Vietnam Pharmaceutical Industry And Investment Strategy

Vinh Nguyen The: [email protected]

Vietnam Pharmaceutical IndustryInvestment strategy

By: Vinh Nguyen


Strengths Weaknesses Vietnam has been one of the fastest-growing

economies in Asia over the past five years, averaging growth of 8.0% a year

The economic boom has lifted many Vietnamese out of poverty, with the official poverty rate in the country falling from 58% in 1993 to 20% in 2004

Vietnam suffers from substantial trade, current account and fiscal deficits, leaving the economy vulnerable to external shocks. The fiscal picture is clouded by considerable 'off-the-books' spending

The heavily managed and weak dong currency reduces incentives to improve quality of exports and also serves to keep import costs high, thus contributing to inflationary pressures

Opportunities Threats WTO membership has given Vietnam access

to both foreign markets and capital, while making Vietnamese enterprises stronger through increased competition

The government will continue to move forward with market reforms, including privatization of the state-owned enterprises sector and liberalizing the banking sector

Urbanization will continue to be a long-term growth driver. The UN forecasts the urban population to rise from 29% of the population to more than 50% by the early 2040s

Inflation and deficit concerns have caused some investors to re-assess their hitherto upbeat view of Vietnam. If the government fails to curb inflation, it risks prolonging macroeconomic instability, which could lead to a potential crisis

Prolonged macroeconomic instability could prompt the authorities to put reforms on hold, as they struggle to stabilize the economy

Why Vietnam?


PESTLE Analysis

• Politics• Economics• Social• Technology• Law• Environment


Pestle - PoliticsStrengths Weaknesses

The Communist Party government appears committed to market oriented reforms necessary to double 2000's GDP per capita by 2010, as targeted. The one-party system is generally conducive to short-term political stability

Relations with the US are generally improving, and Washington sees Hanoi as a potential geopolitical ally in South East Asia

Corruption among government officials poses a major threat to the legitimacy of the ruling Communist Party

There is increasing (albeit still limited) public dissatisfaction with the leadership's tight control over political dissent

Opportunities Threats The government recognizes the threat that

corruption poses to its legitimacy and has acted to clamp down on graft among party officials

Vietnam has allowed legislators to become more vocal in criticizing government policies. This is opening up opportunities for more checks and balances within the one-party system

Vietnamese dissidents are seeking external help, especially from the US. This could complicate Vietnam-US relations, with Washington having criticised Hanoi over its restrictions on religious freedom

Although strong domestic control will ensure little change to Vietnam's political scene in the next few years, over the longer term, the one-party state will probably be unsustainable


Pestle - Economics

GDP Growth Rate

6.90% 7.10% 7.30% 7.80%8.40% 8.20% 8.48%

6.23%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

2001 2002 2003 2004 2005 2006 2007 2008

Source: www.gso.gov.vn


Pestle - SocialPopulation

78.6879.72

80.9082.03

83.1084.15

85.1986.16

74.00

76.0078.00

80.00

82.00

84.0086.00

88.00

2001 2002 2003 2004 2005 2006 2007 2008

Source: www.gso.gov.vn

In the past 8 years, Vietnam population has grown 1.14% per year. Currently, Vietnam population is in the top 14th in the world and top 3 in ASEAN

(Indonesia and Philippines ranked 1 and 2 respectively) and is expected to reach 93.7 million people in 2015.


Pestle - Technology

• Vietnam has signed many BTA agreements with foreign countries such as Indonesia, Bulgaria, US, Korea…for technology transfer.

• All pharmaceutical companies required to meet GMP-WHO


Pestle – Law

• Advertising• IP• Counterfeit Drugs• Regulatory issues• Price controls


Porter’s 5 forces - entry barrier

• HIGH• Entry to this industry is extremely

challenging. Expenses for R&D in studying new product are considerable. Medicines are of importance, which affect people health, even life of patients. As a result, medicines need clinical study and approval from the government drug administration. Moreover, the drug registration and patent protection also set barriers to new comers


Porter’s 5 forces - bargaining power of supplier

• HIGH• Most of the local manufacturers do import

semi-finished products then to label with their brands and distribute to professional and patients. Most of suppliers are multinational pharmaceutical companies. After WTO accession, the power of supplier will be reduced thanks to multiple suppliers with competitive price.


Porter’s 5 forces - bargaining power of buyer

• LOW• As pharmaceutical products are necessary

products which relate to life and death, the demand for such products is un-avoidable and normally not negotiable.


Porter’s 5 forces – substitution

• LOW• Demand for medicine is in-evitable and

un-substitutable


Porter’s 5 forces - competition

• HIGH• This means that in the area of pharmaceuticals Vietnam has

been or will be reducing its import tax to an average of 2.5% within five years of the accession. In addition, the domestic pharmaceutical industry should also see improvements as counterfeit activity and intellectual property theft is clamped down on. This should therefore improve competition in the local marketplace, with pharmaceuticals expected to become much more competitive in the long term. Local consumers should benefit from this competition in terms of product quality improvements, price reductions and a wider product choice.


Vietnam Pharmaceutical And Healthcare Industry SWOT - S

• Significant growth potential, given a population of approximately 87.4mn

• Domestic manufacturing facilities operated by multinationals offering a base on which further sector development could be built

• The government’s commitment to developing the health sector• Sizeable local generics sector• Strong traditional medicines segment with potential to improve the

nonprescription drugs market in the longer term• Domestic companies being forced to comply with international

manufacturing standards (GMP), at a considerable expense• Underdeveloped primary care services continuing to hamper

access to medicines and improved product market penetration• Multiple market barriers including the lack of freedom for foreign

companies to operate freely in Vietnam


Vietnam Pharmaceutical and Healthcare Industry SWOT – W

• One of the least-developed pharmaceutical markets in Asia, with low per capita spending on drugs

• Patent law notably below international standards• Counterfeit drugs account for a significant amount of market

consumption• Little distinction made between prescription and over-the-

counter (OTC) drugs, with most medicines available without a prescription

• Complex drug pricing policy biased towards local drug producers

• Import-reliant market, especially in terms of high-tech products and active pharmaceutical ingredients (APIs), which makes it vulnerable to international currency movements


Vietnam Pharmaceutical and Healthcare Industry SWOT – O

• The ASEAN harmonization initiative, including the adoption of Western regulatory standards such as ICH and WHO guidelines

• Introduction of five-year exclusivity for clinical dossier data encouraging research-based multinationals

• The end of the price freeze has the potential to boost values despite a possible fall in volumes

• Radical restructuring of the pharmaceutical industry with an emphasis on foreign investment and biotechnology

• Improvements in pricing and regulatory environments to boost foreign company interest and investment in the country

• Recently ratified WTO membership to improve the trading climate and potentially, in the longer term, redress some pharmaceutical trade issues


Vietnam Pharmaceutical and Healthcare Industry SWOT – T

• Government resistance to aligning patent law fully with international standards deterring multinational sector expansion

• The government increasingly interfering in the industry, protecting indigenous firms through the use of legal trade barriers

• With a notably fragile regional economy, Vietnam is increasingly susceptible to regional and global economic fluctuations

• The legalization of parallel imports negatively impacting performance of patented drugs


Market size

Value of domestic supply and demand

170 200 241 305395

475561

1,000

422 451520

625726

818

1,114

1340

0200

400600800

1,0001,200

1,4001,600

2001 2002 2003 2004 2005 2006 2007 2008e

Million U

SD

Supply Demand

Source: Vietnam Department of Pharmaceutical Management


Market Segmentation

Source: Business monitor


Market Growth

CAGR 16-17%


Health expenditure per capita

31.00 37.60

46.60 50.90

57.30

70.60

89.10

108.30

129.80

2.58 3.20

4.00 4.43

5.05 6.32

8.09 9.96

12.08

1.00

10.00

100.00

0

20

40

60

80

100

120

140

2004 2005 2006 2007 2008 2009 2010 2011 2012

Healt expenditure Health expense per capital

Source: WHO


Market share: Top 20 Corporate

22

20.9

14.1

12.2

10.3

10.1

9.9

8.7

8.7

7.4

6.6

6.5

6.4

6.1

5.6

4.9

4.9

4.9

4.9

4.2

4.2

GLAXOSMITHKLINE

BMS

NOVARTIS

SANOFI

AVENTIS

SERVIER

ROCHE

PFIZER

J &J

ASTRA ZENECA

UNITED PHARMA

FOURNIER

IC VIETNAM

BOEH. INGEL.

IPSEN

HG PHARM

ORGANON

MERCK KGAA

DOMESCO

EBEWE

Total Official Product:

US$ 387 Mil (+19%)

2004 CUM QTR Share Growth EI Mill Unit Mill Pack

Source: VPA & VHA

5.4% 20% 101 101 4

3.6% 17% 98 88 6

3.1% -1% 84 86 8

2.7% 17% 99 97 5

2.6% 18% 99 90 4

2.5% 43% 120 81 2

2.2% 23% 104 22 2

2.2% 29% 109 21 2

1.9% 15% 97 34 5

1.7% 33% 111 13 1

1.7% 20% 101 109 3

1.6% 46% 123 51 2

1.6% -1% 83 60 1

1.4% 20% 101 28 1

1.3% 3% 87 25 1

1.3% 17% 99 417 14

1.3% 15% 97 29 2

1.3% 30% 109 42 1

1.1% 53% 128 172 4

1.1% 51% 127 3 1

1 1 1

2 2 2

3 3 3

4 4 5

5 5 4

6 6 6

7 7 7

8 8 8

9 9 9

10 10 10

11 11 12

12 12 11

13 13 14

14 14 13

15 15 15

16 16 18

17 17 17

18 18 16

19 19 19

20 20 22

Total Market:

US$ 627 Mil (+12.6%)


Market share: Top 20 Corporate –Rx

23

16.7

9.1

8.9

8.1

7.5

6.9

6.6

5.6

5.0

4.7

4.2

3.8

3.6

3.5

3.3

3.1

3.1

2.9

2.9

2.7

GLAXOSMI THKLI NE

NOVARTI S

SERVI ER

AVENTI S

BMS

PFI ZER

ASTRA ZENECA

SANOFI

ROCHE

FOURNI ER

EBEWE

MERCK KGAA

ORGANON

GEDEON RI CHTER

B.BRAUN

DOMESCO

RANBAXY

MI CRO LABS OFFI CE

STADA

HG PHARM


Ethical Official Products:

US$ 230 Mil (+21%)

Source: VPA & VHA

7.3% 20% 99 21 2

4.0% 0% 82 65 6

3.9% 45% 119 76 2

3.5% 21% 100 25 2

3.3% 23% 101 23 1

3.0% 33% 110 10 1

2.9% 33% 109 13 1

2.4% 22% 100 52 2

2.2% 36% 112 12 1

2.1% 41% 116 18 1

1.8% 51% 124 3 1

1.7% 39% 114 34 1

1.5% 16% 95 17 1

1.5% 16% 96 31 2

1.4% -9% 75 4 4

1.4% 62% 133 88 2

1.3% -7% 77 20 1

1.3% -9% 75 19 1

1.3% 86% 153 42 1

1.2% 31% 108 84 2

1 1 1

2 2 4

3 3 2

4 4 3

5 5 5

6 6 7

7 7 6

8 8 8

9 9 9

10 10 10

11 11 11

12 12 12

13 13 13

14 14 15

15 15 17

16 16 14

17 17 18

18 18 20

19 19 16

20 20 21

Total Ethical Market:

US$ 244 Mil (+18%)


Market share: Top 20 Corporate – OTC

24

6.6

6.5

5.1

4.7

4.4

4.1

4.1

3.8

3.8

3.0

3.0

2.9

2.8

2.6

2.6

2.4

2.3

2.2

2.0

1.8

BMS

UNITED PHARMA

J &J

SANOFI

IPSEN

GLAXOSMITHKLINE

BOEH. INGEL.

IC VIETNAM

ROCHE

PHARMEDIC

NOVARTIS

ROHTO METHO.

MEDICAP

TRAPHACO

OPC (TW26)

HISAMITSU

HG PHARM

DR. E.BOUCHARA

AVENTIS

PFIZER


OTC Official Products:

US$ 157 Mil (+15%)

Source: VPA & VHA

4.2% 11% 96 66 5

4.1% 20% 104 109 3

3.2% 12% 97 22 3

3.0% 12% 97 45 3

2.8% 1% 87 23 1

2.6% 21% 104 80 2

2.6% 1% 87 24 1

2.4% -6% 81 48 1

2.4% 10% 95 10 1

1.9% 16% 100 216 11

1.9% -1% 86 22 1

1.8% 137% 206 2 2

1.8% 66% 144 35 1

1.7% 13% 98 99 4

1.6% 31% 114 62 4

1.5% 4% 90 63 1

1.4% 4% 90 333 12

1.4% 23% 107 14 1

1.3% 7% 93 65 2

1.1% 16% 100 10 1

1 1 2

2 2 1

3 3 3

4 4 5

5 5 4

6 6 7

7 7 6

8 8 8

9 9 9

10 10 11

11 11 12

12 12 10

13 13 13

14 14 14

15 15 15

16 16 17

17 17 18

18 18 16

19 19 19

20 20 21

Total OTC Market:

US$ 161 Mil (+13%)


Market share: Top 20 Corporate – Pharmacy

25

14.5

9.0

8.7

7.9

7.7

6.3

6.1

6.0

5.9

5.2

4.7

4.5

4.5

4.0

3.7

3.6

3.6

3.6

3.4

3.3

GLAXOSMITHKLINE

NOVARTIS

BMS

SANOFI

SERVIER

ROCHE

AVENTIS

J &J

UNITED PHARMA

IC VIETNAM

BOEH. INGEL.

PFIZER

HG PHARM

ORGANON

IPSEN

FOURNIER

DOMESCO

MERCK KGAA

DR. E.BOUCHARA

STADA


Pharmacy Official Products:

US$ 272 Mil (+16%)

Source: VPA & VHA

5.3% 25% 108 92 3

3.3% 0% 86 80 7

3.2% 10% 94 79 5

2.9% 13% 97 75 4

2.8% 41% 121 64 1

2.3% 18% 101 19 2

2.3% 6% 91 82 4

2.2% 15% 99 30 4

2.2% 17% 101 100 3

1.9% -4% 82 54 1

1.7% 11% 96 25 1

1.7% 18% 101 15 1

1.6% 14% 98 391 13

1.5% 10% 95 26 1

1.4% -2% 84 20 1

1.3% 48% 127 43 1

1.3% 48% 127 151 3

1.3% 31% 112 32 1

1.2% 10% 94 19 1

1.2% 65% 142 73 2

1 1 1

2 2 2

3 3 4

4 4 3

5 5 5

6 6 6

7 7 7

8 8 8

9 9 9

10 10 11

11 11 10

12 12 12

13 13 13

14 14 15

15 15 16

16 16 17

17 17 14

18 18 18

19 19 20

20 20 19

Total Pharmacy Market:

US$ 282 Mil (+13%)


Market share: Top 20 Corporate – Hospital

26

6.4

5.4

4.1

4.0

3.5

3.3

3.1

2.9

2.8

2.4

2.4

2.2

1.8

1.5

1.4

1.4

1.4

1.3

1.3

1.2

GLAXOSMITHKLINE

BMS

PFIZER

AVENTIS

ASTRA ZENECA

EBEWE

NOVARTIS

B.BRAUN

FOURNIER

SANOFI

ROCHE

SERVIER

SHIN POONG

MSD

ELI LILLY

J &J

ABBOTT

MERCK KGAA

CIECH - POLFA

RANBAXY


Hospital Official Products:

US$ 116 Mil (+25%)

Source: VPA & VHA

5.6% 9% 87 9 0.9

4.7% 30% 104 9 1.0

3.6% 45% 116 5 0.7

3.4% 43% 114 9 0.6

3.0% 29% 103 5 0.3

2.8% 68% 134 2 0.5

2.7% -1% 79 6 0.8

2.5% -13% 69 4 4.0

2.4% 43% 114 8 0.6

2.1% 35% 108 22 0.8

2.1% 40% 112 3 0.3

1.9% 50% 119 17 0.4

1.5% 42% 113 4 0.2

1.3% 33% 106 1 0.1

1.2% -12% 70 1 0.1

1.2% 16% 92 5 0.4

1.2% 37% 109 0 0.1

1.1% 28% 102 10 0.3

1.1% 34% 106 1 0.4

1.1% 22% 97 2 0

1 1 1

2 2 2

3 3 4

4 4 3

5 5 5

6 6 6

7 7 8

8 8 9

9 9 7

10 10 10

11 11 12

12 12 11

13 13 13

14 14 17

15 15 26

16 16 15

17 17 21

18 18 14

19 19 20

20 20 19

Total Hospital Market:

US$ 124 Mil (+22%)


Market summary

• pharmaceutical market is underdeveloped and suffers from poor regulatory and intellectual property (IP) standards

• Low-cost, locally produced generics – as well as counterfeit products – account for a sizeable proportion of drug consumption due to low consumer purchasing power and an under-funded healthcare system.

• patients are responsible for financing much of their medical needs• pharmaceutical consumption represents only 1.56% of Vietnam’s

GDP (1.18% in 2012).• The country’s pharmaceutical is estimated at US$1.1bn in 2007 and

US$2bn in 2012• Prescription medicines will remain dominant, with the biggest focus

on drugs for the treatment of infectious and chronic diseases• Market figures will remain distorted by the lack of a distinction made

between prescription and OTC drugs, with most medicines available without a prescription


Key growth factors – Distribution

• Vietnamese pharmaceutical distribution channels are divided into two main channels: treatment and commercial, with a ratio of 37:63. Bidding and selling through hospitals is considered a treatment channel, while selling through distribution centers and pharmacies is considered a commercial channel.

• Currently, some firms are building up their distribution systems through establishing distribution centers, pharmacies and through co-operation with regional pharmaceutical firms. Some companies, moreover, also try to penetrate hospital precincts through bidding. However, the profit margin in this channel is not high because the bidding prices are, in most case, much cheaper than market prices.

• In the future, the distribution system within the industry will be the key competitive factor. Those companies that can establish and manage their distribution systems effectively will be those who lead the market.


Key growth factors – Macroeconomics

• Remains an attractive outsourcing destination for many Japanese, South Korean and Taiwanese firms seeking to maintain their cost competitiveness vis-à-vis emerging Chinese rivals. The interest in Vietnam is still strong among foreign groups – such as banks and retailers – looking to get an early foothold on the emerging Vietnamese consumer market. This will lay the ground for a continued rapid economic expansion over 2012-2017, as Vietnam takes its place on the regional stage


Key growth factors – Macroeconomics


Why to invest in Vietnam Pharmaceutical companies

• High growth rate 16-17%• High population and high birth rate• Products are essential given any crisis• Local pharmaceutical companies performance in

2008 exceeds yearly target• Sustainable EPS growth >< other industry• Entry barrier is high => Profit margin is high• Low Corporate income tax (20%)• Restriction to foreign pharmaceutical companies


Thank you

• Need:– Research about Vietnam Pharmaceutical industry– Research about Vietnam specific target company, – Due diligence– Business development

• Contact • Email: [email protected]• Phone +84 9 14 29 39 79


Reference

• www.imshealth.com• www.gso.gov.vn• www.businessmonitor.com • www.who.org• www.tuoitre.com.vn• www.thanhnien.com.vn• www.vneconomy.vn

Vietnam Pharmaceutical Industry And Investment Strategy

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