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Vietnam’s pharmaceutical industry: challenges and opportunities in 2023

Vietnam’s pharmaceutical industry: challenges and opportunities in 2023

Friday 16, 06 2023
It is forecasted that the growth of the medical and pharmaceutical industries in 2023 will be limited, and profits may record a lower level before gradually improving.

Industry overview

According to statistics of the Vietnam Drug Administration, the pharmaceutical industry will continue to grow by double digits in the next 5 years and its scale is expected to reach $16.1 billion in 2026 with a compound growth rate of 11% in VND.

Vietnamcredit Vietnam Drug Administration

Along with the economic growth rate in recent years, the per capita income in Vietnam has also increased and the educational level is increasing, so people are more willing to pay for health care and medical services. These are the main factors leading to the development of the pharmaceutical industry in Vietnam.

Currently, the demand for nutritional supplements and alternative medicines (used to treat the same disease) is creating new opportunities for latecomers and increasing the level of competition in the industry. At the same time, pharmaceutical raw materials derived from nature and plant extracts are being researched and developed to create new drugs that are friendly to human health with fewer side effects.

Research by SSI Research forecasts that the growth of the medical and pharmaceutical industries in 2023 will be limited, and profits may record a lower level before gradually improving.

It is expected that the industry revenue will grow 8% to VND169 trillion ($7.2 billion) in 2023. The post-pandemic situation will be stable in most respects, but an economic downturn could stagnate health care spending.

The first half of 2023 has been an unpredictable time for the supply of active pharmaceutical ingredient (APIs) and excipients. Meanwhile, about 65% of APIs used in drug production in Vietnam are from China, which has reopened. However, there is still concern about shortages. In addition, the war between Russia-Ukraine is still going on, active ingredients and drugs imported from Europe are at risk of shortages. Companies that can use domestic raw materials will gain a better position (typically Traphaco Joint Stock Company).

According to estimates by SSI Research, only 6% of drugs in group 1 are produced domestically, while the rest are mainly imported drugs. In addition, upgrading to EU GMP will help improve product quality and enhance competitiveness. Currently, there are 8 companies owning production lines that meet EU GMP standards or equivalent in Vietnam. However, with high initial investment and maintenance costs, stringent requirements and lengthy approval times, companies will have to consider pursuing this race or investing in other areas to get better profits.

Challenge in the new situation

The top challenge comes from the fact that the domestic pharmaceutical industry still has to import medicinal materials from abroad at a relatively high rate, up to 80%-90%. In particular, the amount of materials imported from India and China accounts for 85% of the total import turnover of raw materials. The serious outbreak of the Covid-19 pandemic in Vietnam has caused the demand for medicinal herbs in general and API active ingredients in particular to increase. Meanwhile, the domestic drug market has not met this sudden demand.

Vietnamcredit COVID-19 pandemic

The COVID-19 pandemic has clearly revealed the embarrassment of domestic enterprises when the supply chain of drugs from other countries is broken. The dependence on imported materials also makes the pharmaceutical industry affected by external factors such as exchange rate fluctuations, supply sources. In addition, the high cost of import makes the export price of Vietnamese drugs about 20-25% higher than that of China and India.

According to statistics from mid-2018, the price of many pharmaceutical ingredients imported from China has increased sharply by 15-80%, which has caused the gross profit of many enterprises to fall deeply. Besides, being too dependent on importing raw materials can easily cause risks for enterprises' production and business activities. It is worth mentioning that despite having a very diverse source of medicinal herbs, Vietnam still has to import a high proportion of medicinal herbs. The reason is that the techniques of growing, processing and extracting medicinal herbs have not been seriously implemented and have not been properly invested.

Future forecast

It is clear that Vietnam's pharmaceutical industry has a lot of growth momentum with a promising future. The program on development of the domestic pharmaceutical and herbal medicine industry to 2030, with a vision to 2040, approved by the Government in March 2021, sets a target that by 2025, domestically produced drugs will reach 75% of the quantity used and 60% of the market value; the rate of using domestic medicinal herbs and herbal medicines will increase by at least 10% compared to 2020.

Vietnam's pharmaceutical industry

The goal is that by 2030, domestically produced drugs will reach 80% of the quantity used and 70% of market value.

The trend of M&A between domestic and foreign pharmaceutical enterprises is happening both in the field of production and distribution. The implementation of M&A contributes to helping Vietnamese businesses have more capital, technology and high-quality human resources towards higher quality product lines (such as EU-GMP, PIC, ...).

International cooperation should be identified as the "key" solution to create a favorable environment and conditions for the Vietnamese pharmaceutical industry to join the value chains of the world's leading pharmaceutical enterprises.

Source: SSI Research

Compiled by VietnamCredit

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