Abstract
Despite the impact of the global financial crisis, Indonesia’s drug
market is still expected to grow
substantially in 2009. According to the
Indonesian Pharmaceutical Association (GP Farmasi), drug
expenditure
should expand by 9% this year. BMI’s own forecasts are slightly lower
and we expect the
market to grow by around 8% in nominal terms in 2009 to
reach a value of US$2.7bn. By 2013, the
market should reach a value of
US$4.7bn, representing a compound annual growth rate (CAGR) of 11%.
However, in real terms BMI believes that the drug market will contract in 2009
due to the impact of high
inflation. Other negative factors weighing on
the market include the soaring cost of drugs, which are
reducing volume
sales.
Times are tough for Indonesian drugmakers. They have limited
capability to make active pharmaceutical
ingredients (APIs) and are
therefore dependent on imports, mainly from China, a situation exacerbated
by
currency fluctuations which in turn impact profit margins. As reported
by the Jakarta Post, Syamsul
Arifin, deputy chairman of the GP Farmasi
claimed that ‘As long as it [rupiah/dollar exchange rate] is
below INR12,000 to the dollar, we can still survive.’
Because of
intense competitive pressure, two Indonesian pharmaceutical companies agreed
to merge in
March 2009. Following the completion of feasibility studies
and legal processes, the integration of PT
Kimia Farma and PT Indofarma is
expected by Q409. BMI notes that the deal underlines our core view
that
M&A activity will increase due to the efficiencies realised from
consolidation.
In 2008, Indofarma and Kimia Farma recorded foreign
exchange losses of US$1.46mn and US$428,000,
respectively, due to the
necessary import of raw materials. To prevent this from happening again, the
new
entity aims to be a full spectrum player. A chemical division will
provide APIs to the pharmaceuticals
business. To maintain the integrity of
the supply chain, a distribution arm will link up with proprietary
retail
outlets. The company will also have an interest in healthcare equipment.
The tie-up was also stimulated by planned reforms to trade within the
Association of Southeast Asian
Nations (ASEAN) region. ‘In 2011, the
pharmaceutical market in the ASEAN countries will be integrated
[in
one market]. The merger is a strategy to prepare us for the upcoming
competition,’ said M. Sjamsul
Arifin, president director of Kimia
Farma. By 2011, the 10% tariff on pharmaceuticals entering Indonesia
will
be reduced to zero.
In the BMI Business Environment Rating matrix for
Q309, Indonesia occupies 12th position out of the 15
regional markets
surveyed in the Asia Pacific region. Main drawbacks to investment in the
country
include corruption, low per capita spending on pharmaceuticals and
a small proportion of the elderly in
the country.
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