Hand-shakes between local and foreign players in pharmaceutical market

Local pharmaceutical market revenue was an estimated $5.2 billion in 2017, a 10 per cent jump on-year

The Board of Management at Hau Giang Pharmaceutical JSC (DHG), the largest local drug manufacturer holding roughly 4.9 per cent of the market share, has just agreed for its foreign strategic partner Japanese Taisho Group to raise its ownership of the company from 24.9 per cent to 32 per cent.

The deal will cost Taisho $47.7 million and will give the Japanese partner three positions on DHG’s Board of Management.

Taisho is currently the second largest shareholder of DHG behind state-owned State Capital Investment Corporation which owns a 43.3 per cent stake.

To boost its trade in Southeast Asia, in July 2016 Taisho spent $100 million buying 24.9 per cent of DHG.

Analysts expect that teaming up with Taisho will bring greater efficiency to DHG by virtue of technology transfer, enhanced research and development capacity, augmented export potential and improved supply chain management expertise.

With Taisho’s support, the local partner is in a position to apply regional standards for its drug manufacturing factories, such as the Pharmaceutical Inspection Cooperation Scheme (PIC/S) of Malaysia or Pharmaceuticals and Medical Devices Agency (PMDA) standards of Japan for its non-beta-lactam antibiotics, with significant budget savings.

The Japanese partner could also support DHG to enlarge its export market. DHG’s major products include antibiotics, vitamins and painkillers. The company is reportedly upgrading its effervescent tablet manufacturing for export to regional markets including Malaysia, Indonesia and the Philippines.

DHG is not the only local firm on the radar screen of foreign partners. In 2016, Domesco Medical Import Export JSC became Vietnam’s first listed pharmaceutical firm to team up with a foreign partner when US major healthcare group Abbott Laboratories became Domesco’s largest shareholder holding 51.69 per cent of the latter’s charter capital.

Massive penetration of foreign pharmaceutical groups such as Sanofi, Taisho and Abbott into drug production in Vietnam is putting pressure on local peers and competition in the local pharmaceutical market is forecast to heat up in the years to come.

To reduce reliance on imported drugs (particularly patented ones) which currently still account for more than 50 per cent of local demands, Vietnam is applying policies to support domestic drug manufacturing.

This is allegedly one of the reasons behind Taisho’s decision to scale up engagement with Vietnamese partner DHG.

With two-digit growth in recent years, Vietnam’s pharmaceutical market appears very appealing to foreign investors.

The market’s total revenue is expected to jump from $5.5 billion this year to surpass $7 billion by 2020, according to global research firm Business Monitor International.