New Local Content Regulation for Pharmaceutical Products in Indonesia

Legal Updates
New Local Content Regulation for Pharmaceutical Products in Indonesia
24 June 2020

In an effort to strengthen domestic pharmaceutical manufacturers and decrease the dependency on imported raw materials, the Indonesian government issued Presidential Directive No. 6 of 2016 on the Acceleration of the Development of the Pharmaceutical and Medical Equipment Industry.

Then, on May 29, 2020, the Minister of Industry ("MOI") enacted MOI Regulation No. 16 of 2020 on Provisions and Procedures for the Calculation of Domestic Component Levels for Pharmaceutical Products ("MOI Reg. 16/2020"). This regulation outlines the components of and the method for calculating the local content level for pharmaceutical finished goods and raw materials ("Pharmaceutical Products"). It also stipulates the procedure for obtaining a certificate showing the local content level of Pharmaceutical Products.

Calculation of Local Content for Pharmaceutical Products

The local content of Pharmaceutical Products is calculated based on four components, namely: (i) raw materials content, (ii) research and development process, (iii) production process and (iv) packaging process. Each component is further broken down into sub-components with different weight values for the calculation of total local content, as follows:

No. Component Sub-Component
Description

Weight

Description

Weight

1. Raw Materials Content

50%

Active Pharmaceutical Ingredients ("API")

65%

    Additional Ingredients

35%

 
2. Research and Development

30%

Development of New Drugs

25%

    Clinical Trial

30%

    Formulation

35%

    Bioavailability ("BA") / Bioequivalence ("BE")

10%

 
3. Production Process

15%

Compounding

60%

    Dosage Forming

40%

 
4. Packaging Process

5%

Batch Release

50%

    Primary Packaging

40%

    Secondary Packaging

10%

There are also determinant factors to be considered in allocating the weight value of each component:

No. Component Sub-Component Determinant Factor Weight Allocation
1. Raw Materials Content -API Produced domestically 100% of 65% for API and 35% for Additional Ingredients
-Additional Ingredients Produced domestically partially Measured proportion (based on percentages of domestic and imported raw materials)

of 65% for API and 35% for Additional Ingredients

Produced abroad 0% of 65% for API and 35% for Additional Ingredients
2. Research and Development -Development of New Drugs Performed domestically 100% of 25% for Development of New Drugs, 30% for Clinical Trial, 35% for Formulation, and 10% for BA/BE
-Clinical Trial Performed abroad 0% of 25% for Development of New Drugs, 30% for Clinical Trial, 35% for Formulation, and 10% for BA/BE
-Formulation
-BA/BE
-Compounding
-Dosage Forming
3. Production Process Compounding Performed domestically 100% of 60% for Compounding and 40% for Dosage Forming
-Dosage Forming Performed abroad 0% of 60% for Compounding and 40% for Dosage Forming
4. Packaging Process Batch Release Performed domestically 100% of 50% for Batch Release, 40% for Primary Packaging, and 10% for Secondary Packaging
-Primary Packaging Performed abroad 0% of 50% for Batch Release, 40% for Primary Packaging, and 10% for Secondary Packaging
-Secondary Packaging

It is also worth noting that the sub-components that are produced or performed domestically must satisfy certain criteria. These criteria are (i) use of Indonesian manpower, (ii) equipment owned by the domestic company, and/or (iii) domestic materials used. The fulfillment of the above criteria will determine the weight of each sub-component in calculating each component, as set out in the table below:

No. Component Composition Category Criteria Fulfilment Weight Allocation
1. Raw Materials Content - API Category I One criteria

(Indonesian manpower/equipment owned by the domestic company/domestic materials)

60% of 65% for API and 35% for Additional Ingredients
-Additional Ingredients Category II Two criteria 80% of 65% for API and 35% for Additional Ingredients
Category III All criteria are fulfilled 100% of 65% for API and 35% for Additional Ingredients
Non-Category None of the criteria are fulfilled 40% of 65% for API and 35% for Additional Ingredients
2. Research and Development -Development of New Drugs Category I One criteria (Indonesian manpower/equipment owned by the domestic company) 80% of 25% for Development of New Drugs, 30% for Clinical Trial, 35% for Formulation, and 10% for BA/BE
-Clinical Trial Category II Two criteria

(Indonesian manpower and equipment owned by the domestic company)

100% of 25% for Development of New Drugs, 30% for Clinical Trial, 35% for Formulation, and 10% for BA/BE
-Formulation Non-Category None of the criteria are fulfilled 40% of 25% for Development of New Drugs, 30% for Clinical Trial, 35% for Formulation, and 10% for BA/BE
-BA/BE
3. Production Process -Compounding Category I One criteria

(Indonesian manpower/equipment owned by the domestic company)

80% of 60% for compounding and 40% for dosage forming
-Dosage Forming Category II Two criteria

(Indonesian manpower and equipment owned by the domestic company)

100% of 60% for compounding and 40% for dosage forming
Non-Category None of the criteria are fulfilled 40% of 60% for compounding and 40% for dosage forming
4. Packaging Process -Batch Release Category I One criteria

(Indonesian manpower/equipment owned by the domestic company)

80%  of 50% for Batch Release
Category II Two criteria

(Indonesian manpower and equipment owned by the domestic company)

100% of 50% for Batch Release
Non-Category None of the criteria are fulfilled 40% of 50% for Batch Release
-Primary Packaging Category I One criteria

(Indonesian manpower/equipment owned by the domestic company/domestic materials)

60% of 40% for primary packaging and 10% for secondary packaging
-Secondary Packaging Category II Two criteria (Indonesian manpower and equipment owned by the domestic company/domestic materials) 80% of 40% for primary packaging and 10% for secondary packaging
Category III All criteria are fulfilled 100% of 40% for primary packaging and 10% for secondary packaging
Non-Category None of the criteria are fulfilled 40% of 40% for primary packaging and 10% for secondary packaging

Issuance of Local Content Certificate for Pharmaceutical Products

MOI Reg. 16/2020 provides that the MOI has the authority to issue a local content certificate for Pharmaceutical Products. The local content level will initially be calculated manually by the concerned pharmaceutical manufacturing company ("PMC"), using Attachment II of MOI Reg. 16/2020. The PMC may submit an application for the verification of the local content calculation to the Directorate General of Chemical, Pharmaceutical and Textile Industry ("Directorate General"), through the Public Services Unit of the MOI ("PSU"), attaching the following documents:

 

  1. Industrial Business License;
  2. Company profile, organizational structure, and production data;
  3. PMC's self-assessment of the local content level;
  4. Production certificate from the Ministry of Health; and
  5. Annual production and marketing realization report that has been submitted to the Food and Drugs Supervisory Agency.

The PSU will verify that the above documents are complete within one business day of submission by the PMC. If the documents are deemed complete, the PSU will then forward the application to the Directorate General. If there are no issues with the application, the Directorate General will issue a letter approving the calculation of the local content level within five business days of receiving the application from the PSU.

Upon receiving the approval letter, the PMC must convey it to an independent assessor appointed by the MOI to verify the calculation of the local content. If the verification result is consistent with the calculation submitted by the PMC, the independent assessor will notify the Center for the Utilization of Domestic Products, which will issue the local content certificate within five business days. The local content certificate is valid for two years.

Absence of Mandatory Rules for Minimum Local Content Requirement

While MOI Reg. 16/2020 stipulates the procedures for calculating and certifying the local content of Pharmaceutical Products, there is no regulation that stipulates the minimum local content for Pharmaceutical Products with which PMCs must comply. Consequently, it is difficult to see the benefit of obtaining a local content certificate, and there are no sanctions for not obtaining a certificate.

Currently, private business entities are required to use local products for general goods or services only for the procurement of goods or services with state funding or as part of a partnership between the government and business entities, as regulated by Article 86 of Law Number 3 of 2014 on Industry.

Conclusion

MOI Reg. 16/2020 is unlikely to have an impact on PMCs since it does not require companies to meet a minimum local content level. It is therefore difficult to see it achieving the Government\'s goal of decreasing the dependency on imported raw materials.

It could be that the Government will use this new regulation to observe the readiness of PMCs to use local content in producing Pharmaceutical Products. Then, once it determines the minimum local content level that PMCs are able to satisfy, the Government may issue a follow-up regulation on mandatory minimum local content requirements for Pharmaceutical Products.

This publication is intended for informational purposes only and does not constitute legal advice. Any reliance on the material contained herein is at the user's own risk. You should contact a lawyer in your jurisdiction if you require legal advice. All SSEK publications are copyrighted and may not be reproduced without the express written consent of SSEK.

For More Information, Please Contact
Ira Andamara Eddymurthy
iraeddymurthy@ssek.com
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