VIETNAM PHARMACEUTICAL INDUSTRY REPORT Q2/2018 1
Contents Executive Summary 4 2.2.6 Consumption 33 1. Business environment 6 2.2.7 Export - Import 42 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 2.2.8 Price movement 47 2.3 Industry planning 50 2.4 Driving forces of industry development development 52 3. Enterprise analysis 55 3.1 Profitability Ratios 58 3.2 Cost structure 62 2.2.2 Industry Position 25 3.3 Asset Management Ratios 65 2.2.3 Industry Scale and Feature 26 3.4 Capital Structure 69 2.2.4 Value Chain of Vietnam Pharmaceutical Industry 29 3.5 Solvency 71 2.2.5 Production 30 3.6 Return on Investment 73 2
Abbreviations ETC Ethical drugs OTC Over The Counter (nonprescription-drugs) EU-GMP Europe Good Manufacturing Practice Patent Drug Drugs under intellectual property rights EVFTA EU Vietnam Free Trade Agreement Pharmerging Countries with emerging Pharmaceutical Industry GDP Good Distribution Practice PIC/S - GMP Pharmaceutical Inspection Co-operation Scheme on Good Manufacturing Practice (EU-GMP) 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." GDC General Department of Vietnam Custom GLP Good Laboratory Practice GSO General Statistic Office of Vietnam GMP Good Manufacturing Practice TPP Trans-Pacific Partnership GMP - WHO Good Manufacturing Practice recommended by the World Health Organization (WHO - GMP) WHO World Health Organization GPP Good Pharmacy Practice WTO World Trade Organization GSP Good Storage Practice MOH Ministry of Health DAV Drug Administration of Vietnam 3
Executive Summary There are about 153 western medicines producing enterprises, 80 traditional medicines producing enterprises, and over 300 establishments producing traditional medicines in 2015. 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 According to the Drug Administration of Vietnam - Ministry of Health, the number of drug items re-declared price as of 2/9/2018: the number of drug items with fluctuating price increase/decrease occupy very little (about 0.026%) of the total commercially available drugs 4
Executive Summary The biggest wholesale market systems in Vietnam pharmaceutical distribution in Ho Chi Minh City and Hanoi. For the WTO, the Vietnamese pharmaceutical market has gradually opened Pharmaceutical products are necessities, thus, economic growth virtually has hardly any impact on the industry growth rate, Most of the enterprises of pharmaceutical industry maintained positive operation with high levels of gross profit and net profit in the period 2015-2016 M&A trend between domestic and foreign enterprises takes place strongly in the form of franchise drug production and the field of distribution. 5
Content 1. Business environment 1.1 Macroeconomic situation 1.2 Legal framework 6
1. Business environment 1.1 Macroeconomic situation GDP in the first three months of 2018 was estimated to increase by 7.38% over the same period last year, the highest increase in the first quarter of 10 years. GDP growth, 2011 3M/2018 Source: VIRAC, GSO Consumer Price Index for Medicines and Health Services, 2012-3M/2018 Unit: % Source: VIRAC, GSO 7
1. Business environment 1.1 Macroeconomic situation VND/USD exchange rate, 3/2016-3/2018 VND/CNY exchange rate, 2016 3/2018 Source: VIRAC, SBV Source: VIRAC 8
1. Business environment 1.1 Macroeconomic situation The pharmaceutical market has a lot of potential when the demand for medicines is always increasing Million people Population and population growth, 2006-2017 Population structure, Content 1999-2016 is intentionally removed for demo purpose Source: VIRAC, GSO Source: VIRAC, GSO 9
Content 1. Business environment 1.1 Macroeconomic situation 1.2 Legal framework 10
1. Business environment 1.2 Legal framework Regulations on standards of Pharmaceutical Industry 11
1. Business environment 1.2 Legal framework Regulations on drug registration Regulations on control of drug prices 12
1. Business environment 1.2 Legal framework Regulations on import-export Regulations on drug advertising information 13
1. Business environment 1.2 Legal framework Regulations on drug promotion Distribution Bidding 14
1. Business environment 1.2 Legal framework Regulations on importing pharmaceutical materials 15
1. Business environment 1.2 Legal framework 16
1. Business environment 1.2 Legal framework 17
1. Business environment 1.2 Legal framework 18
Content 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 19
2. Pharmaceutical Industry Overview 2.1 Global Pharmaceutical Industry 2.1.1 Production Consumption 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. Global spending on medicines, 2010-2016e Source: VIRAC, IMS health 20
2. Pharmaceutical Industry Overview 2.1 Global Pharmaceutical Industry 2.1.1 Production Consumption USD billion World sales of prescription drugs, 2010-2016 Consumption structure by types of medicines, 2011-2016 Source: VIRAC, EvaluatePharma Source: VIRAC, IMS health 21
2. Pharmaceutical Industry Overview 2.1 Global Pharmaceutical Industry 2.1.1 Production Consumption Consumption market share by group, 2016 Source: VIRAC, IMS health World s top 10 consumed phamaceuticals, 2016 USD billion Source: VIRAC, IMS health 22
Content 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 23
2. Pharmaceutical Industry Overview 2.2 Vietnam Pharmaceutical Industry Overview 2.2.1 History of Vietnam Pharmaceutical Industry Northern domination before 1858, From 1858, during the French colonial period, 1946-1954 resistance war against France, 1954 1975, After 1975, 1990 2005 24
2. Pharmaceutical Industry Overview 2.2 Vietnam Pharmaceutical Industry Overview 2.2.2 Industry Position 25
2. Pharmaceutical Industry Overview 2.2 Vietnam Pharmaceutical Industry Overview 2.2.3 Industry Scale and Feature Classification by ownership: Classification by product segment: 26
2. Pharmaceutical Industry Overview 2.2 Vietnam Pharmaceutical Industry Overview 2.2.3 Industry Scale and Feature Classification of medicine markets by distribution methods Classification of medicine markets by ownership Source: VIRAC, Hanoi University of Medicine and Pharmacy 27
2. Pharmaceutical Industry Overview 2.2 Vietnam Pharmaceutical Industry Overview 2.2.3 Industry Scale and Feature Bắc Ninh Hà Nội Hải Phòng Hưng Yên Nam Định Thanh Hóa Bình Định Hoàng Sa Phú Yên Bình Phước Khánh Hòa Đồng Tháp Đồng Nai An Giang Cần Thơ Hồ Chí Minh Tiền Giang Bến Tre Cà Mau Trường Sa Source: VIRAC 28
2. Pharmaceutical Industry Overview 2.2 Vietnam Pharmaceutical Industry Overview 2.2.4 Value chain of the industry Value chain of Vietnam pharmaceutical industry Source: VIRAC 29
2. Pharmaceutical Industry Overview 2.2 Vietnam Pharmaceutical Industry Overview 2.2.5 Production 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 30
2. Pharmaceutical Industry Overview 2.2 Vietnam Pharmaceutical Industry Overview 2.2.5 Production USD billion Domestic pharmaceutical production value, 2010-2017e 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%. 31
2. Pharmaceutical Industry Overview 2.2 Vietnam Pharmaceutical Industry Overview 2.2.5 Production Medicine production by type, 2013 3M/2018e Product name Unit 2013 2014 2015e 2016 2017 3M/2018e Source: VIRAC, GSO 32
2. Pharmaceutical Industry Overview 2.2 Vietnam Pharmaceutical Industry Overview 2.2.6 Consumption USD billion Pharmaceutical market value, 2010 2017e The pharmaceutical industry is growing at a compound annual growth rate (CAGR) of 17.4% for the period 2010-2017e. Causes are: Source: VIRAC, DAV 33
2. Pharmaceutical Industry Overview 2.2 Vietnam Pharmaceutical Industry Overview 2.2.6 Consumption Value ratio of domestically produced medicines in Vietnam, 2010 2017e The pharmaceutical industry in Vietnam is still considered relatively young compared to the global industry. Source: VIRAC, DAV 34
2. Pharmaceutical Industry Overview 2.2 Vietnam Pharmaceutical Industry Overview 2.2.6 Consumption VND trillion Domestically produced medicine consumption, 2010-2017e Source: VIRAC, GSO 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: 35
2. Pharmaceutical Industry Overview 2.2 Vietnam Pharmaceutical Industry Overview 2.2.6 Consumption Spending on medicines in Vietnam, 2009 2017e Spending on medicines per capita in some countries, 2016e USD/person/year Source: VIRAC, DAV Source: VIRAC, DAV, Statista 36
2. Pharmaceutical Industry Overview 2.2 Vietnam Pharmaceutical Industry Overview 2.2.6 Consumption Medicines consumption structure by channel, 2010-2017e Pharmaceuticals are distributed throughout the country through two distribution channels through the hospital (prescribed) or through the drug stores (not prescribed). Source: VIRAC, DAV Current status of Patented and Generic drugs, 2010-2017e Source: VIRAC, DAV 37
2. Pharmaceutical Industry Overview 2.2 Vietnam Pharmaceutical Industry Overview 2.2.6 Consumption - ETC market 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 Market value of prescription drugs (ETC), 2011 2017e Source: VIRAC, DAV 38
2. Pharmaceutical Industry Overview 2.2 Vietnam Pharmaceutical Industry Overview 2.2.6 Consumption - OTC market The OTC market has experienced relatively strong growth in value over the past few years. Market value of non-presciption drugs (OTC), 2010 2017e USD billion Source: VIRAC, DAV 39
2. Pharmaceutical Industry Overview 2.2 Vietnam Pharmaceutical Industry Overview 2.2.6 Consumption - Patented drugs The market value of patented drugs in Vietnam is on the upward trend but still lower than that of the whole industry. USD billion Patened drugs (Patent), 2010 2017e Distribution cost also plays an important role in determining medicine prices. Source: VIRAC, DAV 40
2. Pharmaceutical Industry Overview 2.2 Vietnam Pharmaceutical Industry Overview 2.2.6 Consumption - Generic drugs USD billion Generic drug market, 2010 2017e Source: VIRAC, DAV 41
2. Pharmaceutical Industry Overview 2.2 Vietnam Pharmaceutical Industry Overview 2.2.7 Export Import 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. USD million Pharmaceutical imports, 2012 3M/2018e Source: VIRAC, GDVC USD million Pharmaceutical imports, 3M/2017 3M/2018e Source: VIRAC, GDVC 42
2. Pharmaceutical Industry Overview 2.2 Vietnam Pharmaceutical Industry Overview 2.2.7 Export Import Vietnam s top import partners, 3M/2018 No. Partners Importing enterprises Top importing enterprises *, 3M/2018 * Only HS 3003 and 3004 Source: VIRAC, GDVC * Only HS 3003 and 3004 Source: VIRAC, GDVC 43
2. Pharmaceutical Industry Overview 2.2 Vietnam Pharmaceutical Industry Overview 2.2.7 Export Import Pharmaceutical exports, 2012 3M/2018 However, Vietnam pharmaceutical industry is less competitive than others: Source: VIRAC, UN Comtrade, GDVC 44
2. Pharmaceutical Industry Overview 2.2 Vietnam Pharmaceutical Industry Overview 2.2.7 Export Import Export structure by country, 3M/2018 No. Top exporting enterprises, 3M/2018 Exporting enterprises Source: VIRAC, GDVC Source: VIRAC, GDVC 45
2. Pharmaceutical Industry Overview 2.2 Vietnam Pharmaceutical Industry Overview 2.2.8 Price movement Rate of drug re-price (increase), 2013-2016 Source: VIRAC, DAV 46
2. Pharmaceutical Industry Overview 2.2 Vietnam Pharmaceutical Industry Overview 2.2.8 Price movement Price movement of some major drugs in the market, 12/2016 3/2018 No Drugs Unit Manufacturer 3/2017 6/2017 9/2017 12/2017 3/2018 Unit: 1,000 VND Compared to the beginning of the same period Source: VIRAC, Agency for Price Management 47
2. Pharmaceutical Industry Overview 2.2 Vietnam Pharmaceutical Industry Overview 2.2.8 Price movement 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 Type of drug Long Chau drug store Yen Trang drug store Difference Source: VIRAC 48
Content 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 49
2. Pharmaceutical Industry Overview 2.3 Industry planning 50
Content 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 51
2. Pharmaceutical Industry Overview 2.4 Driving forces of industry development Subsidy policy of the State Policy to increase domestic drug spending Extension policy of the national health insurance system Impact from world economic agreements 52
2. Industry Overview 2.4. Driving forces of industry development USD million Total healthcare expenses, 2010 2016f Population tower, 2016 Population motivation and healthcare awareness: Source: VIRAC, WHO Source: VIRAC, GSO Over-60 population growth in the world, 1950 2050 Million people Source: VIRAC, IMS health 53
Content 3. Enterprise analysis 3.1 Profitability 3.2 Cost structure 3.3 Asset Management Ratios 3.4 Capital Structure 3.5 Solvency 3.6 Return on Investment 54
3. Enterprise analysis 10 typical pharmaceutical enterprises in 2017 10 typical pharmaceutical enterprises in 2017 No. Company Business sector Revenue (VND billion) Main features 1 DHG Pharmaceuti cal Joint Stock Company 2 3 TRAPHACO Joint Stock Company Domesco Medical Import Export JSC 4 Imexpharm Pharmaceut ical JSC 5 OPC Pharmaceut ical JSC Source: VIRAC 55
3. Enterprise analysis 10 typical pharmaceutical enterprises in 2017 No. Company Busine ss sector Revenue (VND billion) Main features 6 S.P.M JSC 7 8 Vimedimex Medi Pharma JSC Ha Tay Pharmaceutical JSC 9 Ben Tre Pharmaceutical JSC 10 Lam Dong Pharmaceutical JSC Source: VIRAC 56
Content 3. Enterprise analysis 3.1 Profitability 3.2 Cost structure 3.3 Asset Management Ratios 3.4 Capital Structure 3.5 Solvency 3.6 Return on Investment 57
3. Enterprise analysis 3.1 Profitability VND billion Profitability, 2016-2017 Source: VIRAC 58
3. Enterprise analysis 3.1 Profitability 59
3. Enterprise analysis 3.1 Profitability COGS/NR, 2016-2017 Source: VIRAC 60
Content 3. Enterprise analysis 3.1 Profitability 3.2 Cost structure 3.3 Asset Management Ratios 3.4 Capital Structure 3.5 Solvency 3.6 Return on Investment 61
3. Enterprise analysis 3.2 Cost structure Selling expenses, 2016-2017 Source: VIRAC 62
3. Enterprise analysis 3.2 Cost structure Administrative expenses, 2016-2017 Source: VIRAC 63
Content 3. Enterprise analysis 3.1 Profitability 3.2 Cost structure 3.3 Asset Management Ratios 3.4 Capital Structure 3.5 Solvency 3.6 Return on Investment 64
3. Enterprise analysis 3.3 Asset Management Ratios Day Days in inventory, 2016-2017 Source: VIRAC 65
3. Enterprise analysis 3.3 Asset Management Ratios Days of sales outstanding, 2016-2017 Day Source: VIRAC 66
3. Enterprise analysis 3.3 Asset Management Ratios Asset turnover Source: VIRAC 67
Content 3. Enterprise analysis 3.1 Profitability 3.2 Cost structure 3.3 Asset Management Ratios 3.4 Capital Structure 3.5 Solvency 3.6 Return on Investment 68
3. Enterprise analysis 3.4 Capital Structure Self-financing ratio, 2016-2017 Source: VIRAC 69
Content 3. Enterprise analysis 3.1 Profitability 3.2 Cost structure 3.3 Asset Management Ratios 3.4 Capital Structure 3.5 Solvency 3.6 Return on Investment 70
3. Enterprise analysis 3.5 Solvency Solvency, 2016-2017 Source: VIRAC 71
Content 3. Enterprise analysis 3.1 Profitability 3.2 Cost structure 3.3 Asset Management Ratios 3.4 Capital Structure 3.5 Solvency 3.6 Return on Investment 72
3. Enterprise analysis 3.6 Return on Investment Profit ratio, 2016-2017 Source: VIRAC 73
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