PRIORITY WATCH COUNTRY

Indonesia

Since 1997, the same key critical barriers exist to U.S. pharmaceutical companies conducting business in Indonesia; however, there are some new developments in Indonesia that are of significant concern to the research-based pharmaceutical industry.

In order of importance, these are:

NLED/Price Control Mechanisms

The Indonesian Government has had for many years a basic "List of Essential Drugs." These have been produced "unbranded" by the three Government owned pharmaceutical manufacturers and a selected group of domestic companies licensed to do so. The prices of these products, which are available to Government Hospitals, Health Centers and Clinics, are controlled. Due to the economic crisis, the Ministry of Health has seen the prices of pharmaceuticals in the private sector during 1998 increase by up to 100%. Due to increases in raw material prices, the cost of production of generics have soared. With this scenario in mind, the government is discussing:

1)	Expanding the list of essential drugs to a full NLED as recommend by WHO
2)	Recommending price reductions for certain key products
3)	Allowing more companies to compete to produce the NLED.
4)	Extending subsidized raw material prices for fixed Rupiah/USD rates for purchases of raw materials from overseas.

At this time it is not possible to predict the final outcome but the industry is preparing itself to address these potential changes.

Marketing Practice

During the last 15 months, there has been a noticeable decline in the marketing activities of local companies although dubious marketing and business practices remain prevalent.

It is difficult to put a market share loss to the domestic manufacturers for 1997/98, as the US$ value of the market has nose-dived as a result of the Rupiah devaluation. The total market for 1998 is valued at only US$870 million from US$1600 million in 1997.

As the domestic financial crisis continues, GP Farmasi (local Pharmaceutical Association) has agreed to implement a Code of Marketing Practices which is adapted from IFPMA, IPMG and the Philippine Association codes. It is of significant concern to PhRMA and its member company affiliates in Indonesia that the local companies do not abide by such a code.

Intellectual Property Protection

The Indonesian Patent Law amendment became law in February 1997 and while it went some way to improving the situation, the fact remains that the complete Law does not fulfill TRIPs requirements.

The main changes are:

• Patent term extended to 20 years with 2 year extension period.

• New Article 17 allows for patent holder's right to prohibit import of patented product (provided the product has a process patent and is produced in Indonesia).

• New Article 21 reaffirms Article 17 regarding prohibition of import of patented product provided the product (i.e. NCE) is produced in Indonesia.

• Use of product or process invention before grant of patent shall constitute a patent infringement.

• Amendment of Article 82-92 means that compulsory license mechanism still exists for product patents not used after 3 years or improperly used. The burden of proof is on the person seeking compulsory license to prove capability, that he has the facilities to perform and that he has made efforts to get license from patent holder.

• Article 94 is amended to only cancel a patent in the event the patent holder fails to pay annual fees within a certain time.

While there are some positive changes to the Patent Law as a result of the 1997 amendment, it is generally felt that the wording is suitably ambiguous so to be difficult to fight patent infringement cases.

For example:

Company A applies for product and process patent XYZ in Indonesia but does not manufacture the New Chemical Entity in Indonesia (i.e., formulates). At time of marketing Company B discovers source of NCE raw material (produced by same or different process) and imports raw material and markets product under own brand. Company A takes Company B to court for patent infringement. The case was dismissed as Company A does not manufacture or product NCE in Indonesia and therefore has no right to block importation by local Company B.

As the Indonesian Government is now in a state of flux, the issue of IPR is definitely on the back burner. However it is the intention of the research-based pharmaceutical industry to continue to request modifications and further amendments so that the final version of the Patent Law complies with TRIPS.

Smuggling and Counterfeiting

As a result of the economic crisis, these activities have increased dramatically although in a different form from the past. Smuggling of Indonesian goods (due to the low prices in US$) now flows outwardly to Philippines, Taiwan, Malaysia and Singapore. Counterfeit goods have increased and rarely use active ingredients due to the high cost of actives which have to be imported. Therefore, these products are now even more dangerous to society as a whole since most of them contain no active ingredient and/or may contain dangerous ingredients or excipients. Due to the move away from visiting doctors towards self medication, patients are easily duped into purchasing counterfeit products from small unregistered outlets and street sellers.

Trademark

No change.

Trade Secrets

Although no real progress has been made, the Dir. Gen. POM (FDA) has shown interest recently in making the registration process and document submissions more secure.

Other Issues

• Indonesia does not require foreign companies in this sector to have local partners, but a manufacturing presence is required to hold licenses, registrations and import.

• The government generic market remains exclusive to selected government and local companies.

• Pharmaceutical manufacturers can now distribute directly to the trade and hospitals. However, due to commercial risk and the need for large software investment, none have gone that route.

• Tax treatment of all companies remains arbitrary but U.S. companies are particularly hard hit due to Business Conduct Policy.

• Other areas of possible deregulation for the industry are under discussion with the Ministry of Health.

Potential Exports/Foreign Sales

Because of the chaotic political situation in Jakarta and the rest of Indonesia at the end of 1998, it is very difficult to pose a realistic estimate of the increase in foreign sales that might accrue to PhRMA member company affiliates, even if the aforementioned problems were to be rectified in the near term. It would be sufficient to say that, if most of the problems mentioned here were to be rectified, sales of PhRMA member companies would at least rise to the level of 1997 (i.e. 12 percent of US$1,600 million or US$192 million). The current sales of PhRMA member companies are likely around US$104.4 million. So losses could be estimated at approximately US$87 million.

For all the aforementioned reasons, PhRMA believes that Indonesia should be listed as a Priority Watch Country under Special 301 in 1999.