Opportunities in Vietnam

Jun 08, 2009
By Pharmaceutical Executive

Vietnam is often remembered as a country torn apart by years of war, occupation and economic decline. Many believe it will take years of rebuilding for it to match up to the strength of Asia's other countries.

However, thanks to the concerted efforts of its government, Vietnam is finally seeing a silver lining behind the dark cloud. The 'land of the ascending dragon' is hailed as one of the best performing developing economies, with an average annual growth of 7.5%. As the country transforms itself to a modern and globalised economy, there will be opportunities abound for both local and foreign investments.

A promising pharma market
The pharmaceutical industry has made its presence felt on Vietnamese soil and has earned a reputation for significant growth in recent years, which may seem surprising considering that the sector is constantly hampered by serious intellectual property (IP) issues and extensive counterfeiting. These conditions may appear to discourage investors, but Vietnam's population of 81 million and average GDP of 7% is one of the country's attractive 'pull' factors. The market certainly looks promising, as it is experiencing 10.6% growth and is predicted to be worth US$1.75 billion (€1.23 billion) by 2012.1

Perhaps the greatest change for Vietnam is its entry into the World Trade Organisation (WTO) in November 2006. Its WTO status has spurred the development of the pharmaceutical industry as the government sets standards in line with WTO's requirements, and begins to address the problems related to corruption, IP and counterfeit drugs.

To date, the government has implemented a 20-year patent term and a 5-year market exclusivity of undisclosed and other test data to improve IP issues in the country. A new pharmaceutical law was also introduced in October 2005 to control drug trading and pricing. Under this policy, companies are required to seek approval to increase prices above 1% to create equal domestic prices in relation to the rest of Asia. In addition, the government has come down hard on producers and importers involved in illegal drug trading; for example, it recently revoked 12 drug licenses in the local market — five of which originated from India.

Foreign investment
As Vietnam opens its doors to the world, it has attracted the attention of foreign companies from countries such as France, with incentives such as low import duties, which are less than 5%, and drug tariffs that are likely to average at 2.5% within 5 years. Even though the government has taken a strong stance against advertising, firms can market their prescriptive drugs in a number of ways including via representatives and by attending product conferences and health seminars.

Jamie Davies, analyst and head of pharmaceuticals of BMI (UK) points out that early entry is the key to gaining market advantage. "The key strategy is to be the first mover into a subsector that will raise brand awareness. Eventually, a well-positioned product will be very hard to displace because consumers are used to it and reluctant to try rival products."

Although policies are favourable to foreign players, it is the weak domestic market that opens doors because the country is still highly dependent on foreign support as 90% of its APIs are imported.

The domestic market is generally weak, with local players making up 40% of the total medicines market. There are only 180 producers and many of them have poor and outdated facilities. To make matters worse, only a third are GMP compliant and the position of the remaining two-thirds will deteriorate when GMP requirements come into force in 2010.

Domestic growth potential
So, does this spell the end of the road for local firms? Davies says: "In a rapidly expanding market (such as Vietnam's pharmaceutical sector), domestic production can be increased significantly, as can sales recorded by foreign firms. The two entities are mutually dependent in that greater promotion of medicine by each party will attract consumers to the other's products."

In response to the situation, the government has also stepped in to protect the domestic market by committing $102 million (€73.5 million) until 2010 — of which $90 million will be used to establish five production plants allocated to R&D and the production of raw materials. It is also setting up three manufacturing facilities that will supply medicines to local hospitals.

Claire Briney, global client development manager of Euromonitor (Singapore) points out that the over-the-counter (OTC) healthcare sector has tremendous growth potential as people in rural areas will also gain access to these drugs in the future. For market survival reasons, herbal or traditional OTC products are likely to gain momentum and popularity among domestic players.

Briney explains: "A flood of economy entrants can be expected from China because of the WTO agreement and the opening of trade. Consequently, domestic players that previously focused on low-priced generics will face strong competition. A shift into the herbal or traditional produce can provide a lifeline for many players."

1. Vietnam Pharmaceutical and Health Report Q1 2008 (BMI, January 2008).