Pharmacy industry needs to increase R&D spending
The Jakarta Post, Jakarta
This is what happens when a country’s pharmaceutical industry starts from a tradition of being middlemen: limited capability in research and development (R&D) plus a long chain of distributors that pushes the already high prices of drugs even further up.
Though R&D is actually the key to successful drug manufacturing, domestic companies only set aside an average of 1 percent from their revenue on product development as compared to at least 10 percent allocated by companies in developed countries.
“We need to gradually increase the R&D budget because this industry needs constant innovation,” PT Kalbe Farma president director Johannes Setijono said recently.
Kalbe itself, as the country’s largest pharmaceutical company with a market capitalization of US$1.2 billion, only set aside up to 2 percent of its total sales revenue or Rp 100 billion per year, its founder Boenjamin Setiawan said in a recent CEO forum.
The company, founded in 1966, is currently cooperating with Spain’s Recombio SA for development of anti-cancer drugs.
“R&D is an expensive and speculative investment. That is why local companies prefer to just manufacture drugs from already licensed formulas,” state-owned pharmaceutical company PT Kimia Farma president director Gunawan Pranoto said.
It would require between $150 million to $200 million to develop a new drug that had a fifty-fifty chance of succeeding in the market, he explained.
According to an American pharmacological study cited by United Press International, a simple analgesic drug would need an average of $375 million to develop over a period of 61.8 months.
Members of the local Pharmaceutical Producers Association (GP Farmasi) have been pushing the government to provide incentives for R&D similar to what has been done in Singapore and Malaysia.
“We can work with universities and research institutions if there are tax incentives or lower loan rates for the activity,” Boenjamin said. “Or the government can help by increasing the budget for education.”
Actually, Indonesia has a lot of potential in creating a unique field of pharmacy R&D, especially on the development of herbal medicine with its seemingly under-explored rich biodiversity.
Currently, out of more than 40,000 species of herbs, only 1,000 have been utilized in the production of herbal medicine.
“Some 95 percent of the raw materials are still imported from China, South Korea, Japan and Europe. Creating an upstream pharmacy industry requires a lot of investment,” Gunawan said.
“Due to the expensive nature of R&D, even herbal medicine has not been fully explored,” he added.
This year, Kimia Farma will start to focus on developing more herbal medicine, Gunawan said, showing some sample products like soft capsules of the much-talked about virgin coconut oil and bottles of tablets to help maintain a low cholesterol level.
While drug makers like Pfizer and Merck are moving to developing countries like India due to a highly educated workforce and lower R&D costs, Indonesia could lure those multinational companies to explore its rich biodiversity.
“Most local pharmaceutical companies are still largely distributors of foreign-patented drugs. That makes drugs relatively expensive here,” Gunawan emphasized.
However, it seems that a lack of local product development is not the only thing pushing prices of medicine up in Indonesia.
The structure of the market has been ineffective for quite some time, with more than 2,200 large distributors, Dexa Medica managing director Ferry Soetikno, explains.
By comparison, in India there are already 13,000 manufacturers with a lot lower number of distributors.
The imbalanced proportion prompts high prices and tight competition between distributors that leads to improper storage. The latter affects the quality of the products before it reaches consumers.
“GMP (good manufacturing practices) is sometimes not met with good distribution practices,” Ferry added.
Currently, the average prices for medicine in China and India are about one-third of the retail price for similar products sold in Indonesia.
Food and Drug Control Agency (BPOM) head Sampurno said that most drugs were sold for more than the actual cost because there remained so many additional expenses for such things as taxes, distribution costs and promotion. These are all passed on to the consumer.
If Indonesia wants to compete in the Asian market, price competitiveness is among the first priorities to be tackled, Kalbe Farma corporate secretary Vidjongtius said.
With the ASEAN Free Trade Agreement on the pharmaceutical sector to take effect in 2008, the industry must prepare itself for more competition.
More R&D and less distributors could be the answer.
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