Coronavirus and Pharmaceutical Industry
In a discussion two years ago, I said that if China and India embargoed raw materials for medicines (BBO) on Indonesia, the Indonesian pharmaceutical industry would only be able to survive for six months.
The Indonesian pharmaceutical industry has no resilience because it is highly dependent on the raw material for medicines from the two countries. Indonesia\'s BBO imports from China is 63 percent, India 23 percent, and the rest are from other countries.
The dependence is not only on active ingredients, but also excipients (supporting materials) for the manufacture of drugs. Now, the Covid-19 pandemic has caused China and India to embargo BBO to Indonesia. The scarcity of BBO and supporting materials will have a multi-crisis impact on the national supply of medicines.
Also read : Getting Through COVID-19 Pandemic
When at the beginning of the pandemic (with an exchange rate of one US dollar at Rp 13,000), the price of BBO from China had jumped by around 60 percent and from India up by around 40 percent. At present, the exchange rate of one US dollar is Rp 16,000. BBO prices from the two countries are now much more expensive.
The problem does not only lie in the high prices but more on the availability of BBO. The Covid-19 outbreak has reduced BBO production in China. They only focus on meeting domestic needs. India cannot export as previously because to produce BBO, India is highly dependent on intermediate substances which are also imported from China. Likewise, other countries, including Europe, rely heavily on intermediate materials originating from China.
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What will happen?
When conditions are normal, manufacturing companies or pharmaceutical factories in Indonesia can easily obtain BBO or excipients from China and India. They can buy from importers or import directly from the principals abroad.
For production purposes, pharmaceutical factories generally have a BBO supply of around six months. This BBO supply level must be carefully calculated, especially for pharmaceutical companies that supply medicines to the government sector because the selling prices are very cheap.
In early December 2019 most Indonesian pharmaceutical companies bought BBO with stock as in previous years. When the Covid-19 outbreak occurred in Wuhan, Indonesian pharmaceutical companies might not have thought the magnitude of the situation would be so big, so it did not make preparations. The implications of Covid-19 can be extensive and serious in the supply of BBO from China. As a result, the BBO stock being held will only be enough until June 2020.
A part of the BBO inventories will even run out around April and there are only three large pharmaceutical factories that have already bought a large amount of BBO. These companies are predicted to be able to survive until September 2020.
The disruption of the supply of BBO certainly has wide and serious impacts both on the continuity of drug production and on the availability of drugs at the national level. It is predicted that there will be a shortage of certain drugs in May, and that it will not be easy to get them.
In March 2020, the supply of several types of drugs in the government sector has begun to be scarce. For the procurement of the 2020 budget year, up to present no company has dared to offer prices for the LKPP (Government Goods/Services Procurement Policy Agency) tender. This is caused by the fact that pharmaceutical companies that will participate in open bidding at LKPP do not have guaranteed availability of BBO from suppliers, including price certainty.
If this problem is not addressed with a strategic solution, from July 2020 onward there will be a shortage of drug supplies in the public or private sectors. This will have a critical impact on medical services at all levels, from state-of-the-art clinics, health centers, to hospitals throughout Indonesia.
Indonesia should have a buffer stock in the future, especially for medicines that are classified as the most essential drugs.
Without the availability of drugs, medical services will be paralyzed because most medical services use drug interventions. The issue of drug availability cannot be considered simple because it involves the interests and livelihoods of many people.
If this problem is not addressed now, there could be widespread social unrest and turmoil, and it could become a multidimensional crisis. Taking a lesson from this BBO scarcity case, Indonesia should have a buffer stock in the future, especially for medicines that are classified as the most essential drugs, namely drugs that in any condition must always be available.
Independent in BBO, is it possible?
Many people say Indonesia should be independent in the production of BBO to supply the needs of the pharmaceutical industry in the country. Is this BBO independence possible for Indonesia? The answer is not as easy as many people say.
There are many prerequisites for BBO independence, but they are difficult for Indonesia to meet. The Indonesian pharmaceutical industry requires around 1,300 types of BBO. Of that amount, those that have been produced in Indonesia, are still below 5 percent. All intermediate substances must still be imported.
If it is going to be independent in BBO, the basic chemical industry -- the petrochemical industry -- must be strong because this industry will produce intermediate substances. How to be independent in BBO, if all simple ingredients such as NaCl, alcohol, and glucose which are pharmaceutical grade, still have to be imported.
To produce BBO, in addition to requiring substantial investment, there must also be a guaranteed purchase from a domestic pharmaceutical manufacturing companies. As has widely been known, if the need for BBO is small, it will not achieve economies of scale to be produced domestically.
Another fact, BBO imports in Indonesia are subject to import duty rates of 0-5 percent. The low import duty hampers the development of the domestic BBO industry because there is no protection at all, thereby causing the prices to be more expensive than BBO imports.
The domestic BBO industry must bear the cost of depreciation of a larger rupiah exchange rate. This import duty policy clearly does not support the independence of domestically made BBO.
Indonesia should not develop BBO derived from synthetic chemistry because it will face and compete directly with China and India. Their production scale is very economical with efficient operating costs and supported by the existence of a strong basic chemical industry.
Indonesia must have other options in developing the BBO. Indonesia can jump by developing BBO production through biotechnology such as biosimilar. The investment required is not too large, but there must be collaboration between industry/business and universities, with funding from government coordination.
Another option is to develop BBO derived from natural materials with innovative refraction technology. Through this refraction technology, raw materials will be obtained with faster offset times and at a much lower cost.
The development of BBO from the crown god plants, for example, will be able to produce more than 6 types of BBO which can later be marketed domestically and in the global market. This is a very attractive challenge in the development of Indonesia\'s materials from the nature, with great benefits for public health, and with very promising economic potential.
Pharmaceutical industry and accounts receivable
In addition to facing the scarcity of BBO scarcity, the Indonesian pharmaceutical industry also faces a pretty serious problem, namely the delay in government drug payment.
The amount of the pharmaceutical industry\'s bills/receivables to the government reaches more than Rp 6 trillion, which has been due for six months, even one year. This late payment certainly does not only disrupt the companies\' cash flow, but also disrupt production activities and supply of drugs to government-owned health care facilities.
The delay also has implications for the cost of money which becomes a burden on the pharmaceutical industry. The burden is felt heavier because the prices of LKPP tender for drugs is very low so the companies\' margins are very limited. This reality is different from imported government sector drugs, which generally have a pretty good margin.
Sampurno, Director General of the Food and Drug Agency (POM) 1998-2001; Head of POM 2001-2006.