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Meeting with BKPM: Highlighting Investment in Pharmaceutical Sector

Wednesday, 10 July 2019

Indonesia’s Investment Coordinating Board (BKPM) in collaboration with Institute for Development of Economics & Finance (INDEF) and SwissCham Indonesia conducted a roundtable discussion titled “Momentum To Transform Indonesia Into A Regional Pharmaceutical Hub: A Decade Of Decree No 1010/2008”.

The rationale stems from BKPM determination to attract foreign direct investment (FDI) in Drugs and Pharmaceutical Sector of Indonesia and what appears to be a paradox – Indonesia as the largest market in ASEAN competes vigorously for FDI with Singapore and Malaysia, yet only the latters have become a pharmaceutical hub while the former struggles to attract any FDI in the sector.

The meeting put the spotlight on decree 1010 in particular. In 2008, government issued a Minister of Health Regulation (Permenkes) No. 1010/MENKES/PER/XI/2008 concerning Drug Registration in an effort to protect the public from medicines which did not meet the requirements from safety, quality, and efficacy viewpoints. This policy is also a response to rogue distributors who do not have quality system for the management of supply chain integrity.

The Minister of Health Regulation requires that drug registration is only be done by pharmaceutical companies that carry out domestic production. Other provisions in the Minister of Health Regulation require to locally manufacture imported products within five years after the first importation  with some exceptions e..g. products under patent protection. The policy is intended to bring latest technology, higher investments, quality systems and knowledge into Indonesia.

An overlooked consequence to consider is a research-based pharmaceutical firms that do not produce domestically, then classified as “Pharmaceutical Wholesalers” (PBF) is required to produce its medicines in Indonesia within two years of the issuance of Permenkes to be able to register the drugs, or other available options are to submit the registration of the said drugs to another firm in order to obtain a distribution permit from BPOM. The rules that were originally intended to protect patients, eventually became a localization policy of production as a prerequisite for entering the Indonesian drug market.

After ten years of implementing the policy, Indonesia is still reliant on imports of raw medicine materials by 90%, which has made the production of local generics costly and not competitive. The drug supplying companies for JKN complained of the increasingly strong price pressures that make it difficult for them to maintain drug quality and erode their profitability. Berly Martawardaya, Research Director of INDEF also highlighted that the technology transfer, the investment in research and development to human capital that were expected did not happen. On the other hand, not all drugs reach economy of scale of production in the Indonesian market, particularly innovative drugs which share in the market remain below 20% even after JKN implementation and one of the lowest in ASEAN. This legislation have resulted in significant delays in access to or unavailability of life-saving and new drugs. As a result, patients who can afford it (even with sacrifices) choose to seek medical care and treatment medication in neighboring countries. This has led to economic lossess of nearly US$ 1.4 billion from the flight costs alone of nearly 600.000 patients in 2017 (Indonesia Ministry of Tourism, 2017). Total lost revenue from outbound medical tourism due to a lack of trust in the local system and infrastructure amount of about $4 billion a year (Oliver Wyman 2018 Report).

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