such as influenza to expensive medical intervention such as open-heart surgery, dialysis and cancer therapies. The members of the former Jamkesmas, whose premiums are paid for entirely by the government, are entitled to third-class room and board at either state or private hospitals. Those who pay higher premiums are entitled to first-class and second-class room and board.
For pharmaceutical companies and medical devices providers, the implementation of the JKN will bring plenty of opportunities. However, the most likely beneficiaries are local pharmaceutical companies producing generic drugs, which already have a 70 per cent share of the local drug by volume. According to Health Minister Nafsiah Mboi, in order to lower costs, doctors participating in the JKN will have to adhere to a government formulary, which consists of 92 per cent generics and 2.5 per cent innovator drugs. The rest is accounted for by dental materials and diagnostics.
The implementation of JKN will also leave the current regulatory restrictions on foreign pharmaceutical companies unchanged. Market barriers to growth remain, including a cumbersome approval process for medicines and a long-standing requirement for foreign drug companies to have a manufacturing facility in Indonesia before they can distribute their products. Like private insurance companies, therefore, most foreign pharma and medical device companies will have to rely on Indonesia's growing economy – rather than its healthcare reforms – for any market opportunities.
Healthcare reforms open up huge potential in the market to companies with a carefully tailored expansion strategy. National healthcare expenditure has grown significantly over recent years. This growth is expected to be further catalysed by continuous reforms in the healthcare system. Indonesia's healthcare sector is traditionally fraught with inequitable healthcare financing and inequalities between rural and urban sectors in terms of treatment access. In a bid to tackle these problems, Indonesians are focusing more in recent years on their social welfare and are trying hard to rebuild their healthcare system, according to an expert on healthcare systems in South East Asia.
One common criticism raised by foreign pharmaceutical companies has been the continuous market access barriers in Indonesia stemming from its regulations that hint at protectionist tendencies. Decree 1010 released by the Ministry of Health in 2008 has made waves in the international arena due in large part to its mandatory requirement for foreign pharmaceutical companies either to manufacture locally or form partnerships with local manufacturing companies, notably their potential competitors, in order to register their own drugs.
Although products still under patent are exempted from this ruling, all pharmaceutical products that are five years past patent expiration have to be locally manufactured, thus necessitating major technological transfers. When the ruling was first announced in 2008, 13 out of the 29 international pharmaceutical firms in Indonesia were thought to be potentially affected as they were selling their products in the country without having production facilities there.
Compounding the issue of sheer geographical size is the ever-changing legislation on distribution that continues to baffle and confuse new-comers and even pre-existing players.
As pronounced as the overall growth opportunity in the Indonesian market may be, it is evident that a tailored market entry or expansion strategy is required to ensure success. Investing in home-grown manufacturing operations, establishing local partnerships, along with foraging into generics' sector are among the numerous strategic moves employed by foreign healthcare players. An understanding of the local dynamics in a complex interplay of healthcare reforms, legislative requirements, market needs and logistical hurdles is critical for all pharmaceutical companies that are serious about making headway in this emerging market of huge potential.
Although the economy is growing at a steady pace, the spending on healthcare is very low in comparison to neighbouring countries. Deutsche Bank expects that by 2015 the number of people in Indonesia that fall into the middle-income bracket will double to 52 million people.
A vast majority of the population stays in rural and remote areas making delivery of health care services difficult. The introduction of a full universal health insurance by the Indonesian government is a much-needed step to increase access to healthcare, given that only 26 per cent of the Indonesians are covered by health insurance and the fact that they find medications unaffordable. The government is also working to increase investment in all segments of healthcare such as hospitals and health care centres, medical imaging, medical devices, healthcare information technology (IT), pharmaceutical and biotechnology.
The outlook for the pharmaceutical sector is affirmative in terms of steady sales growth. A young population, increasing life expectancy with improved living standards and rising incomes are all positive conditions for growth. Although it has one of the world's lowest healthcare spending-to-GDP ratios, its rising middle class which represents more than half of its population is expected to sharply augment its medical spending and compel escalation in the sector over the coming years.