Feb 1. 2008: Vietnam, the fourth most populous country in the Far East Asia, entered the World Trade Organization (WTO) in early 2007. Its entry is now helping the development of the domestic pharmaceutical industry that has traditionally been regarded as high risk and disorganized, due to considerable counterfeit activity and a substandard intellectual property (IP) regime. However, this is now changing as the industry now needs to improve its production standards as MNC entry in the market intensifies competition.

Dr Le Van Truyen, Senior Pharmaceutical Counselor and Director of Savipharm, Ho Chi Minh, Vietnam said, “Being a part of WTO, Vietnam will continually improve the business environment, the transparency in policy and legal framework. The entry to WTO will also help build economic relations with other country members of WTO. At the same time, it will help remove the legal, economic and technical barriers.”

With the entry of MNCs, local pharma companies in Vietnam have seen sales erode with better quality, imported drugs occupying shelf space. This means some Vietnamese pharma companies will have to struggle to survive.

Industry scenario
Buoyed by the market potential and a favorable market scenario, the number of foreign pharmaceutical companies operating in Vietnam has increased, as the local companies are still dependent on the imported materials. According to the Vietnam Drug Administration there are around 800 pharmaceutical companies currently operating in the country.

The number of MNCs ballooned by 58 over last year, bringing the total number to 370, according to the Vietnam Pharmaceutical Management Bureau. Most of these companies are small or medium enterprises and mostly from Asian region. India tops the list with 81 companies, followed by Korea and China. Indian and Korean-made medicines make up 58 percent of Vietnam’s total imports. These two countries also lead the list of imported medicines by nationality that had been taken out from the market for quality violations, with 19 medicines pulled from the market.

According to industry reports, Vietnam imports medicines such as anti-bacterial agents, and many firms are registered to import these medicines. The imported medicines play an important role in preventing and treating diseases as well as providing raw materials for the local industry, in the country. The specific drugs are still rare and come mainly from France, Germany and Switzerland.

“Vietnam imports both finished products and pharmaceutical raw materials. Imported drugs include patented medicines, Traditional Chinese Medicine and some high quality generics. The pharmaceuticals import value is on the rise and accounts for 50 percent of the total drug consumption annually (2005),” informed Dr Truyen.

However, it is not just the number of foreign companies that is rising in the country, local companies are also on the growth path. Vietnam has 180 pharmaceutical factories, 75 of which meet Good Manufacturing Practices (GMP) standards, 25 of which are foreign-invested. It is expected that local pharmaceutical production will earn about $560 million in 2007, up 18 percent from 2006 and catering to just over half of domestic demand. Of the $560 million in pharmaceuticals production, about $160.3 million was spent on importing raw materials, up 23 percent from 2006. High levels of imported inputs have contributed significantly to inflation in domestically produced pharmaceutical prices in 2007.

To ease the problem, the government of Vietnam has taken many new initiatives. Under the current Vietnamese laws foreign pharmaceutical companies are not allowed to directly do business in either the whole or retail sale of drugs. However, the Ministry of Health has encouraged them to co-operate and share their experiences and knowledge with the ministry and local pharmaceutical companies, particularly in the field of personnel training.

The Ministry of Health is also encouraging foreign firms’ collaboration with local pharmaceutical companies in joint ventures to build more factories, transfer technology and promote franchising. The ministry also plans to more intensively inspect the quality of medicines on the market and finish the construction of a national network of retailers by 2010.

Government initiatives
In order to provide better service, the Ministry of Health plans to introduce the Good Pharmaceutical Practice standards to drug stores nationwide. The Vietnamese government is investing in the health sector and has recently announced a scheme expanding the healthcare network throughout the country. This will include the establishment of hospitals in more remote areas as well as investment in drug production.

The Prime Minister of Vietnam Mr Nguyen Tan Dung, has approved a new pharmaceutical production plan in first half of 2007 that will allow the country to become less dependent on foreign drug manufacturers. The Project, entitled “Development of Drug Industry and Medical Supply Model” in Vietnam for 2007-2015, will further expand its pharmaceutical production system, thus gradually meeting the nation’s basic demands, namely 70 percent of the drug market by 2015 and 80 percent by 2020.

The government is keen to attract foreign investment in the pharmaceutical industry to produce much-needed medicines, such as antibiotics. The foreign investment has been on the rise in the sector. In December 2005, 100 foreign enterprises had received licences for medical equipment and pharmaceutical investment, with the total proposed capital investment reaching $800 million. Most interest was received from firms based in South Korea, followed by the United Kingdom and France. The approval of a patent for Pfizer’s erectile dysfunction treatment Viagra (sildenafil Citrate) in May 2006 was an encouraging signal, and has attracted more foreign research-based firms.

About 370 foreign enterprises—mainly from China, Japan, South Korea, France and Thailand—have invested in the Vietnamese pharmaceutical industry. There are currently 46 projects underway, worth some $111.6 million.

According to Dr Truyen, as far as bottlenecks are concerned, on one side the range of drugs on offer was limited and there was a shortage of cutting-edge medicines while on the other side, Vietnam’s regulations on registering and testing new drugs, which are incompatible with international regulations, hampered investment in the pharmaceutical industry to some extent.

Talking about foreign direct investment in pharmaceutical industry, Dr Truyen said, “35 projects with a total capital of $240 million have been invested in the pharmaceutical industry (by September 2005) and 33 of which operate in manufacturing and the two other in providing drug distribution services—Diethelm and Zuellig Pharma. The turnover of FDI pharmaceutical companies is about 16.2 percent of the Vietnam’s total pharmaceutical turnover.”

Opportunity
The Vietnamese pharmaceutical market has significant growth potential, due to a sizeable population and a low per capita medicines spending of less than $10 per year.

Sharing his views on the future growth of the pharmaceutical market, Dr Truyen elaborated, “The disease pattern of Vietnam is more like the disease pattern in industrializing countries (cardiovascular, metabolic diseases, environmental pollution, immune diseases, cancer, mental diseases among others).

To develop the pharmaceutical industry, the government has to modernize the industry and to implement Good Practices in pharmaceutical sector, build up the industry of pharmaco-chemicals, antibiotics and active substances from medicinal plants, supply sufficiently essential drugs for healthcare and promote  rational and safe drug use.”

According to the Vietnam Pharmaceutical Companies Association, the pharmaceutical industry is growing at an annual rate of 14-15 percent. The per capita spending for medicine is also rising by 10-12 percent every year and is expected to reach 15 percent by 2010. This means Vietnam’s medicine market will be worth an estimated $2.25-2.4 billion by 2015 and $3.5 billion by 2020.

Considering this growth the pharmaceutical market is expected to top $1.15 billion, by 2011 up from an estimated $882 million in 2006. Prescription medicines will remain the dominant force in the market, given the undeveloped nature of the primary care network, secondary sector modernization, potential privatization of facilities, and the improved IP regulations. In the meantime, rising pressure on healthcare resources will necessitate an increased focus on the use of generics, although the government will be pushed to reduce the use of unauthorized versions of such products. The increase in the foreign investment in the pharmaceutical industry and Vietnam’s entry into WTO, government initiatives to support the industry, announcement of the new project by the Prime Minister will act as a catalyst to boost the growth of the Vietnam pharmaceutical industry in the coming years.