vietnam pharmaceutical industry and investment strategy 1231830677620902 2

Vietnam PharmaceuticalIndustry -

Investment strategyBy: Vinh Nguyen

Vinh Nguyen The: [email protected] or [email protected]

PESTLE Analysis

• Politics• Economics

• Social• Technology

• Law• Environment


Pestle - politicsStrengths

The Communist Party government appearscommitted to market oriented reformsnecessary to double 2000's GDP per capitaby 2010, as targeted. The one-partysystem is generally conducive to short-termpolitical stability

Relations with the US are generallyimproving, and Washington sees Hanoi as apotential geopolitical ally in South East Asia

OpportunitiesThe government recognizes the threat thatcorruption poses to its legitimacy and hasacted to clamp down on graft among partyofficials

Vietnam has allowed legislators to becomemore vocal in criticizing governmentpolicies. This is opening up opportunitiesfor more checks and balances within theone-party system

WeaknessesCorruption among government officialsposes a major threat to the legitimacy ofthe ruling Communist Party

There is increasing (albeit still limited)public dissatisfaction with the leadership'stight control over political dissent

ThreatsVietnamese dissidents are seeking externalhelp, especially from the US. This couldcomplicate Vietnam-US relations, withWashington having criticised Hanoi over itsrestrictions on religious freedom

Although strong domestic control willensure little change to Vietnam's politicalscene in the next few years, over thelonger term, the one-party state willprobably be unsustainable


Pestle - economicsGDP Growth Rate

10.00%

8.00% 6.90%

6.00%

4.00%

2.00%

0.00%

2001

7.80%7.10% 7.30%

2002 2003 2004

8.40% 8.20%

2005 2006

8.48%

6.23%

2007 2008

Source: www.gso.gov.vn


StrengthsVietnam has been one of the fastest-growingeconomies in Asia over the past five years,averaging growth of 8.0% a year

The economic boom has lifted manyVietnamese out of poverty, with the officialpoverty rate in the country falling from 58%in 1993 to 20% in 2004

OpportunitiesWTO membership has given Vietnam accessto both foreign markets and capital, whilemaking Vietnamese enterprises strongerthrough increased competition

The government will continue to moveforward with market reforms, includingprivatization of the state-owned enterprisessector and liberalizing the banking sector

Urbanization will continue to be a long-termgrowth driver. The UN forecasts the urbanpopulation to rise from 29% of thepopulation to more than 50% by the early2040s

WeaknessesVietnam suffers from substantial trade,current account and fiscal deficits, leavingthe economy vulnerable to external shocks.The fiscal picture is clouded by considerable'off-the-books' spending

The heavily managed and weak dongcurrency reduces incentives to improvequality of exports and also serves to keepimport costs high, thus contributing toinflationary pressures

ThreatsInflation and deficit concerns have causedsome investors to re-assess their hithertoupbeat view of Vietnam. If the governmentfails to curb inflation, it risks prolongingmacroeconomic instability, which could leadto a potential crisis

Prolonged macroeconomic instability couldprompt the authorities to put reforms onhold, as they struggle to stabilize theeconomy


Pestle - socialPopulation

88.0086.0084.00

82.00

80.00 78.68

78.0076.00

74.002001

86.1685.19

84.1583.10

82.0380.90

79.72

2002 2003 2004 2005 2006 2007 2008

Source: www.gso.gov.vn

In the past 8 years, Vietnam population has grown 1.14% per year.Currently, Vietnam population is in the top 14th in the world and top 3 in ASEAN

(Indonesia and Philippines ranked 1 and 2 respectively) and is expected to reach 93.7million people in 2015.


Pestle - technology

• Vietnam has signed many BTA agreementswith foreign countries such as Indonesia,Bulgaria, US, Korea…for technology transfer.

• All pharmaceutical companies required tomeet GMP-WHO


Pestle - law

• Advertising

• IP

• Counterfeit Drugs

• Regulatory issues

• Price controls


Pestle - environment

•


Porter’s 5 forces - entrybarrier• HIGH

• Entry to this industry is extremely challenging.Expenses for R&D in studying new product areconsiderable. Medicines are of importance,which affect people health, even life ofpatients. As a result, medicines need clinicalstudy and approval from the government drugadministration. Moreover, the drugregistration and patent protection also setbarriers to new comers


Porter’s 5 forces -bargaining power of supplier

• HIGH

• Most of the local manufacturers do importsemi-finished products then to label with theirbrands and distribute to professional andpatients. Most of suppliers are multinationalpharmaceutical companies. After WTOaccession, the power of supplier will bereduced thanks to multiple suppliers withcompetitive price.


Porter’s 5 forces -bargaining power of buyer

• LOW

• As pharmaceutical products are necessaryproducts which relate to life and death, thedemand for such products is un-avoidable andnormally not negotiable.


Porter’s 5 forces -substitution

• LOW

• Demand for medicine is in-evitable and un-substitutable


Porter’s 5 forces -competition• HIGH

• This means that in the area of pharmaceuticals Vietnam hasbeen or will be reducing its import tax to an average of 2.5%within five years of the accession. In addition, the domesticpharmaceutical industry should also see improvements ascounterfeit activity and intellectual property theft is clampeddown on. This should therefore improve competition in thelocal marketplace, with pharmaceuticals expected to becomemuch more competitive in the long term. Local consumersshould benefit from this competition in terms of productquality improvements, price reductions and a wider productchoice.


Vietnam Pharmaceutical AndHealthcare Industry SWOT -

S• Significant growth potential, given a population of approximately

87.4mn• Domestic manufacturing facilities operated by multinationalsoffering a base on which further sector development could be built

• The government’s commitment to developing the health sector• Sizeable local generics sector

• Strong traditional medicines segment with potential to improvethe nonprescription drugs market in the longer term

• Domestic companies being forced to comply with internationalmanufacturing standards (GMP), at a considerable expense

• Underdeveloped primary care services continuing to hamperaccess to medicines and improved product market penetration

• Multiple market barriers including the lack of freedom for foreigncompanies to operate freely in Vietnam


Vietnam Pharmaceutical andHealthcare Industry SWOT - W

• One of the least-developed pharmaceutical markets inAsia, with low per capita spending on drugs• Patent law notably below international standards

• Counterfeit drugs account for a significant amount ofmarket consumption

• Little distinction made between prescription and over-the-counter (OTC) drugs, with most medicinesavailable without a prescription

• Complex drug pricing policy biased towards local drugproducers

• Import-reliant market, especially in terms of high-techproducts and active pharmaceutical ingredients(APIs), which makes it vulnerable to internationalcurrency movements


Vietnam Pharmaceutical andHealthcare Industry SWOT - O

• The ASEAN harmonization initiative, including the adoptionof Western regulatory standards such as ICH and WHOguidelines

• Introduction of five-year exclusivity for clinical dossier dataencouraging research-based multinationals• The end of the price freeze has the potential to boost

values despite a possible fall in volumes• Radical restructuring of the pharmaceutical industry with an

emphasis on foreign investment and biotechnology• Improvements in pricing and regulatory environments to

boost foreign company interest and investment in thecountry

• Recently ratified WTO membership to improve the tradingclimate and potentially, in the longer term, redress somepharmaceutical trade issues


Vietnam Pharmaceutical andHealthcare Industry SWOT - T• Government resistance to aligning patentlaw fully with international standardsdeterring multinational sector expansion• The government increasingly interfering inthe industry, protecting indigenous firmsthrough the use of legal trade barriers• With a notably fragile regional economy,Vietnam is increasingly susceptible toregional and global economic fluctuations

• The legalization of parallel importsnegatively impacting performance ofpatented drugs


Market size

Value of domestic supply and demand

Supply Demand

1,6001,400

1,2001,000

800600400

2000

422 451

170 200

2001 2002

625520

305241

2003 2004

726

395

2005

1340

1,1141,000

818

561475

2006 2007 2008e

Source: Vietnam Department of Pharmaceutical Management


Market Segmentation

Source: Business monitor


Market Growth

Health expenditure percapita

140 100.00129.80

120108.30

10089.10

8070.60

12.08 10.00

60

40

20

0

37.6031.00

3.202.58

2004 2005

50.9046.60

4.434.00

2006 2007

Healt expenditure

57.30 9.968.09

6.325.05

1.00

2008 2009 2010 2011 2012

Health expense per capital

Source: WHOVinh Nguyen The: [email protected] or [email protected]

Market share: Top 20Corporate

2004 CUM QTR Share Growth EI Mill Unit Mill Pack

1 1 1 GLAXOSMITHKLINE 20.9 5.4% 20% 101 101 4

2 2 2 BMS 14.1 3.6% 17% 98 88 6

3 3 3 NOVARTIS 12.2 3.1% -1% 84 86 8

4 4 5 SANOFI 10.3 2.7% 17% 99 97 5

5 5 4 AVENTIS 10.1 2.6% 18% 99 90 4

6 6 6 SERVIER 9.9 2.5% 43% 120 81 2

7 7 7 ROCHE 8.7 2.2% 23% 104 22 2

8 8 8 PFIZER 8.7 2.2% 29% 109 21 2

9 9 9 J&J 7.4 1.9% 15% 97 34 5

10 10 10 ASTRA ZENECA 6.6 1.7% 33% 111 13 1

11 11 12 UNITED PHARMA 6.5 1.7% 20% 101 109 3

12 12 11 FOURNIER 6.4 1.6% 46% 123 51 2

13 13 14 IC VIETNAM 6.1 1.6% -1% 83 60 1

14 14 13 BOEH. INGEL. 5.6 1.4% 20% 101 28 1

15 15 15 IPSEN 4.9 1.3% 3% 87 25 1

16 16 18 HG PHARM 4.9 1.3% 17% 99 417 14

17 17 17 ORGANON 4.9 1.3% 15% 97 29 2

18 18 16 MERCK KGAA 4.9 1.3% 30% 109 42 1

19 19 19 DOMESCO 4.2 1.1% 53% 128 172 4

20 20 22 EBEWE 4.2 1.1% 51% 127 3 1

Source: VPA & VHA23

Market share: Top 20Corporate -Rx

2004 CUM QTR

1 1 1

2 2 4

3 3 2

4 4 3

5 5 5

6 6 7

7 7 6

8 8 8

9 9 9

10 10 10

11 11 11

12 12 12

13 13 13

14 14 15

15 15 17

16 16 14

17 17 18

18 18 20

19 19 16

20 20 21

GLAXOSMITHKLINE

NOVARTIS

SERVIE

R

AVENTISBMS

PFIZER

ASTRA ZENECA

SANOFI

ROCHE

FOURNIER

EBEWE

MERCK KGAA

ORGANON

GEDEON RICHTER

B.BRAUN

DOMESCO

RANBAXY

MICRO LABS OFFICE

STADA

HG PHARM

16.7

9.1

8.9

8.1

7.5

6.9

6.6

5.6

5.0

4.7

4.2

3.8

3.6

3.5

3.3

3.1

3.1

2.9

2.9

2.7

Share Growth EI Mill Unit Mill Pack

7.3% 20% 99 21 2

4.0% 0% 82 65 6

3.9% 45% 119 76 2

3.5% 21% 100 25 2

3.3% 23% 101 23 1

3.0% 33% 110 10 1

2.9% 33% 109 13 1

2.4% 22% 100 52 2

2.2% 36% 112 12 1

2.1% 41% 116 18 1

1.8% 51% 124 3 1

1.7% 39% 114 34 1

1.5% 16% 95 17 1

1.5% 16% 96 31 2

1.4% -9% 75 4 4

1.4% 62% 133 88 2

1.3% -7% 77 20 1

1.3% -9% 75 19 1

1.3% 86% 153 42 1

1.2% 31% 108 84 2

Source: VPA & VHA 24

Market share: Top 20 Corporate- OTC


1 1 2 BMS 6.6 4.2% 11% 96 66 5

2 2 1 UNITED PHARMA 6.5 4.1% 20% 104 109 3

3 3 3 J&J 5.1 3.2% 12% 97 22 3

4 4 5 SANOFI 4.7 3.0% 12% 97 45 3

5 5 4 IPSEN 4.4 2.8% 1% 87 23 1


7 7 6 BOEH. INGEL. 4.1 2.6% 1% 87 24 1

8 8 8 IC VIETNAM 3.8 2.4% -6% 81 48 1

9 9 9 ROCHE 3.8 2.4% 10% 95 10 1

10 10 11 PHARMEDIC 3.0 1.9% 16% 100 216 11

11 11 12 NOVARTIS 3.0 1.9% -1% 86 22 1

12 12 10 ROHTO METHO. 2.9 1.8% 137% 206 2 2

13 13 13 MEDICAP 2.8 1.8% 66% 144 35 1

14 14 14 TRAPHACO 2.6 1.7% 13% 98 99 4

15 15 15 OPC (TW26) 2.6 1.6% 31% 114 62 4

16 16 17 HISAMITSU 2.4 1.5% 4% 90 63 1

17 17 18 HG PHARM 2.3 1.4% 4% 90 333 12

18 18 16 DR. E.BOUCHARA 2.2 1.4% 23% 107 14 1

19 19 19 AVENTIS 2.0 1.3% 7% 93 65 2

20 20 21 PFIZER 1.8 1.1% 16% 100 10 1

Source: VPA & VHA25

Market share: Top 20 Corporate -Pharmacy



2 2 2 NOVARTIS 9.0 3.3% 0% 86 80 7

3 3 4 BMS 8.7 3.2% 10% 94 79 5

4 4 3 SANOFI 7.9 2.9% 13% 97 75 4

5 5 5 SERVIER 7.7 2.8% 41% 121 64 1

6 6 6 ROCHE 6.3 2.3% 18% 101 19 2

7 7 7 AVENTIS 6.1 2.3% 6% 91 82 4

8 8 8 J&J 6.0 2.2% 15% 99 30 4

9 9 9 UNITED PHARMA 5.9 2.2% 17% 101 100 3

10 10 11 IC VIETNAM 5.2 1.9% -4% 82 54 1

11 11 10 BOEH. INGEL. 4.7 1.7% 11% 96 25 1

12 12 12 PFIZER 4.5 1.7% 18% 101 15 1

13 13 13 HG PHARM 4.5 1.6% 14% 98 391 13

14 14 15 ORGANON 4.0 1.5% 10% 95 26 1

15 15 16 IPSEN 3.7 1.4% -2% 84 20 1

16 16 17 FOURNIER 3.6 1.3% 48% 127 43 1

17 17 14 DOMESCO 3.6 1.3% 48% 127 151 3

18 18 18 MERCK KGAA 3.6 1.3% 31% 112 32 1

19 19 20 DR. E.BOUCHARA 3.4 1.2% 10% 94 19 1

20 20 19 STADA 3.3 1.2% 65% 142 73 2

Source: VPA & VHA26

Market share: Top 20 Corporate -Hospital


1 1 1 GLAXOSMITHKLINE 6.4 5.6% 9% 87 9 0.9

2 2 2 BMS 5.4 4.7% 30% 104 9 1.0

3 3 4 PFIZER 4.1 3.6% 45% 116 5 0.7

4 4 3 AVENTIS 4.0 3.4% 43% 114 9 0.6

5 5 5 ASTRA ZENECA 3.5 3.0% 29% 103 5 0.3

6 6 6 EBEWE 3.3 2.8% 68% 134 2 0.5

7 7 8 NOVARTIS 3.1 2.7% -1% 79 6 0.8

8 8 9 B.BRAUN 2.9 2.5% -13% 69 4 4.0

9 9 7 FOURNIER 2.8 2.4% 43% 114 8 0.6

10 10 10 SANOFI 2.4 2.1% 35% 108 22 0.8

11 11 12 ROCHE 2.4 2.1% 40% 112 3 0.3

12 12 11 SERVIER 2.2 1.9% 50% 119 17 0.4

13 13 13 SHIN POONG 1.8 1.5% 42% 113 4 0.2

14 14 17 MSD 1.5 1.3% 33% 106 1 0.1

15 15 26 ELI LILLY 1.4 1.2% -12% 70 1 0.1

16 16 15 J&J 1.4 1.2% 16% 92 5 0.4

17 17 21 ABBOTT 1.4 1.2% 37% 109 0 0.1

18 18 14 MERCK KGAA 1.3 1.1% 28% 102 10 0.3

19 19 20 CIECH - POLFA 1.3 1.1% 34% 106 1 0.4

20 20 19 RANBAXY 1.2 1.1% 22% 97 2 0

Source: VPA & VHA27

Market summary• pharmaceutical market is underdeveloped and suffers from poor

regulatory and intellectual property (IP) standards• Low-cost, locally produced generics - as well as counterfeit

products - account for a sizeable proportion of drug consumptiondue to low consumer purchasing power and an under-fundedhealthcare system.

• patients are responsible for financing much of their medical needs• pharmaceutical consumption represents only 1.56% of Vietnam’s

GDP (1.18% in 2012).

• The country’s pharmaceutical is estimated at US$1.1bn in 2007and US$2bn in 2012

• Prescription medicines will remain dominant, with the biggestfocus on drugs for the treatment of infectious and chronicdiseases

• Market figures will remain distorted by the lack of a distinctionmade between prescription and OTC drugs, with most medicinesavailable without a prescription


Key growth factors -Distribution

• Vietnamese pharmaceutical distribution channels are divided intotwo main channels: treatment and commercial, with a ratio of37:63. Bidding and selling through hospitals is considered a

treatment channel, while selling through distribution centers andpharmacies is considered a commercial channel.

• Currently, some firms are building up their distribution systemsthrough establishing distribution centers, pharmacies and throughco-operation with regional pharmaceutical firms. Somecompanies, moreover, also try to penetrate hospital precinctsthrough bidding. However, the profit margin in this channel is nothigh because the bidding prices are, in most case, much cheaperthan market prices.

• In the future, the distribution system within the industry will bethe key competitive factor. Those companies that can establishand manage their distribution systems effectively will be thosewho lead the market.


Key growth factors -Macroeconomics

• remains an attractive outsourcingdestination for many Japanese, South

Korean and Taiwanese firms seeking tomaintain their cost competitiveness vis-à-vis emerging Chinese rivals. The interest inVietnam is still strong among foreign groups– such as banks and retailers - looking toget an early foothold on the emergingVietnamese consumer market. This will laythe ground for a continued rapid economicexpansion over 2012-2017, as Vietnamtakes its place on the regional stage


Key growth factors -Macroeconomics

Why to invest in VietnamPharmaceutical companies

• High growth rate 16-17%• High population and high birth rate

• Products are essential given any crisis• Local pharmaceutical companies

performance in 2008 exceeds yearly target• Sustainable EPS growth >< other industry

• Entry barrier is high => Profit margin ishigh

• Low Corporate income tax (20%)• Restriction to foreign pharmaceuticalcompanies


Thank you

• If you would like in-depth analysis, pleasecontact me by email or call +84 9 14 29 39 79


Reference

• www.imshealth.com

• www.gso.gov.vn

• www.businessmonitor.com.vn

• www.who.org

• www.tuoitre.com.vn

• www.thanhnien.com.vn

• www.vneconomy.vn


vietnam pharmaceutical industry and investment strategy 1231830677620902 2

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