Pharmacies under pressure with new warehouse rules

July 11, 2024 | 11:05
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While expected to facilitate activities for modern pharmacy retail chains, the draft amendments to the Law on Pharmacy are causing concerns over new business conditions for warehouses if adopted.

The leadership of Long Chau pharmacy under the private-run FPT Retail’s management is worried that new business conditions will cause difficulties for its future business activities, as they require additional administrative procedures.

Pharmacies under pressure with new warehouse rules
Central warehouses perform the function of distributing drugs to pharmacies in the chains, photo Le Toan

Nguyen Do Quyen, COO of FPT Retail, told VIR, “We believe that the draft amendments provide inappropriate business conditions applicable to pharmacy chains, specifically the standards of central warehouse systems. We will continue to provide comments on this content with the hope that the revised Law on Pharmacy (LoP) will create stronger conditions for the development of pharmacy chains.”

Quyen explained that central warehouses perform the function of distributing drugs to pharmacies in the chains, so in terms of function, central warehouses are no different to current wholesale establishments. Compared to current legal regulations, if central warehouses are considered wholesale facilities, they must meet goods distribution practices (GDPs) for drugs and medicinal ingredients.

However, the draft stipulates that central warehouses must simultaneously meet two standards: good drug storage and distribution practices (GSPs) applied to warehouses and other areas; and GDPs applicable to drug delivery activities.

“We believe that the GSP requirement is not necessary. Only the regulation to meet GDPs should be enough because the GDP standard itself has the content including principles of GSPs applied in all circumstances where drugs are stored and during the distribution process”, Quyen said.

Long Chau issued its concerns after new rules as part of changes proposed to the LoP 2016 by the Ministry of Health (MoH) topped the National Assembly’s (NA) agenda in late June. Regarding organisational structure, chains consist of operators and pharmacies. The pharmacy chain operates under a unified management mechanism and all activities of pharmacies in the chain are regulated by the operator, with specific conditions for the operator and the conditions of those pharmacies.

The chain operator manages all activities related to the supply, circulation, storage, and preservation of drugs and data of pharmacies in the chain, while handling full responsibility for the operations of pharmacies in the chain.

The draft also stipulates the rights of chain operators with direct benefits such as rotating drugs between central warehouses and pharmacies, and among pharmacies with similar business scope in the chain. In addition to direct benefits, businesses organising and operating the pharmacy chain may have derivative benefits, such as negotiating to buy drugs to supply to all pharmacies in the chain at reasonable prices, and building brand reputation.

A representative of the MoH said, “With such a wide network, pharmacies in the chain are currently still operating individually and independently, leading to increased costs for administrative and business management, without creating better conditions and without open legal foundation to encourage their development. Therefore, in the draft amendments, terminology and related contents on conditions for the drug store chain business model have been added.”

Long Chau and other pharmacy chains such as Pharmacity and An Khang will all be affected if the new business conditions are adopted at the upcoming NA session, scheduled to take place in October and November.

Senior health expert Ngo Hoa said, “The new business conditions will make the local drug retail market more competitive, prompting pharmacy chains to innovate and improve service quality. This means they have to make more investment and have more strategic plans to stay strong.”

An Khang, under private-run Mobile World Group, is believed to be making moves to adapt to the possible new changes. The chain aims to achieve the two-digit revenue growth rate and increase its market share by end-2024.

A representative of the group said, “We will invest in-depth investment to develop An Khang into a leading pharmacy chain with specific activities by diversifying portfolio of products, ensuing the drug supply, improving the quality of the pharmacist team, and applying technologies to bring the best healthcare solutions to customers.”

Similarly, Long Chau continues to develop its store chain, increasing its network to more than 1,700 pharmacies across all provinces and cities. It also focuses on investing strongly in developing Long Chau vaccination centres, with the current number reaching more than 80 centres.

At FPT Retail’s AGM in April, the company announced its strategy of expanding the comprehensive healthcare ecosystem “the Long Chau Healthcare Platform”. To invest in this strategy, FPT Long Chau plans to mobilise funding through a share offering for investors with a maximum value of 10 per cent.

Meanwhile, foreign-invested Pharmacity under new CEO Deepanshu Madan is re-shaping its business around a wide range of medicine and healthcare offerings. It has updated its range of medications for cardiovascular, hypertension, diabetes, cholesterol, liver, and several other categories that affect the general population of Vietnam.

“We know that these chronic diseases impact many people in Vietnam, rich and poor alike. That is why we have reassessed the treatment options we stock and restructured our pricing. Now, for example, our diabetes treatment options start from only VND1,000 (3.9 US cents) per day so that all patients can find the help they need at Pharmacity,” Madan said.

Pharmacity, once the largest chain with over 1,100 stores, has faced structural changes following the departure of its founder in 2022. As of February 2023, Long Chau has emerged as the market leader. According to the latest report by MB Securities, the drug retail market, involving nearly 60,000 pharmacies, is worth nearly $2 billion. Pharmacity and Long Chau are at the forefront of a fierce competition, with An Khang third with over 520 pharmacies.

Long Chau has demonstrated remarkable growth in recent years. Specifically, the chain expanded rapidly with an average revenue increase of 174.7 per cent from 2020 to 2022. By the end of 2023, the chain had solidified its market presence with a quarterly growth rate of 23.4 per cent since 2020.

Potential FIE impacts through Law on Pharmacy adjustments Potential FIE impacts through Law on Pharmacy adjustments

The newest amendment draft of the Law on Pharmacy (LoP), proposing changes to 44 out of 116 articles from the current law, has been published for feedback and is expected to be adopted soon.

Further expectations about legal changes for FIEs Further expectations about legal changes for FIEs

With legal improvements in the draft amendments to the Law on Pharmacy 2016, foreign-invested enterprises are expected to get thumbs-up for future performance. Darrell Oh, chairman of the Pharma Group, discussed with VIR’s Bich Thuy about what lies ahead.

By Bich Thuy

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