Asia’s pharmaceutical sector has been expanding rapidly and in line with the region’s strong economic growth, especially in countries of the Association of Southeast Asian Nations (ASEAN). The industry landscape of Vietnam’s pharmaceutical sector, in our belief, is teeming with opportunities. The combination of Vietnam’s expanding population, higher levels of health awareness, and increased access to medicines across the country, should provide a roaring engine for the pharmaceutical sector’s acceleration in the upcoming years.

However, the domestic pharmaceutical sector is facing challenging structural weaknesses, the most notable of which are:

1. Low affordability of medical drugs;
2. Inadequate price control regime, which leads to large price variances across Vietnam;
3. Widespread corruption among healthcare officials;
4. Inadequate intellectual property regime, which hinders the future flow of foreign investments; and
5. The menacing presence of counterfeits in the market.

According to Business Monitor International’s (BMI) 2013 estimates, Vietnam’s real GDP growth will reach 6.0% in 2014, and continue on the upward trend to reach 7% in 2017 due to the recovery of the global economies and to various stimulus measures set forth by the Vietnamese government in recent years. From 2013 to 2017, BMI estimates that Vietnam’s population will rise from 92 million to 95 million, representing a 5-year compound annual growth rate (CAGR) of 0.9%. The next six years look to be very interesting for the pharmaceutical industry in Vietnam. Recent economic forecasts have predicted a $5 billion increase in value over the next six years, reaching a net worth of $8 billion by 2020—a CAGR of 15.4%.

Driving this market growth is the Vietnamese government’s goal of achieving universal health coverage by 2015. Thirty percent of the country’s population still have no form of public health insurance. Additionally, private health expenditures remain high at 57% of the country’s total health spending.

Another key factor spurring growth in this market is the increasing life expectancy of people in Vietnam.

About 171 pharmaceutical companies operate in Vietnam. Nine percent are foreign invested enterprises (FIEs) and 4% are joint ventures (JVs). Around 28% of these companies have the Global Manufacturing Practice (GMP) certification—this states the minimum requirements that a pharmaceutical manufacturer must meet in order to prove that their products are of high quality and do not pose any risk to consumers. The three public pharmaceutical companies with the largest market capitalization and 2013 revenues are DHG Pharmaceuticals JSC (DHG), Traphaco JSC (TRA) and Domesco Medical Import-Export JSC (DMC).

Currently, the country is affected by the scarcity of low-priced generic drugs. This is caused in part by the belief of many Vietnamese doctors that patent-protected branded drugs are more effective. As a result, foreign pharmaceutical companies dominate the market and maintain a revenue premium.

Although Vietnam’s pharmaceutical industry was formed in the 1950s, it is still in the early stage of growth, which is reflected in its high growth rate compared with the average growth rate of other economic industries in the country and the worldwide pharmaceutical industry, increasing number of products, great demand to invest in technology and product development. Vietnam’ pharmaceutical industry has a high growth rate of about 19% per annum. This figure is greater than the GDP growth rate of  Vietnam (7% per annum) and the average growth rate of the world pharmaceutical industry (7-10% per annum). According to the assessment scale of WTO and UNIDO, the pharmaceutical industry of Vietnam is around level 3, which means that Vietnam has a domestic pharmaceutical industry manufacturing generic medicines and exporting some products. However, most companies in the industry still have to import raw materials from foreign countries. Therefore, Vietnam’s pharmaceutical industry has opportunities to develop when the industry has a strong supply chain of pharmaceutical raw materials and when there is huge investment in specific medicine subsectors in order to decrease imports.

Vietnam’s pharmaceutical industry holds tremendous potential for future growth, in spite of numerous structural weaknesses. Indeed, the country’s growing population, in combination with heightened health-awareness among the middle class segment, should provide ample fuel for growth in the domestic consumption of pharmaceutical products. These positive macro trends will undoubtedly enable domestic pharmaceutical companies to remain profitable in the upcoming years. In the medium- to long-term, it is predicted that the pharmaceutical industry as a whole will be further consolidated, although the rate of the consolidation might be moderate. Domestic drug-makers will pursue mergers and acquisitions (M&A) as a means to vertically integrate their operations and to expand their distribution networks. In 2012 and 2013, Traphaco JSC (TRA) had successfully purchased 43% and 49% stake in Quang Tri Pharmaceuticals & Medical Company and Thai Nguyen Pharmaceuticals & Medical Company, respectively, in order to increase the number of distribution centers across the country. At the same time, it is believed that domestic pharmaceutical companies will continue to allocate budgets for the technical upgrades of their production facilities. These upgrades will increase the number of domestic companies that meet WHO-GMP standards and broaden the portfolio of products that can be manufactured domestically.

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Dr. Gurpreet Sandhu
Reva Pharmachem

Dr Gurpreet Sandhu (Managing Director) Reva Pharmachem (P) Ltd (India). He can be reached on gsandhu@revapharma.com