The pharmaceutical market is on the rise
With a compound annual growth rate of 12.2%, the Vietnamese pharmaceutical industry is flourishing. The total value of the pharmaceutical market has reached 6.6 billion USD in 2019, forecast to exceed 9.2 billion USD by 2023.
In terms of drug consumption, Vietnam’s per capita medicine consumption is growing steadily with CAGR (2012-2019) up 16.7%, of which, on average one person will pay 67 USD for drug treatment. A report by the World Health Organization for the Western Pacific reveals that Vietnam reckons for a large proportion – 33% of the total health expenditure/drug expense ratio in comparison with other countries, which are: Cambodia (44%), China (39%), Thailand (34%), and Australia (16%).
Source: VIRAC, DAV
Generic drugs are estimated for most of the total consumption in 2019 (55.6%), while patented drugs (original brand-name drugs with patents) come modest at 20%. Opposed to patented drugs, generic alternatives are much cheaper, while the effectiveness is about the same. Furthermore, the expiration of a series of copyrighted drugs in recent years has made access for equivalent brands to spread. Currently, in response to the world’s trend of increasing the use of generic drugs to reduce medical costs, the government’s policy of encouraging the use of unlicensed medicine in the treatment and health care will drive this market development.
Source: VIRAC, DAV
According to Virac’s report, although the market value of patented drugs in Vietnam is increasing gradually with a CAGR in the period of 2011 – 2019e rated at 10.2%, but compared to the industry-wide increment, this number is still somewhat moderate. The impact of the exchange rate as well as the cost of commissions for hospitals causes the retail price of this medicinal product to exceed the Vietnam consumer budget. Also, regulations limiting the use of original special-drug drugs in medical facilities (maximum rate of 30% of total drug expenditure at central hospitals, 5% for provincial hospitals, and none using patented drugs for district hospitals) will reduce the growth rate of this drug in the future period.
Foreign drugs dominate
In 2019, Vietnam spent 3.07 USD billion on imported drugs, more than 10.2% from the previous year, and half came from the EU. Q1/2020 witnessed a dramatic increase in medicine imports from major markets over the same period of 2019, substantially gained from Belgium (107.7%), the US (40.8%), and Spain (27.5%), Italy (24.3%), …
While foreign drugs take grasp of half the market demand, domestic brands witnessed a gradual fall in the annual growth rate in recent years. One of the reasons is that people still prioritize using foreign medicines in terms of quality, while many of those are slightly higher priced than domestic ones.
Source: VIRAC, DAV
Domestic enterprises are only capable of producing some functional products and generic drugs, the rest of the specialty drugs still have to be imported from abroad. India – the leading center for the production of uncopyrighted drugs is one of the three main pharmaceutical supply markets of Vietnam, specifically the import turnover of pharmaceuticals from this country to Vietnam in Q1/2020 reached 63.4 million USD, up nearly 4% over the same period in 2019.
Foreign businesses keep flocking to the Vietnamese market
The ratification of the EVFTA Agreement captivates EU corporations’ entry into the Vietnamese market. By the end of May 2019, the global pharmaceutical manufacturer AstraZeneca (UK) declared its investment of VND 5,000 billion to Vietnam between 2020 and 2024 and selected National Phytopharma Joint Stock company (Phytopharma) as a distribution partner. Domestic enterprises are facing tremendous challenges since international partners can thoroughly participate in the production and distribution process.
Besides that, the M&A trend is still going sharp. Foreign firms take over Vietnamese pharmaceutical companies for the utilization of available factories and a cheap labor force. Imexpharm (IMP) and Traphaco (TRA) are believed to be the next two potential names in the M&A deal. Up to now, the total foreign ownership in IMP and TRA is 47.8% and 47.1% respectively. At Traphaco, pharmaceutical company Daewon owns 15%, and fund management company Mirae Asset holds 25% of the shares.
Development trend of Vietnam’s pharmaceutical industry
The race between drug retailers
Acknowledging the excellent growth rate of the pharmaceutical industry, large enterprises in the retail sector such as The Gioi Di Dong, FPT Retail, Nguyen Kim, … has encroached on the pharmaceutical market. This move would engage more and more major pharmaceutical retail chains in the world such as Mercury, Walgreens Boots Alliance, CVS …
Some drugstore chains such as My Chau, Eco, Phano, Pharmacity … achieved an impressive GPP. In 2019, pharmaceutical chains Eco, Phano, Pharmacity, and Lien A Chau all had exceptional growth of 11.91%, 8.73%, 124.31%, and 33.32% respectively.
Also, businesses continuously increase medication distribution bases. Pharmacity – a chain of pharmacies with more than 400 drug retailers, has opened 30 new stores in October, striving to own 600 stores by the end of the year. Along with Pharmacity, Long Chau pharmacy, under FPT Digital Retail Joint Stock Company (FPT Retail) has also opened numerous stores since mid-May, officially reaching the milestone of 100 pharmacies, which so far has increased to 186 stores.
M&A is essential in the furtherance
Domestic enterprises are looking forward to some immense funding in production advancement through the competition with imported products. Most recently, Binh Dinh Pharmaceutical – Medical Equipment Joint Stock Company has proposed room up to 100% for foreign investors, and at the same time allows foreign investors to hold more than 25% of shares without needing to publicity buying offers. The implementation of M&A with foreign enterprises becomes an opportunity for domestic pharmaceutical businesses to increase their competitiveness while researching and developing new high-quality products.