Overseas touch lends to pharma gains

Improving results for pharma groups so far this year have been helped by over-the-counter revenues. Photo: Le Toan

In early July, DHG Pharmaceutical, Vietnam’s biggest publicly traded drugmaker, kicked off construction of a beta-lactam factory meeting Japanese and EU-GMP standards.

Covering a total area of about six hectares in Tan Phu Thanh Industrial Zone in the Mekong Delta province of Hau Giang, the facility includes production lines of non-coated tablets, film-coated tablets, capsules, powders, and granules. Expected to be completed in 2024, the new factory’s designed capacity will nearly double the current plant.

The project shows the drugmaker’s strategy to develop high-quality product lines that are qualified to replace foreign medicines while strengthening the company’s production capacity and increasing its competitiveness.

Over past years, DHG has been focusing on developing products not including beta-lactam mainly for the domestic market. With the new factory, the pharma giant marks new steps to expand in the international market in general and Japan in particular.

In 2021, this company made a breakthrough achievement in its hospital channel when it had 100 products from its two Japan-GMP production lines qualified for tendering to the higher-profitable Group 2. With Japan’s Taisho as the main foreign shareholder with 51.01 per cent, the company developed two more production lines in 2021, focusing on cardiovascular diseases and diabetes, which are on the increase in Vietnam. Taisho officially became the biggest stakeholder of DHG in 2019.

At that time, the local market raised doubts over the efficiency and the possible disappearance of the DHG brand with the Japanese pharma firm’s move. Nevertheless, Taisho helped DHG obtain the internationally-recognised PIC/S GMP certificate for its production lines of effervescent powder and effervescent capsule and the Japan GMP certificate for the capsule production line. This partnership also helps DHG take advantage of the Japanese company’s distribution network and training programmes.

In April, with production technology transfer from Taisho, DHG officially produced and distributed the analgesic product Counterpain in the local market. It has been available in the international market for nearly 50 years.

DHG made net revenue of around $174 million and after-tax profit of $33.75 million in 2021, up 7 and 5 per cent on-year, respectively.

In 2022, the titan will continue to increase its portfolio of new products, expand the market, and increase the efficiency of sales in big cities, upgrading production lines towards global GMP standards, while improving the manpower quality with an aim of making net revenue of $183.5 million and a pre-tax profit of over $37 million. In the first quarter, it fulfilled 25 and 34 per cent of the targets, respectively.

DHG’s general director Masashi Nakaura said, “We plan to increase headcounts and talent in 2022, and to develop our image and prestige from a local brand to an international one with future stable growth of 6-7 per cent annually in the 5-year vision.”

Maintaining share

Like DHG, foreign leadership made significant improvements in the operation of Traphaco, the country’s second-largest publicly traded drugmaker, when a group of major South Korean shareholders took control for the 2021-2025 term. The company’s business strategy has been changed towards focusing on tech transfer and cooperation with Daewoong, one of the leading manufacturers and distributors of prescription drugs in South Korea, as well as other South Korean pharma firms to diversify its portfolio of products.

Under the new leadership, the drugmaker focuses on expanding the western medicine segment while retaining the position as a market leader in the eastern segment with the two key products of Boganic and Cebraton, which respectively rank second and sixth in the over-the-counter (OTC) channel in Vietnam in terms of revenue. The production technology of 70 products will be transferred to Traphaco in 2021-2025.

Experts said that the change in strategy towards developing the western medicine segment and the profitable ethical drugs channel (ETC) while maintaining the position in the OTC market, is a smart step for Traphaco as the growth potential in the latter segment is slowing. Meanwhile, the former is promising for the drugmaker to increase its low market share.

Traphaco has performed better since the new leadership was introduced. In 2021, its consolidated revenue and consolidated after-tax profit rose 15 and 25 per cent on-year, respectively. The growth momentum continued in the first four months of 2022 when its total revenue and profit respectively ascended 20 and 40 per cent on-year.

This year, Traphaco aims to make higher business results with total revenues of $101.7 million and after-tax profit of $12.4 million.

Similarly, Domesco Medical Import-Export, Vietnam’s third-largest publicly traded drugmaker, has seen great changes in expanding its product portfolio since US group Abbott took the controlling stake in 2017. The company cancelled operations of many branches, including those in Ca Mau, Hai Duong, Vinh, and others, while adding some new business lines in the import and export of antibiotics, cold drugs, vaccines, and more.

Domesco has made improvements in its business results over the past years. In 2018, a year after the control of Abbott, the company’s total revenue and after-tax profit respectively climbed 3.4 and 9.72 per cent on-year, and kept it in the top five pharma firms in Vietnam. The growth rates continued in 2019 and 2020, although they were timid. The company even saw some falls in profit in 2021.

Domesco plans to boost sales of products with a high-profit margin in 2022 in a move to fulfil its yearly target of $67.4 million in revenues and $8.7 million in after-tax profit, up 3.4 and 25.6 per cent, respectively, from 2021.

Positive prospects

Last year, the prime minister approved a programme for the development of the pharmaceutical industry and domestically produced medicinal materials for the decade, with the target of reaching level 4 in line with World Health Organization rankings and gaining market value within the top 3 in ASEAN. This would help create favourable conditions for pharma firms not only to develop in the local market but also to expand internationally.

According to SSI Securities, the business results of pharma firms have likely been better in the first half of 2022, driven by an increase in revenues from the OTC channel. SSI estimated that in the first quarter of 2022, total revenues of the country’s pharma industry rose 7 per cent on-year, of which those from the OTC segment increased 23 per cent on-year, while the ETC channel fell 5 per cent on-year. Before the pandemic, total revenues of the country’s pharmaceutical industry ascended 13 per cent annually on average.

The SSI analysts projected pharmaceutical demand will strongly increase by the end of 2022 and revenues from the hospital channel will significantly recover, especially in the south, thus enabling the whole industry’s revenue to grow about 13 per cent on-year in the second half and 11 per cent for the whole year. These results would be almost on par with before the pandemic emerged.

In addition, the race to open pharmacy chains will boost industry revenues in the next few years. At present, the country’s three largest drugstore chains – Long Chau, An Khang, and Pharmacity – are expanding their presence nationwide.

By the end of last year, Pharmacity had expanded its network by over 50 per cent to around 800 pharmacies across the country. It aims to increase the number to 5,000 by 2025. Elsewhere, Long Chau plans to open at least 30 drugstores, thus increasing its network to as much as 800 by the end of the year.

In 2016, the country was home to over 55,000 drugstores, of which just under 200 belonged to chains. With the ambitious targets from the largest drugstore operators, the number belonging to the chains is expected to rise to over 7,000 by 2025.