Vietnam’s pharmaceutical industry is registering significant growth (14.9% CAGR from 2015 to 2020). Most domestic suppliers lack sufficient resources such as R&D infrastructure, manufacturing capacity, and capital to fully exploit the market. Consequently, originator products comprise less than 4% of the market share. In contrast, nonprescription products comprise about 70% of the market, with branded and unbranded generics comprising the remaining 26%. This places Vietnam below its ASEAN counterparts, such as Thailand (with 8% originators) and Singapore (14%), regarding access to innovative medicines. This article explores the opportunities and challenges global players face to leverage their capabilities and establish themselves in the high-margin innovative and branded drugs market.
Opportunities in Vietnam’s pharmaceutical industry
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Large Market Size
Vietnam boasts a substantial market size, owing to its population exceeding 98 million, with an average life expectancy of ~76 years. Approximately 30% (30 million) of the population has the financial means to access expensive Western medicine.
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Rising Health Insurance, Urbanization, and Diseased Population
The population percentage with health insurance skyrocketed to 90% in 2020, up from 60% a decade ago. Vietnam’s urbanization rate was 37% in 2020, and the urban population was at approximately 36.6 million. Noncommunicable diseases were responsible for 81% of disease-related deaths in Vietnam in 2019, as reported by the WHO. The primary causes of death in the country in 2019 included stroke, ischemic heart disease, diabetes, chronic obstructive pulmonary disease, and lung cancer. Vietnam ranks among the top ten countries with the highest burden of tuberculosis.
Read more: Pharmaceutical Market Size & Companies in Malaysia
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Low-cost Manufacturing and Lack of Local Competition
Unlike Chinese and Indian markets, local competition for innovative and complex drugs is not a threat, as most domestic manufacturers are small with limited capital, low R&D resources, and GMP non-compliant with underdeveloped supply chains. Our research shows that before purchasing by the end user, there are at least three distribution layers with multiple players, resulting in high prices and low quality. The top three largest wholesalers, accounting for ~40% of the wholesaling and distribution market share, are foreign owned, such as Zuellig Pharma (Swiss), Diethelm (Singapore), and Mega Products (Thai).
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Underdeveloped Industry
According to the General Statistics Office (GSO), Vietnam’s domestic production capacity can only meet 53% of demand. Moreover, the country’s capabilities are limited to simple generic medicines and dosage forms. In 2018, Vietnam spent a total of US$ 2.8 billion to import pharmaceuticals, and in 2021, that number skyrocketed to US$ 4 billion. This represents a large opportunity for global players with expertise in R&D.
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Free Trade Agreement & Investment Protection Agreement (EVFTA)
Owing to the EVFTA agreements between Vietnam and the European Union (EU) in 2020, Vietnam will eliminate tariffs on pharmaceutical products manufactured in the EU. This is a major boost for EU pharmaceutical companies, which can enter Vietnam at a lower price than before, resulting in a level playing field.
Challenges in Vietnam’s Pharmaceutical Industry
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Over-the-Counter Nature of the Market
According to the EU-Vietnam Business Network (EVBN), 80% of Vietnamese purchase drugs from private pharmacies and self-medicate. Consumers value brands that are known to them and purchase drugs without a prescription.
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Long Approval Time and Bias Against Global Firms
It takes nearly five years for a drug to enter the Vietnamese market after development. This duration includes around two & a half years dedicated to clinical trials and an additional two & a half years for government approval. However, the latest trends indicate that the approval process is extending further due to a significant backlog at the Vietnam National Office of Intellectual Property (NOIP).
FDI logistic companies and foreign pharmaceutical firms are not permitted to distribute pharmaceutical products directly and are required to sell their products to domestic pharmaceutical distributors.
Read more: Supply Chain in the Pharmaceutical Industry
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Regional Differences
Global companies entering the market need to consider two significant marketing efforts: one for targeting the northern part of Vietnam (which has a higher concentration of government offices as well as regulatory agencies) and the second for the south (which is the dominant industry hub). Vietnam also has a spatial difference in incidence rates of many diseases due to geography, which needs to be considered. There is a large variation in poverty and urbanization in Vietnam, as can be seen in the following figure.
The two markets differ in terms of consumer behavior and preferences. Southern Vietnam contributes nearly 50% of Vietnam’s GDP despite having a third of Vietnam’s population. The income gap for urban and rural households is also wider in the North. The North is conservative, with word of mouth being the most credible source of information. In contrast, the urban areas and South enjoy higher internet connectivity, resulting in greater opportunities for online communication. The incidence of diseases also shows large variations due to the elevation and climate patterns.
The Right Strategy
Global pharmaceutical companies can garner a significant share of the lucrative innovative drugs market with the right strategy, investments, and expertise. Most developing countries have leveraged the self-funded growth model. The self-funded model emphasizes technology transfer and government support to local industry through financial and legal incentives. China and India serve as glaring examples of this strategy. However, the self-funded model suffers from inefficiencies and a slow growth rate. An alternative is the FDI growth model exemplified by Ireland and South Africa. The self-funded model emphasizes a level playing field and investment in education and intellectual property rights. History has demonstrated that most countries, including Vietnam, are moving toward a mix of self-funded and FDI growth models. Hence, we propose a few strategies that can be leveraged by global players in the Vietnamese market.
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Collaboration with Local Partner
An effective approach to entering and establishing a presence in Vietnam involves partnering with a local entity that has strong connections to pharmaceutical distributors. This strategy not only helps navigate challenges related to advertising restrictions in Vietnam but also enhances brand awareness through established networks.
Read more: Digital Transformation in Pharmaceutical Industry
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Appointing an Agent or Distributor
Vietnam is a challenging market for new exporters or companies lacking a robust export department or business development unit. The regulations governing marketing activities differ between Vietnam subsidiaries and representative offices. Appointing an agent or distributor will most likely alleviate these challenges.
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Mergers & Acquisitions
The government is seeking to divest companies such as Binh Dinh Pharmaceuticals, Coulomb Pharmaceuticals, Trafaco, Duoc Khoa Pharmaceuticals, Ge An Pharmaceuticals, and the Vietnam Pharmaceutical Corporation. A few instances of international companies acquiring Vietnamese pharmaceutical firms include Japan’s Taisho Pharmaceutical acquiring Hausan Pharmaceutical, US-based Abbott acquiring Domesco, Japan’s Asuka Pharmaceutical acquiring Ha Tay Pharmaceutical, and Germany’s Stada acquiring Pimefalco.
The Focus Needs to be on the Following
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Unmet needs of the Vietnamese population
There are multiple disease areas that are underserved, such as cardiovascular, cancer, and immune system disorders, which can be tapped into. Vietnamese have limited options with respect to low-cost generics and innovative and branded drugs.
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Leveraging expertise in complex, innovative drugs and dosage form manufacturing
The global players should avoid a head-on strategy against the local players in low-margin, simple generic drugs. They are better off developing moats by leveraging their expertise, such as innovative complex drugs, dosage form manufacturing, and intellectual property rights, to position themselves in high-margin products.
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Import and traditional medicine substitution
The global players need to engage in the local manufacturing of pharmaceuticals rather than relying on importation, which is also in line with the policies of the Vietnamese government. Furthermore, the high cost of importation will deter the objective of faster market share growth. A sizable section of Vietnamese uses traditional medicine for indications where better alternatives in the forms of modern medicine is available. Substituting this traditional medicine with modern drugs will most likely aid global players in gaining large dividends.
Read more: OmniChannel Analytics in Pharmaceutical Industry
Conclusion - Pharmaceutical Market Size in Vietnam
We expect a large gain in market share for innovative and ethical drugs as Vietnam continues to align more with common practices in the developed markets regarding quality and pricing. We also expect Vietnam’s regulatory bodies to strengthen the drug distribution process, which will favor ethical drug distribution and increase healthcare expenditure. Vietnam looks like a promising country for large global players, with a focused strategy to gain the maximum as Vietnam opens itself to the world.
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