This report profiles Indonesia’s pharmaceutical and healthcare industry, discussing market trends through 2014 and outlook for 2015 and beyond. The report also highlights leading players in the sector including Kalbe Farma, Tempo Scan Pacific and Kimia Farma.

The Indonesian pharmaceutical and healthcare sector has recorded double digit growth over the last few years. However, in value terms, domestic pharmaceutical industry was minuscule in size compared to the markets of U.S. and Japan. Low per capita income, subsidies, lower penetration and accessibility of healthcare were the main reasons for this low figure. Hence, immense potential exists for the growth of the domestic pharmaceutical sector. However, the sector is often marred by regulatory flip-flops, drug approval delays, currency fluctuations, unethical practices and pricing controls.

The pharmaceutical market remained stagnant in dollar terms in 2013. Lower economic growth and higher inflation were the main reasons. Depreciation of IDR, higher electricity tariffs and higher minimum wages also led to erosion in the profitability margins of pharmaceutical manufacturers during the year. However, the implementation of the National Health Insurance (JKN) program by the Social Security Agency (BPJS) in 2014 helped to revive the sector. The growth was backed majorly by the generics segment. The JKN program has made Indonesia one of the fastest growing pharmaceutical markets in the region. Both domestic and foreign companies have geared up to expand their production capacities to meet the expected demand growth in the next few years thanks to the program.

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

Key Points:

• The government accounted for around 40% of total healthcare spending while the private sector accounted for the remainder. The healthcare market saw a CAGR of around 20% during 2006-2011 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 program Jaminan Kesehatan Nasional (JKN), with nearly IDR 20tn (USD1.6bn) allocated to cover premiums for the poor in 2014. The program was launched on Dec 31, 2013 by President Susilo Bambang Yudhoyono.

• Indonesian companies accounted for 75% of the pharmaceutical market while foreign companies accounted for the remainder. The pharmaceutical market grew at a CAGR of 12% during 2007-14. However, it remained stagnant in USD terms in 2013, but recovered in 2014 recording a Y/Y growth of 21%.

• Indonesia saw an average GDP growth rate of 5.9% during 2006-2012. However, FY14 proved to be a tough year for the economy with GDP slowing to a five-year low of 5%. However, the healthcare sector was resilient in FY14 even amidst the dip in the overall economy.