Competition intensifies in pharmaceutical sector

January 30, 2019 | 09:44
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After a tough 12 months, competition in Vietnam’s lucrative pharmaceutical industry is forecast to heat up in 2019, with domestic and international players in a race to reap the benefits from local policies and new free trade agreements. Bich Thuy reports.
competition intensifies in pharmaceutical sector
After enduring a challenging 2018, many pharmaceuticals have been rolling out ambitious plans to develop high-tech facilities in 2019, Photo: Le Toan

After reviewing business performance for 2018, Vu Thi Thuan, chairwoman of Vietnam’s second largest publicly-traded drug maker Traphaco (TRA), along with other leaders, are working on solutions to stand firm in the new year and beyond.

TRA suffered a fall in results due to stiffening competition in the now-lucrative industry. The group is estimated to fetch consolidated revenues of VND1.8 trillion ($78.3 million), meeting just 75 per cent of the yearly target, and down 4 per cent on-year, a source from TRA told VIR.

The drug maker’s consolidated after-tax profit is estimated at VND157 billion ($6.83 million), fulfilling just 51 per cent of the whole-year target, and equal to just over 65 per cent of the 2017 figure.

Company representatives blamed the fall on the depreciation of a new factory and a rise in material imports. At present, State Capital Investment Corporation, Magbi Fund Ltd., and Super Delta Pte., Ltd. are TRA’s largest shareholders with respective stakes of 35.67, 24.99, and 15.12 per cent.

The previous year was also not a rosy one for other Vietnamese pharmaceutical giants. The biggest publicly-traded drug maker, Hau Giang Pharmaceutical JSC (DHG), had to give up the profitable distribution business to serve the lift of foreign ownership limit.

DHG, which has Japanese pharmaceutical firm Taisho Pharmaceutical Holdings as a major shareholder with 32 per cent stake, made consolidated net revenues of VND3.88 trillion ($168.7 million), down 4.43 per cent on-year, while consolidated after-tax profit rose slightly by 1.43 per cent on-year to VND651.6 billion ($28.33 million).

Doan Dinh Duy Khuong, acting CEO of DHG, blamed the slight fall for a halt in distribution of MSD and Eugica products to serve the lifting of the foreign ownership limit.

Boasting better performance, Vietnam’s third largest domestic drug maker Domesco (DMC) made slight increases in profit and revenue, yet 2018 remained a difficult year for them.

DMC obtained net revenues of VND1.385 trillion ($60.2 million) in 2018, slightly up from VND1.34 trillion ($58.2 million) in 2017, while its after-tax profit ascended by 9.7 per cent on-year to VND227.85 billion ($9.9 million). DMC now has Abbott Laboratories as a major foreign shareholder with 51.7 per cent.

These are poor results in comparison with 2017, when TRA, and DMC saw double-digit growth and thus set more ambitious targets for 2018. However, the situation changed due to mounting competition from international rivals, and increases in drug imports and material input prices.

While domestic players faced a challenging year, multinational corporations (MNCs) were said to enjoy fruition. More newcomers are seeking opportunities in Vietnam, while others are expanding operations in the country.

According to statistics from the Ministry of Health (MoH), the country’s drug imports increased 8.8 per cent on-year in 2018 to $3.7 billion, reflecting growing local demands. Taken together, the number of foreign imported pharmaceuticals granted with marketing authorisation rose from 771 in 2016 to 758 in the 11 months of 2018.

Development trend in focus

Last year, the domestic giants focused on research and development (R&D), giving top priority to the research of new drugs and investment in production assemblies, in order to increase competitiveness.

According to a recent survey by Report Vietnam, 83 per cent of those surveyed ranked the research of new drugs as the most important strategy for 2018.

“The trend will enable pharma businesses to venture further into the profitable segment of ethical or prescription drugs (ETC), which is currently dominated by multinational corporations, to cash in on the favourable conditions created in the Law on Pharmacy 2016,” an analyst at BIDV Securities told VIR.

Moves by the top four domestic drug makers in 2018 have reinforced the trend.

At TRA, 2018 marked an important and successful year with the creation of new products. R&D is considered as the decisive factor for future development, accounting for 3 per cent of its export revenues annually, regardless of the total investment capital of VND500 billion ($21.7 million) in the new smart factory.

With this focus, TRA ambitiously aims to make consolidated revenues of VND2.16 trillion ($93.9 million) and consolidated after-tax profit of VND228 billion ($9.91 million) in 2019.

DHG has big future plans for production. Specifically, it is concentrating on developing a biological product segment, especially products made from herbs and supplements. It will also expand the distribution of products to MNCs, while co-operating with them in production.

DHG hopes to maintain average growth of 15 per cent in its net revenue annually, to $300 million by 2020. In this way, it aims to become Vietnam’s biggest generic drug maker, accounting for 10 per cent of the market share of locally-made drugs.

In similar moves, the country’s fourth largest drug maker Imexpharm (IMP) is focusing on two new factories to make new products. The first is the Binh Duong high-tech pharmaceutical plant, costing VND370 billion ($16.9 million), and second is the Vinh Loc high-tech antibiotic plant, costing VND180 billion ($7.8 million).

In addition to R&D, the second priority for industry giants has been the expansion of the over-the-counter channel, with nearly 67 per cent saying they had plans for the strategy. Now OTC is being eaten up by the ETC segment, driven by the new regulation on nationwide health insurance roadmap implementation. Last year, domestic pharmaceutical companies also focused on exports, with 47 per cent of the surveyors making the trend.

Industry insiders said that the targets might be challenging as MNCs also expand local production to reap the incentives from the country’s policies from domestically-produced pharmaceuticals, and to benefit from the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and the EU-Vietnam Free Trade Agreement (EVFTA).

According to a VIR source, US-headquartered MSD Group is co-operating with several drugs factories in Vietnam. It has developed a production plant in the country for high-quality innovative drug products through contracts on processing, which has been approved by the MoH.

Meanwhile, B.Braun, Germany’s largest pharmaceuticals and medical equipment producer, has made several investments into Vietnam in the past. It plans to fund further in the future, with a vision past 2020. It will also increase its workforce in the country to meet increased demands.

Taken together, innovative life sciences are also under the microscope among MNCs, and are forecast to continue in the months to come amid growing local demand.

According to Nicolas Audier, co-chairman of the European Chamber of Commerce in Vietnam (EuroCham), the country has attracted new European companies before the EVFTA is ratified to prepare for these new opportunities. The same is true across several sectors and industries. “Vietnam’s middle-class consumers are a magnet for European companies, and we know that there is strong and growing demand here for European products and services, from our world-leading cars to our cutting-edge medical devices and our innovative service sectors,” he said.

Currently, EuroCham’s Pharma Group has 25 members of the international research-based pharmaceutical industry, including Novartis Pharma Services AG, and Zuellig Pharma Vietnam.

In 2018, the local retail pharma market became more packed due to an influx of big guns such as Vingroup, Mobile World, FPT Retail, Digiworld, and Nguyen Kim.

New legislation moves

After posting achievements in administrative reform last year when it cut over 72 per cent of business conditions and 72 per cent of administrative procedures, the MoH has recently made some positive regulatory changes. In the first two weeks of 2019, the MoH announced two new decrees, amending and supplementing previous regulations in the sector.

In particular, the new Decree No.155/2018/ND-CP amends regulations on pharmaceuticals and cosmetics business conditions in the controversial Decree No.54/2017/ND-CP on guiding the implementation of the Law on Pharmacy 2016. The important highlights of the new decree include the cut in procedures of pharmaceuticals imports, clinical records of proposed imported drugs, and drug registration.

Following this, Decree No.169/2018/ND-CP governing the management of medical equipment alters regulations in Decree No.36/2016/ND-CP towards cutting some regulations in line with the recently-released Resolution No.01/NQ-CP on socioeconomic development solutions for 2019.

Decree 169 amends the classification of medical equipment, and regulations related to equipment containing narcotic and precursor substances. It also affects supplementation of cases allowed to adjust information in announcement dossiers, and of cases rapidly receiving circulation registration numbers. Now questions are being raised on whether domestic and foreign rivals will make any new movements in the pharmaceutical market amid the enforcement of the CPTPP, and when the EVFTA takes effect.

The market in Vietnam has been on an optimistic growth track, with the turnover of the domestic market in 2017 estimated at $5.2 billion, according to data from Business Monitor International. This is up about 10 per cent on-year and is expected to continue double-digit growth over the next five years.

Vietnam’s drug spending per capita rose 10.6 per cent on-year to about $53.5 in 2018, and is forecast to rise further in the near future, according to the MoH.

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