In 2019, Vietnam's population was estimated to be 96 million, of which people aged 65 and older accounted for 7.7%, showing that the country’s population is aging rapidly. According to the World Bank, Vietnam is one of the most developed economies in the region. The average income per capita was approximately USD 2,600 in 2019, and it is expected to increase to USD 10,400 in 2030. The significantly improved living conditions have contributed to raising the demand for healthcare in general and for pharmaceutical products in particular.
Health has surpassed work stability to become the top concern of Vietnamese consumers, which is partly resulted from increased awareness of the impact of environmental pollution and chronic diseases like obesity, diabetes or cancer on health. According to Business Monitor International, Vietnam's spending on health reached USD 16.1 billion in 2017, accounting for 7.5% of total GDP. This figure is expected to increase to 12.5% in 2021. During 2010-2015, the average spending on pharmaceuticals increased at an average rate of 14.6% per year, from USD 22.25 to USD 37.97. Spending on pharmaceuticals is expected to increase at a rate of 14% per annum over the next 5 years, reaching 85 USD in 2020 and USD 163 in 2025.
According to IQVIA, Vietnam is ranked third among Pharmerging countries, whose per capita income is less than USD 30,000 but pharmaceutical spending is over USD 1 million over a 5-year period. By the end of 2017, Vietnam's pharmaceutical market size had reached USD 5.3 million, increasing 10% yoy. It is expected that in 2023, Vietnam’s pharmaceutical industry will be worth USD 9.1 billion and increase to USD 16.1 billion in 2026. In the next 5 years, Vietnam is expected to maintain its position in the top 20 most stable and sustainable pharmaceutical market in the world.
Industry value chain
Although the value chain of Vietnam's pharmaceutical industry has been formed, developed and continuously improved over the years, most links in the chain require further investment in capacity.
Pharmaceutical R&D activities are lacking serious investment. According to the Ministry of Health, total spending on research and development in 2015 was estimated at 11%, of which only 6.4% was spent on scientific research and training activities. Therefore, with the limitations of capacity, technology and capital compared to foreign counterparties, most enterprises in Vietnam's pharmaceutical industry are trying to reach international standards to produce generic drugs rather than invest in patent or brand-name drugs.
Input resources for pharmaceutical production depend heavily on imports, negatively affecting the sustainable development of the manufacturing industry, while domestic supply can only meet 10-20% of demand. With its tropical ecosystem, Vietnam has great potential to grow medicinal plants such as cinnamon, star anise and cardamom. However, the Government still has no specific plan to develop large-scale medicinal plant growing areas at national level. Although a number of reputable local manufacturers have started developing their own medicinal plant farms, they only meet a small amount of demand for production.
Located in a marginal market with the fastest growing pharmaceutical industry in the world and favorable socio-economic conditions, Vietnamese pharmaceutical enterprises have great potential to receive investment from foreign corporations.
Decree 60/2015 / ND-CP allowing listed companies to increase foreign ownership to 100% provides promising opportunities for domestic companies when seeking foreign investors.
Industry development strategy to 2025, vision to 2035 will contribute to improving the industry value chain, reducing heavy dependence on imported materials.
A number of large companies in the industry have increasingly invested in R&D activities to develop patent drugs that also improve the quality of generic products.
Foreign companies that want to invest in Vietnam pharmaceuticals market still face many difficulties due to differences in culture and business environment.
Production of brand name drugs or patent drugs remains a challenge for Vietnamese pharmaceutical companies because the research, testing and production process requires high technology lines, quality labor and huge capital.
The number of companies that meet EU-GMP or PIC / S-GMP standards to produce high-quality generic drugs is small, so pharmaceutical industry has to rely on imported drugs to meet the needs of the domestic market.
Extraction and synthesis of pharmaceutical ingredients with low technologies limits the volume of input materials for drug production.
As the disease continues to be complex in China and India, pharmaceutical companies need to look to other suppliers to ensure sufficient supply of raw materials for production, even though costs may rise leading to shrinking profits.
With living conditions improving and health concerns increasing, Vietnamese consumers tend to choose branded pharmacies that meet GPP (Good Pharmaceutical Practice) standards, rather than small and unqualified pharmacies. As a result, competition among pharmacies to gain market share is getting fiercer.
Domestic manufacturers continue to benefit from the Government's policy of prioritizing the use of generic drugs in hospitals and state-owned medical facilities paid by health insurers.
After Vietnam - EU Free Trade Agreement comes into effect, M&A transactions in Vietnam's pharmaceutical industry are expected to increase significantly in both value and quantity.
Source: Vietnam’s Pharmaceutical Industry report 2020 - VietnamCredit