VIETNAM PHARMACEUTICAL INDUSTRY REPORT...

1

VIETNAM PHARMACEUTICAL INDUSTRY REPORT Q1/2018

Contents

Executive Summary 4

1. Business environment 6

1.1 Macroeconomic situation 6

1.2 Legal framework 10

2. Pharmaceutical Industry Overview 19

2.1 Global Pharmaceutical Industry 19

2.1.1 Production - Consumption 20

2.2 Vietnam Pharmaceutical Industry Overview 23

2.2.1 History of Vietnam Pharmaceutical Industry 24

2.2.2 Industry Position 25

2.2.3 Industry Scale and Feature 26

2.2.4 Value Chain of Vietnam Pharmaceutical Industry 29

2.2.5 Production 30

2

2.2.6 Consumption 33

2.2.7 Export - Import 42

2.2.8 Price movements 47

2.3 Industry planning 50

2.4 Driving forces of industry development 52

3. Enterprise analysis 55

3.1 Profitability Ratios 58

3.2 Cost structure 62

3.3 Asset Management Ratios 65

3.4 Capital Structure 69

3.5 Solvency 71

3.6 Return on Investment 73

3

ETC Ethical drugs

EU-GMP Europe Good Manufacturing Practice

EVFTA EU – Vietnam Free Trade Agreement

GDP Good Distribution Practice

Generic Drug

Drug product that is comparable to a brand/reference

listed drug product in dosage form, strength, quality

and performance characteristics, and intended use."

GLP Good Laboratory Practice

GMP Good Manufacturing Practice

GMP - WHOGood Manufacturing Practice recommended by the

World Health Organization (WHO - GMP)

GPP Good Pharmacy Practice

GSP Good Storage Practice

Abbreviations

OTC Over The Counter (nonprescription-drugs)

Patent Drug Drugs under intellectual property rights

Pharmerging Countries with emerging Pharmaceutical Industry

PIC/S - GMPPharmaceutical Inspection Co-operation Scheme on Good

Manufacturing Practice (EU-GMP)

GDC General Department of Vietnam Custom

GSO General Statistic Office of Vietnam

TPP Trans-Pacific Partnership

WHO World Health Organization

WTO World Trade Organization

MOH Ministry of Health

DAV Drug Administration of Vietnam

4

Executive Summary

There are approximately 178 pharmaceutical

manufacturers nationwide.

Vietnam's pharmaceutical sector uses about

60,000 tons of pharmaceuticals, including 80-

90% of imported pharmaceuticals.

The growth of the prescription drug market

will exceed the growth rate of Over-the-

counter (OTC) market

The market value of patented drugs in Vietnam

tends to increase

According to the Drug Administration of

Vietnam - Ministry of Health, the number of

drug items re-declared price as of 12/6/2017:

the number of drug items with fluctuating

price increase/decrease occupy very little

(about 0.026%) of the total commercially

available drugs..

Content is intentionally removed for demo purpose

5

Executive Summary

The biggest wholesale market systems in

Vietnam pharmaceutical distribution in Ho Chi

Minh City and Hanoi.

Pharmaceutical products are necessities, thus,

economic growth virtually has hardly any

impact on the industry growth rate,

For the WTO, the Vietnamese pharmaceutical

market has gradually opened

M&A trend between domestic and foreign

enterprises takes place strongly in the form of

franchise drug production and the field of

distribution.

Most of the enterprises of pharmaceutical

industry maintained positive operation with

high levels of gross profit and net profit in the

period 2015-2016


6

1. Business environment

1.1 Macroeconomic situation

1.2 Legal framework

Contents

7



GDP growth, 2011 – 2017• GDP in 2017 reached 6.81%,

Source: VIRAC, GSO

Source: VIRAC, GSO

Unit: %

Consumer Price Index for Medicines and Health

Services, 2012 – 2017


8



In 2017, the VND/USD exchange rate was stable around VND 22,400.

Source: VIRACSource: VIRAC, SBV

VND/USD exchange rate, 2013 - 2017VND/CNY exchange rate, 2016 – 2017


9

The pharmaceutical market has a lot of potential when the

demand for medicines is always increasing



Source: VIRAC, GSO

Population and population growth, 2006 -2017

Million people

Source: VIRAC, GSO

Population structure, 1999 - 2016 Content is intentionally removed for demo purpose

10



1.2 Legal framework

Contents

11


1.2 Legal framework

Regulations on standards of Pharmaceutical Industry


12


1.2 Legal framework


Regulations on drug registration

Regulations on control of drug prices

13


1.2 Legal framework


Regulations on import-export

Regulations on drug advertising information

14


1.2 Legal framework


Regulations on drug promotion

Distribution

Bidding

15


1.2 Legal framework

Content is intentionally removed for demo purposeRegulations on importing pharmaceutical materials

16


1.2 Legal framework


17


1.2 Legal framework


18


1.2 Legal framework


19

2. Pharmaceutical Industry Overview

2.1 Global Pharmaceutical Industry

2.2 Vietnam Pharmaceutical Industry Overview

2.3 Industry planning

2.4 Driving forces of industry development

Contents

20

In the period of 2010 - 2016, global drug spending increased at a CAGR of

4.6% per year from USD 888.2 billion in 2010 to USD 1,163.6 billion in

2016.


2.1 Global Pharmaceutical Industry – 2.1.1 Production – Consumption

Source: VIRAC, IMS health

Global spending on medicines, 2010 - 2016e


21

Source: VIRAC, EvaluatePharma




Consumption structure by types of medicines, 2011 - 2016World sales of prescription drugs, 2010 - 2016

USD billion


22

World’s top 10 consumed phamaceuticals, 2016





USD billion

Consumption market share by group, 2016


23






Contents

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Northern domination before 1858,

From 1858, during the French colonial period,

1946 - 1954 resistance war against France,

1954 – 1975,

After 1975,


2.2 Vietnam Pharmaceutical Industry Overview – 2.2.1 History of Vietnam Pharmaceutical Industry

2005

1990


25


2.2 Vietnam Pharmaceutical Industry Overview – 2.2.2 Industry Position


26

Classification by ownership:

Classification by product segment:


2.2 Vietnam Pharmaceutical Industry Overview – 2.2.3 Industry Scale and Feature


27

Classification of medicine markets by distribution methods Classification of medicine markets by ownership



Source: VIRAC, Hanoi University of Medicine and Pharmacy


28

Hà Nội

Hoàng Sa

Trường Sa

Nam Định

Đồng NaiHồ Chí Minh

An Giang

Phú Yên

Khánh Hòa

Bắc Ninh

Tiền Giang

Đồng Tháp

Cà Mau

Hải Phòng

Bình Định

Bình Phước

Bến Tre

Thanh Hóa

Cần Thơ

Hưng Yên

Source: VIRAC




29

Value chain of Vietnam pharmaceutical industry

Source: VIRAC


2.2 Vietnam Pharmaceutical Industry Overview – 2.2.4 Value chain of the industry


30

In fact, medicine companies in Vietnam are facing many difficulties in funding investment in research and development, technical staff and equipment of

high quality which has not met the requirements yet.

Outsourcing

Franchising


2.2 Vietnam Pharmaceutical Industry Overview – 2.2.5 Production


31

Source: VIRAC, DAV



It is estimated that in 2017, domestic pharmaceutical production value reached USD 2.4 billion, up 12.0% over the same period in 2016. Generally,

domestic pharmaceutical production has been increasing steadily over the years with a CAGR of FY2010 - 2017e of 15%.

USD billion

Domestic pharmaceutical production value, 2010 - 2017e


32

Source: VIRAC, GSO



Medicine production by type, 2010 – 2017e


Products Unit 2012 2013 2014 2015e 2016e 2017e


33


2.2 Vietnam Pharmaceutical Industry Overview – 2.2.6 Consumption

Pharmaceutical market value, 2010 – 2017e

USD billion

Source: VIRAC, DAV

The pharmaceutical industry is growing at a compound annual

growth rate (CAGR) of 17.4% for the period 2010 - 2017e. Causes

are:


34

The pharmaceutical industry in Vietnam is still considered relatively

young compared to the global industry.



Source: VIRAC, DAV

Value ratio of domestically produced medicines in Vietnam,

2010 – 2017e


35

According to data from the General Statistics Office, the amount of pharmaceuticals consumed domestically focused on drugs containing penicillin or

antibiotics, drugs containing hormones and vitamins. Drugs like serum and vaccines are domestically consumed at a very small number. Causes leading to

this:



Source: VIRAC, GSO

VND trillion

Domestically produced medicine consumption, 2010 - 2017e


36

Source: VIRAC, DAV, StatistaSource: VIRAC, DAV



Spending on medicines in Vietnam, 2009 – 2017e

USD/person/year

Spending on medicines per capita in some countries, 2016e


37



Source: VIRAC, DAV

Pharmaceuticals are distributed throughout the country through two

distribution channels through the hospital (prescribed) or through the

drug stores (not prescribed).

Source: VIRAC, DAV

Medicines consumption structure by channel, 2010 - 2017e

Current status of Patented and Generic drugs, 2010 - 2017e


38

Market data for prescription and non-prescription medicines is unclear

because there is a lack of clear distinction between these two forms of sales. USD billion

Source: VIRAC, DAV


2.2 Vietnam Pharmaceutical Industry Overview – 2.2.6 Consumption - ETC market

Market value of prescription drugs (ETC), 2011 – 2017e


39

The OTC market has experienced relatively strong growth in value over the

past few years.


2.2 Vietnam Pharmaceutical Industry Overview – 2.2.6 Consumption - OTC market

Market value of non-presciption drugs (OTC), 2010 – 2017eUSD billion

Source: VIRAC, DAV


40

The market value of patented drugs in Vietnam is on the upward trend but

still lower than that of the whole industry.

Distribution cost also plays an important role in determining medicine prices.

Source: VIRAC, DAV


2.2 Vietnam Pharmaceutical Industry Overview – 2.2.6 Consumption - Patented drugs

USD billion

Patened drugs (Patent), 2010 – 2017e


41

Source: VIRAC, DAV


2.2 Vietnam Pharmaceutical Industry Overview – 2.2.6 Consumption - Generic drugs

USD billion

Generic drug market, 2010 – 2017e


42

Vietnam pharmaceutical industry mostly depends on imported sources

with the total value of over USD 2 billion each year, moreover, in 2017,

Vietnam imported more than USD 2.8 billion, an increase of 10%

compared to the previous year.

Source: VIRAC, GDVC


2.2 Vietnam Pharmaceutical Industry Overview – 2.2.7 Export - Import

USD million

Source: VIRAC, GDVC

Pharmaceutical imports, 2010 - 2017e

Pharmaceutical imports, 2016 - 2017e

USD million


43

Source: VIRAC, GDVC



Top importing enterprises, 2017e

No Partners Importing enterprises

Source: VIRAC, GDVC

Vietnam’s top import partners, 2017e


44

However, Vietnam pharmaceutical industry is less competitive than

others:

Pharmaceutical exports in Vietnam only reached a small value of USD

144.6 million, increasing 29.9% compared to 2016.



Source: VIRAC, UN Comtrade, GDVC

Pharmaceutical exports, 2012 - 2017e

USD million


45



Top exporting enterprises, 2017

Source: VIRAC, GDVC

Source: VIRAC, GDVC

No Exporting enterprises

Export structure by country, 2017


46



2017 financial information of some major importing-exporting enterprises

Source: VIRAC

No Exporting enterprises Revenue(VND billion)

No Importing enterprises Revenue(VND billion)


47

Drug prices tend to be stable over the years with a low increase.

Source: VIRAC, DAV


2.2 Vietnam Pharmaceutical Industry Overview – 2.2.8 Price movements

Rate of drug re-price (increase), 2013 - 2016


48

Price movements of some major drugs in the market, 12/2016 – 12/2017Unit: VND 1,000

Source: VIRAC, Agency for Price Management



No Drugs Unit Manufacturer 12/2016 3/2017 6/2017 9/2017 12/2017

Compared

to the

beginning

of the

same

period

Drug prices in the market in 2017 continueto be stable, which could meet all demands for disease prevention and treatment.


49

Type of drugLong Chau

drug store

Yen Trang

drug storeDifference

Source: VIRAC

There is a huge difference in drug prices listed at Ministry of Health and the

ones distributed to customers.

The difference in the price of some drugs at some drug stores, 2017



Unit: VND thousand


50






Contents

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52




2.3 Risks and challenges



Contents

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Subsidy policy of the State

Policy to increase domestic drug spending

Extension policy of the national health insurance system

Impact from world economic agreements




54

Population motivation and healthcare awareness:

Source: VIRAC, WHO

2. Industry Overview

2.4. Driving forces of industry development

USD million

Total healthcare expenses, 2010 – 2016f


Million people

Over-60 population growth in the world, 1950 – 2050

Source: VIRAC, GSO

Population tower, 2016


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3. Enterprise analysis

3.1 Profitability Ratios

3.2 Cost structure

3.3 Asset Management Ratios

3.4 Capital Structure

3.5 Solvency

3.6 Return on Investment

Contents


10 typical pharmaceutical enterprises in 2016

56

No Company

Busine

ss

sector

Revenue

(VND

billion)

Main features

1

DHG

Pharmaceutical

Joint Stock

Company

2TRAPHACO Joint

Stock Company

3

Domesco

Medical Import

Export JSC

4

Imexpharm

Pharmaceutical

JSC

5

OPC

Pharmaceutical

JSC


Source: VIRAC




57

No CompanyBusiness

sector

Revenue

(VND

billion)

Main features

6 S.P.M JSC

7

Vimedimex

Medi –

Pharma JSC

8

Ha Tay

Pharmaceut

ical JSC

9

Ben Tre

Pharmaceut

ical JSC

10

Lam Dong

Pharmaceut

ical JSC

Source: VIRAC


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3.2 Cost structure



3.5 Solvency


Contents

3. Enterprise Analysis


59

Pharmaceutical companies have a good business year when they have a positive profit margin, with the average group of producers having higher gross

margins and ROS than the distribution group.

Profit indicators, 2015 - 2016

VND billion

Source: VIRAC


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61

3. Enterprise Analysis


Source: VIRAC

COGS/NR, 2015 - 2016


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3.2 Cost structure



3.5 Solvency


Contents

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3.2 Cost structure

Source: VIRAC

Selling expenses, 2015 - 2016


64


3.2 Cost structure

Source: VIRAC

Administrative expenses, 2015 - 2016


65



3.2 Cost structure



3.5 Solvency


Contents

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Day

Source: VIRAC

Days in inventory, 2016


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Day

Source: VIRAC

Days of sales outstanding, 2016


68



Source: VIRAC

Asset turnover, 2016


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3.2 Cost structure



3.5 Solvency


Contents

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Source: VIRAC

Self-financing ratio, 2015 - 2016


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3.2 Cost structure



3.5 Solvency


Contents

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Solvency, 2015 - 2016

Source: VIRAC


3.5 Solvency


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3.2 Cost structure



3.5 Solvency


Contents

74


3.6 Return on investment

Profit ratio, 2015 - 2016

Source: VIRAC


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