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s the government resolutely pursues its commitment to ensure that universal health coverage (UHC) is achieved by 2019, there’s a debate raging on the need to develop home-grown production of active pharmaceutical ingredients (API). The aim is to reduce raw material dependence on import and curb the high-cost of prescription medicines.

With the continuous deficit of the Social Security Management Agency (BPJS) and the approaching 2019 presidential election, the API production debate is gaining a new political momentum.

In any country, the value added from generic manufacturers consists in introducing competition, which in an efficient market can help the government to achieve savings on older treatments and increase investment in new ones or offer lower cost alternatives to out-of-pocket patients.

In Indonesia, there has long been a policy to prioritize domestic production of generic medicines but things didn’t work out as planned.

The government’s unwavering support the last 15 years led to a number of local manufacturers enjoying strong growth while a number of global players operating in the market found themselves under capacity and streamlined their facilities in the country.

In 2005, a study showed that prices of Indonesian generics in public procurement were on average 74 percent higher than the international procurement prices. Despite that, the local industry continued to thrive and never came up for competitiveness review. Key domestic players, unsurprisingly, continue to think they deserve a compensation for “investing” in local production by charging high prices for their branded generics.

In 2016, the market share of domestic generics, by value, reached 60 percent of all drugs in Indonesia. By volume, generic drugs accounted for 80 percent of marketed drug sales. This domination of the market by generics is the highest in ASEAN. Interestingly, it is only rivaled by China and India both vibrant and growing API producers. In comparison, Indonesia’s import of APIs still accounts for more than 95 percent of the industry’s needs.

Today and four years into UHC implementation, the landscape has changed. BPJS has become the dominant buyer of pharmaceuticals and is significantly driving down drug prices to contain “spiraling” deficit. As a result, generic drug manufacturers have to contend with relentless price pressure as they supply the largest bulk for public procurement. Since very few of them operate in a regional or global scale, most are struggling to weather the storm. Their dependence on imported raw materials is bringing to light the vulnerability of the country’s healthcare industry and pushing the government to look for solutions.

Recent headlines (Bisnis Indonesia on Oct. 6) decry “the monopoly practice of global manufacturers that is hampering the development of API in Indonesia” and call for another deregulation to boost the sector.

While it’s true that the industry and the entire healthcare sector need a new regulatory structure, this structure needs to be one that makes the market functions better, not worse. The answer is not more policies, but better policies.

To make new governmental interventions better than the old ones, lawmakers need to recognize that previous efforts to regulate the industry were flawed and that they need to learn more about the industry’s intricacies before trying to regulate it.

Everyone knows that the topic of pharmaceutical manufacturing in Indonesia isn’t new and has been debated for more than a decade. Regulations like decree 1010 and negative investment list have kept coming but did little to improve the investment climate and attract greater presence of international pharma companies.

Health Ministry Regulation No. 87/2013 on the development of medicinal raw materials, relaxation of the maximum ownership threshold under Presidential Decree No. 39/2014 and the 11th economic stimulus package, released in March 2016, are yet to attract any form of fresh investment.

From a multinational perspective, considering manufacturing investment into emerging markets is a means of gaining efficiency, generating revenues and expanding global presence.

With the exception of China, the focus is rarely on supplying the local market and the aim is to also supply regulated markets around the world.

With its relatively underdeveloped size, limited readiness for innovative therapies, large-scale substitution of premium products by BPJS and less than ideal investment conditions, the Indonesian pharmaceutical market today isn’t an attractive manufacturing destination.

Moreover, it doesn’t have the means to compete with the so-called BRIC nations. Indonesia’s proximity to the ASEAN market undoubtedly confers advantages but the promise of ASEAN becoming a single trade area and a single production base remains elusive.

For these reasons, it is essential for regulators when carrying out structural reforms and enacting policy to attract foreign investment, to understand that the pharmaceutical industry is different from other manufacturing sectors and that pharmaceutical companies are not consumer product companies.

Developing API manufacturing in Indonesia is not impossible. It needs both political will and technical expertise.

One has to study the major trends in API manufacturing across the world in the last ten years. First, there was this big shift in production from Europe to India and China. Other emerging markets, including South Korea and Taiwan, have emerged as API hubs, while Brazil, Russia and Argentina have also become potential sourcing destinations. All these markets have one thing in common: their government has thrown their full weight behind the industry and the reform of the healthcare sector.

API manufacturing requires a large amount of investment from the government and a supportive business environment. It will not happen without political know-how and a continuous policy engagement.

For key domestic players, consolidations among generics companies and geographic expansion may be the way forward.

Another option is building capabilities in biosimilars, but their manufacturing is complex and needs investments comparable to original biologics. It also requires specialized skills which can only be acquired through collaborations with companies with expertise in biosimilars and access to production technologies.

For these companies to venture into the Indonesian market there needs to be a shift towards prioritizing value improvement in health care delivery and health outcome measurement. It is therefore essential to ensure that political short-term priorities do not damage long-term value.

The political pressure to meet the UHC target and achieve better patient outcomes for all Indonesians should convince policymakers that serious reforms are a necessity, not a choice. Capacity building solutions need to be accompanied by informed strategies that comprehensively address the healthcare system as a whole and not just the part related to the pharmaceutical industry and prescription medicines.
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The writer, a public health physician, is president director of PT Roche Indonesia. The views expressed are his own.