This report profiles the pharmaceutical and health care industry in Indonesia, with analysis of market trends through H2 2013 and market outlook through end-2020. The report also surveys the key firms in the sector, among them Kalbe, TSP, and Kimia.

Indonesia’s pharmaceutical and health care sector has recorded double-digit growth over the last few years. However, in value terms, the domestic pharmaceutical industry was minuscule in size compared to markets like the USA and Japan. Low per capita income, the lower cost of drugs, and lower penetration and accessibility of health care were the main reasons for this low figure. Hence, immense potential exists for growth in Indonesia’s pharmaceutical sector. However, the sector is often plagued by regulatory flip-flops, drug approval delays, currency fluctuations, unethical practices and pricing controls.

The pharmaceutical market saw a challenging period in 2013, with growth of only 9% after growing by 15% in 2012. Lower economic growth and higher inflation led to this subdued performance. Depreciation of the IDR, higher electricity tariffs, and higher minimum wages also led to erosion in the profit margins of pharmaceutical manufacturers during 2013. However, the implementation of National Health Insurance (JKN) program by the Social Security Agency (BPJS) in 2014 is expected to significantly boost sales of drugs, particularly generic drugs. According to the Association of Pharmaceutical Entrepreneurs (GP Farmasi), the size of the pharmaceutical market is expected to record a y/y growth of 13% in 2014. Such revenue growth will also offset the recent decline in profit margins. Both domestic as well as foreign companies are gearing up and expanding their production capacities to meet the expected demand growth after the implementation of JKN.

Going forward, the market is expected to return to a double-digit growth track, thanks to government support and various macro growth drivers including the rise in per capita income, the rise in health insurance penetration, the proliferation of health care services across the remote areas, the rise in lifestyle diseases, and the increase in foreign investments and in government as well as private expenditure on health. However, frequent policy changes and rising prices of raw materials may act as deterrents of growth for this sector.

Key Points:

• This report outlines the market position and financial information for leading sectoral players, including PT Kalbe Farma Tbk (Kalbe), PT Tempo Scan Pacific Tbk (TSPC), and PT Kimia Farma (Persero) Tbk (Kimia).

• The government sector accounted for around 34% of total health care spending and the private sector for the remainder. The health care industry saw a CAGR of around 20% during the period 2006–11 and is expected to surpass USD 30bn by 2015.

• The government aims to have every Indonesian covered by health insurance before 2019 under the new scheme known as Jaminan Kesehatan Nasional (JKN), with nearly IDR 20tn (US$1.6 billion) allocated to cover premiums for the poor in 2014. The scheme was launched on December 31, 2013, by President Susilo Bambang Yudhoyono.

• Despite ongoing improvements in its infrastructure, the health care system is still struggling with the shortage of medical professionals in all segments of the health care system. As of 2012, a single physician served 4,900 citizens in the country. The government of Indonesia has targeted to bring down this figure to 2,500 at the end of its universal health coverage program.