Indonesia Pharmaceuticals and Healthcare Report Q3 2012

The governments aim to create proper universal healthcare coverage is unlikely to be realised in the short term but would create investors interest in the country. We highlight some of the beneficiaries such as local generic drug manufacturers and medical devices suppliers. Given the countrys low per capita pharmaceutical and healthcare expenditure, it presents significant opportunities for drugmakers over the long term as an expected improvement in its economy will help to boost spending on healthcare.

Headline Expenditure Projections

- Pharmaceuticals: IDR53,041bn (US$6.04bn) in 2011 to IDR58,727bn (US$6.38bn) in 2012; +10.7% growth in local currency terms and +5.6% in US dollar terms. Growth rates broadly unchanged from previous quarter.

- Healthcare: IDR193,6010bn (US$22.06bn) in 2011 to IDR221,373bn (US$24.06bn) in 2012; +14.3% growth in local currency terms and +9.1% in US dollar terms. Growth forecast upgraded due to receipt of new historic data.

- Medical devices: IDR5,721bn (US$652mn) in 2011 to IDR6,294bn (US$684mn) in 2012; +10.0% growth in local currency terms and +5.0% in US dollar terms. Growth forecast upgraded but absolute numbers were readjusted downwards due to new historic trade figures.

Risk/Reward Rating

Indonesia is ranked 11th out of the 18 Asia Pacific markets in BMIs Q312 Pharmaceutical and Healthcare Risk/Reward Ratings (RRRs). This is a rise from 13th in Q212 as there was an improvement to its Industry Rewards score and declines in the same category for Thailand and the Philippines, bringing their overall rating downwards.

Key Trends And Developments

- In May 2012, Pfizer Indonesia director Widyaretna Buenastuti told the Jakarta Post the company intends to expand in the generic drug market in Indonesia and increase its market share. The company will invest US$3mn to expand its factory capacity. Pfizer Indonesia is in discussions with the National Agency of Drug and Food Control/Badan Pengawas Obat dan Makanan (NADFC/BPOM) to implement its plan by the end of 2012. The company is seeking expansion ahead of the introduction of the governments social security system to roll out more health insurance.

- In March 2012, Kimia Farma signed an agreement with Prakarsa Transforma Indonesia to establish a subsidiary called Kimia Farma Hospital. Kimia Farma will own a 60% stake in the new commercial entity. The first hospital is expected to be completed by the end of 2013 and the subsidiary will build at least five more.

- In the same month, Bio Farma said it will be ready to launch a pentavalent vaccine at the end of 2012 to meet domestic and foreign demand. This will make Indonesia the worlds fifth pentavalent vaccine producer. Pentavalent is a combination of five different vaccines for diphtheria, pertussis, tetanus, hepatitis B and haemophilus influenza type B (HIB). The other pentavalent vaccine producing countries are the US, India, Belgium and France.

BMI Economic View

With Bank Indonesia increasingly likely to reverse its easing campaign by hiking interest rates in lieu of rising price pressure, we expect the investment climate in Indonesia to deteriorate over the coming quarters, and in turn have cut our fixed capital growth outlook from 8.5% to 7.5% for 2012. Likewise, we forecast a slightly weaker outlook for the consumer taking its toll on private consumption, for which we have also downgraded our forecast to 4.5% from 5.3%. In line with these downgrades, we now see the Indonesian economy growing by 5.4% in 2012, compared to our previous forecast of 5.8%.

BMI Political View

The growing trend of official placation of hardline religious groups threatens Indonesias long-term attempts to foster a religiously pluralistic society, along with stated goals of separating religion and state. Furthermore, the fact that a few Islamist groups, including the Islamic Defenders Front and Indonesian Mujahedeen Council, seem to have disproportionate power with law enforcement and with parts of the government bodes poorly for the diverse countrys characteristics of polity and could lead to social unrest in the long-term.

The price of this market report covers 4 quarterly reports on this sector. This quarterly report will be downloadable instantly as a PDF document, with the 3 remaining reports delivered at regular intervals throughout the year.