Vietnam is among the highest growing markets in Asia for pharmaceutical products during 2011–2015 and the country is expected to keep the pace for the next 20 years.
State of Development of the Domestic Production
According to some reports, the pharmaceutical industry in Vietnam has reached an intermediate level of international integration resulting in the development of a domestic pharmaceutical industry that is specialized in manufacturing generics and exporting non sophisticated pharmaceutical products to other countries. However, it should be noted that so far the domestic industry mainly produces drugs out of imported raw materials while the value-added of exports is very small in comparison to the inputs imported for production.
The value of drugs produced in Vietnam accounted for 0.72% of GDP in 2014 and only 2.18% of national industrial revenues. It is forecasted that the pharmaceutical industry will expand at 15.5% in the next 5 years, contributing to 2.2% GDP in 2017.
In 2015, the domestic industry supplied up to 50% of the domestic demand while imports covered the remaining half, not yet counting values of input materials and active ingredients. In this regards, approximately 60% of pharmaceutical end products, 90% of active pharmaceutical ingredients, and most raw materials for the production of pharmaceuticals are currently imported. On the other side, foreign enterprises are responsible for an estimated 20% of the domestic pharmaceutical production.
In 2015, the distribution system consisted of 1200 companies (both domestic and foreign manufacturers); 1180 public health hospitals; 170 private hospitals (mainly located in the big cities) and 54,250 retail drug stores. Foreign Direct Investment logistic companies and foreign pharmaceutical companies are not permitted to distribute pharmaceutical products directly in Vietnam.
Imports and Exports
Focusing on the evolution of the sectorial trade flow, the total pharmaceutical imports reached 1.8 billion USD in 2013, after an average growth of about 18% during the interval 2008–2013. On the other side, the export volumes still appear to be small since domestic firms can only produce conventional drugs for which international supply is abundant and highly competitive.
Exports of Vietnamese pharmaceutical products are still low in value (about 100 million USD in 2014) but show a remarkable growing trend.
Import Volume of Drugs in 2005–2016
Exports Volume of Drugs in 2001–2014
In this context, Vietnamese drug manufacturers seem to target less-advanced and competitive markets to benefit fromlow barriers to entry. South East Asian countries such as Laos and Cambodia are preferred targets, while African states are growing in terms of market quotas. Meanwhile, the Middle East and the ex-Commonwealth of Independent States (CIS) are both being considered as potential future customers for Vietnamese-made pharmaceuticals.
Based on these trends, Vietnam seems to assume a dependent position in the international division of labor as it basically imports raw materials and high value-added inputs from internationally competitive regional players, such as Japan, South Korea, Malaysia, Thailand and China and exports low value-added pharmaceuticals to less advanced markets (according to UN Comtrade Database 2017). This dynamic results in increasing sectorial deficits that are likely to expand further given the lacking capability of the internal production to address the domestic demand.
Agents, Dynamics and Governance in the Vietnamese Pharmaceutical Sector
Similar to other sectors, the pharmaceutical industry in Vietnam is structured in a mix of both public, private and foreign agents. In 2015, the industry counted 170 firms, including 20 joint-venture foreign-invested firms, with the largest one controlling less than 5% of the market. To operate in the market, local manufacturers have to comply with the code of Good Manufacturing Practice (GMP), importers with Good Storage Practice (GSP), distributors with Good Storage Practice (GSP) and Good Distribution Practice (GDP) and retailers with Good Pharmacy Practice (GPP) (see Table 1).
Table 1. Number of pharmaceutical establishments by type, 2010–2014.
Although the largest former State-Owned Enterprises (SOEs) have been equitized, they continue to prosper on the basis of close relationships with distributors and hospitals in their areas. Procurement is largely managed by individual hospitals, and bidding is open to corruption, with allegations of high markups for producers making payments to hospital administrators. Most local pharmaceutical manufacturers comprise small-scale operations with outdated manufacturing technology and duplicated production processes. As a result of this, local producers massively rely on imports. For example, in 2013 the total turnover of the 9 biggest domestic pharmaceutical firms was about 450 million USD, equal to 25% of total imported drugs (see Table 2).
Foreign pharmaceutical companies are not allowed to directly distribute on the market, so they must sell their products to domestic pharmaceutical distributors. Typically, foreign investors enter the domestic pharmaceutical market by establishing a joint-venture company with a local partner or as a wholly foreign-owned enterprise (WFOE) to import and sell their pharmaceutical products to a licensed domestic distributor in Vietnam.
Table 2. List of biggest domestic pharmaceutical firms.
At the same time, some foreign-owned companies active in the wholesale sector have managed to control a vast segment of the market, particularly regarding the imported drugs. Through their large brand portfolios, they have become key players in the supply-chain (Diethelm Vietnam, Zuellig Pharma Vietnam, Mega Lifesciences).
Product registration is under the responsibility of the Drug Administration of Vietnam and requires long local trials as it is conducted case by case, with the regulator retaining considerable discretion. Under these conditions, genuinely private and foreign firms are disadvantaged in market access, enabling small producers of generic drugs to survive in what on the surface looks like a highly competitive market.
Before being sold in Vietnam, a drug must be registered to the MoH with a declared price set by the registrant company. The Ministry issues a marketing authorization, usually valid for 5 years, after which the product must be re-registered. The MoH can allow medicines without a registration number to be marketed on a case-by-case basis, to avoid shortage of medicines. By law, within 6 months from the date of receipt of a complete and legitimate registration applications, the MoH shall issue medicine-marketing authorization for the medicine.
Newly developed drugs may take around 5 years to enter Vietnam; this includes clinical trials of 2.5 years, and then the same time for the approval procedure. In principle, existing drug registration takes maximum 6 months, and is valid for 3–5 years. In practice, it can be anything between 12 and 24 months. The firms also have to reapply for the license at least 6 months prior to the registration expiration date. Yet, the process of renewal can take up to 8–12 months.