The pharmaceutical industry

The pharmaceutical industry in Indonesia began during the Dutch colonial period. In 1958 the post-colonial Indonesian government merged several independent pharmaceutical companies founded by the Dutch into one company—called PNF Bineka Kimia Farma, or Kimia Farma (for short). Kimia Farma is therefore regarded as the progenitor of the Indonesian pharmaceutical industry. In 1971 Kimia Farma's status was changed to a limited liability company, and in 2001 it was offered publicly as a listed company. Nevertheless, Kimia Farma remains one of four state-owned pharmaceutical enterprises. The others are Indo Farma, Phapros and Biofarma.

The pharmaceutical industry has seen major growth, particularly since 1967, when the government opened the door to foreign investment through a series of new investment regulations (Dep Hukum dan Ham, 1967, 1968). At the beginning of President Suharto period in office, an era of free-market liberalization, incentives were given to foreign investors, as formalized in the Foreign Investment Law No. 1/1967. As the economy strengthened, in 1970 the government adopted a free-floating foreign exchange system. By the early 1970s approximately 30 international pharmaceutical companies had invested and established operations in Indonesia, and previously imported medicines began to be replaced in the market by products manufactured locally. The enactment of investment laws for domestic as well as foreign companies has, in a period of economic growth, resulted in an investment boom in the Indonesian pharmaceutical industry.

Active Pharmaceutical Ingredients (APIs) required by domestic Indonesian firms continue to be largely imported from India and China. International pharmaceutical companies import materials largely through their own supply chains. Foreign and domestically owned manufacturing plants process the APIs into finished products, including both patented and generic drugs, for distribution throughout the country via some 2560 distributors (Panjaitan, 2009) to more than 10,000 pharmacies and other retailers (Wanandi, 2009). Distributors in Indonesia are specialized logistics firms, sometimes owned by local pharmaceutical companies, and distribute pharmaceutical products to retail and hospital outlets. Often regional distributors are only active locally. These regional distributors do not service pharmacies, which is the reason for the high number of distributors relative to the number of pharmacies. As detailed above, pharmacies are primarily located in urban areas, as market size and purchasing capacity in rural areas offer insufficient incentive for their operation (Sanusi, 2009). In areas where pharmacies are not present, local health centres and puskesmas provide drugs for the poor through their drug dispensing system.

As of 2011, the Indonesian total market for pharmaceuticals was estimated at IDR 33.97 trillion, about US$3.6 billion. Prescription drugs had a market share of 57 per cent and OTCs 43 per cent. Generics represented less than 10 per cent of the total market in value terms (Data Compilation, 2011). These figures equate to a per capita consumption of medicines in the vicinity of US$15.30 per person per year.

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