Indonesia mulls foreign JVs and reduction on imports to boost local API production

By Natalie Morrison

- Last updated on GMT

Image: iStock
Image: iStock

Related tags: Southeast asia

Incoming Indonesian government measures to attract foreign manufacturing joint ventures (JVs) could include a regulation to reduce API imports, Vincent Harijanto, committee head GP Farmasia said.

Possibilities include a regulation stipulating local finished product manufacturers should source active pharmaceutical ingredient (API) locally where possible, he noted.

Reductions on capital goods tax is an example of a potential new measure as an incentive to foreign investors as is waiving some import tax on API production machinery into Indonesia, Harijanto noted.

Discussions over potential measures are ongoing within Indonesia's governmental bodies including the ministries of health, finance, trade and industry, as well as industry associations like GP Farmasia -- Indonesia's pharmaceutical association -- and local companies. Harijanto said he is optimistic some changes could occur within 2016.

Talks follow the introduction of a national health insurance system in 2014, under which the Indonesian government now offers reimbursement of drugs. The resulting growth of local pharmaceutical consumption -- and therefore finished product manufacturing -- means the government and industry are keen to boost API production in the country, Harijanto noted.

It is believed introducing such policies could encourage manufacturers from other countries -- for instance China -- to invest in JVs with Indonesian manufacturers, Harijanto said.

A weakness of the local pharmaceutical market is a lack of API production expertise, he noted, adding historic inconsistencies in policies over raw material import has led to a lack of local know-how with Indonesian finished product manufacturers using 95% foreign API. JVs with foreign API experts would allow for technology and knowledge transfers into Indonesia, he said.

Most of Indonesia's raw material comes from China, this publication previously reported​.

Foreign interest

For foreign investors, access to Indonesia's 250m strong population and other ASEAN (Association of Southeast Asian Nations) countries -- of which Indonesia accounts for around 40 - 45% of the market -- should be a driver, Harijanto said. Indonesia does not have to pay import duties to other countries in the ASEAN region, he added.

It is likely that key foreign investors in the Indonesian pharma market will be generics makers since the majority of drugs reimbursed under the new healthcare scheme are generic, he said. According to the Global Business Guide Indonesia website​, 92% of pharmaceuticals reimbursed by the government are generic and 2.5% are innovator drugs.

Yet, Harijanto argued this does not mean branded drug producers would not invest in Indonesia, noting innovator drugs are needed particularly in complex disease fields like oncology or cardiovascular conditions.

There is also potential to boost the local pharma sector by using newly established JV facilities as API CMOs for the wider global markets, he said, noting there are already some CMOs for finished products established in the region.  Examples of existing local CMOs include PT Ferron Par Pharmaceuticals (part of Dexa Medica) and Sanbe Farma.

However, Harijanto stressed that some of the incentives or regulations could have restrictions. For instance a regulation suggesting local finished product manufacturers should source API from Indonesian makers where available would likely come with the proviso that the API is not much more expensive than an import.

Discussions over ensuring local producers are capable of offering prices competitive with foreign manufacturers will take place among the departments of health, finance, trade and industry, he noted, adding incentives could be a way to ensure affordable pricing.

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