Nevertheless, our forecast for GDP-beating drug market growth underlines our view that there is considerable scope for increased pharmaceutical consumption in a country where per capita
Trang 1Q2 2014 www.businessmonitor.com
VIETNAM
PHARMACEUTICALS & HEALTHCARE REPORT
INCLUDES 10-YEAR FORECASTS TO 2023
Trang 2Healthcare Report Q2 2014
INCLUDES 10-YEAR FORECASTS TO 2023
Part of BMI’s Industry Report & Forecasts Series
Published by: Business Monitor International
Copy deadline: March 2014
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Trang 4BMI Industry View 7
SWOT 9
Political 11
Economic 12
Business Environment 13
Industry Forecast 14
Pharmaceutical Market Forecast 14
Table: Pharmaceutical Sales Indicators, 2010-2018 15
Healthcare Market Forecast 16
Table: Healthcare Expenditure Indicators, 2010-2018 19
Table: Healthcare Governmental Indicators, 2010-2018 20
Table: Healthcare Private Indicators, 2010-2018 20
Prescription Drug Market Forecast 21
Table: Prescription Drug Sales Indicators, 2010-2018 23
Patented Drug Market Forecast 24
Table: Patented Drug Market Indicators, 2010-2018 25
Generic Drug Market Forecast 26
Table: Generic Drug Sales Indicators, 2010-2018 27
OTC Medicine Market Forecast 28
Table: OTC Medicine Sales Indicators, 2010-2018 30
Pharmaceutical Trade Forecast 31
Table: Vietnam Pharmaceutical Trade Data And Forecasts (US$mn) 32
Table: Vietnam Pharmaceutical Trade Data And Forecasts (VNDmn) 33
Other Healthcare Data 33
Key Risks To BMI's Forecast Scenario 34
Macroeconomic Forecasts 36
Economic Analysis 36
Table: Vietnam - Economic Activity 39
Industry Risk Reward Ratings 40
Asia Risk/Reward Ratings 40
Vietnam Risk/Reward Ratings 46
Rewards 46
Risks 46
Market Overview 48
Industry Trends And Developments 50
Epidemiology 50
Trang 5Healthcare Financing 52
Hospital Sector 54
Private Healthcare Sector 56
Healthcare Insurance 57
Healthcare And Pharmaceutical Reform 59
Research And Development 61
Biotechnology Sector 63
Clinical Trials 66
Regulatory Development 69
Regulatory Regime 69
Pharmaceutical Advertising 70
Intellectual Property Environment 71
Corruption 74
Pricing Regime 75
Reimbursement Regime 79
Pricing And Reimbursement Developments 81
Competitive Landscape 83
Pharmaceutical Sector 83
Domestic Industry 84
Foreign Industry 87
Traditional Medicines 89
Pharmaceutical Distribution 90
Pharmaceutical Retail Sector 91
Table: Key Aspects Of Good Pharmacy Practice In Developing Countries 92
Company Profile 93
DHG Pharmaceutical 93
Traphaco Pharmaceutical 95
Vietnam Pharmaceutical Corporation (Vinapharm) 97
Vietnam OPV Pharmaceutical Co 100
Vietnam Pharmaceutical Joint Stock Company (Ampharco) 102
Vidipha Central Pharmaceutical Joint Stock Company 105
Pfizer 107
Sanofi 109
Novartis 113
Merck & Co 115
GlaxoSmithKline 117
Demographic Forecast 119
Table: Vietnam's Population By Age Group, 1990-2020 ('000) 120
Table: Vietnam's Population By Age Group, 1990-2020 (% of total) 121
Table: Vietnam's Key Population Ratios, 1990-2020 122
Table: Vietnam's Rural And Urban Population, 1990-2020 122
Trang 6Glossary 123
Methodology 125
Pharmaceutical Expenditure Forecast Model 125
Healthcare Expenditure Forecast Model 125
Notes On Methodology 126
Risk/Reward Ratings Methodology 127
Ratings Overview 128
Table: Pharmaceutical Risk/Reward Ratings Indicators 128
Indicator Weightings 129
Trang 7BMI Industry View
BMI View: Vietnam's reliance on imported drugs (both generic and patented) will continue to
provide ample commercial opportunities for foreign drugmakers However, the population's concerns over
drug quality means that only companies with relatively positive branding are likely to succeed in theVietnamese pharmaceutical market In addition, downside risks for foreign generic
drug manufacturers include free trade agreements and the government's aim to promote locally produced
drugs
Headline Expenditure Projections
■ Pharmaceuticals: VND69,297bn (US$3.30bn) in 2013 to VND80,680bn (US$3.92bn) in 2014; +16.4%
in local currency terms and +19.1% in US dollar terms
■ Healthcare: VND230,140bn (US$10.94bn) in 2013 to VND263,931bn (US$12.8bn) in 2014; +14.7 in
local currency terms and +17.3% in US dollar terms
Risk/Reward Rating: Vietnam's Pharmaceutical Risk/Reward Rating (RRR) score for Q214 is 49.1 out of
the maximum 100 in our newly improved RRR system The country scored above average for some
indicators and sub-indicators, including overall market expenditure and sector value growth, pensionablepopulation Consequently, with this moderate score Vietnam continues ranked 11th behind Thailand out ofthe 19 key markets in Asia Pacific
Key Trends And Developments
■ In March 2014, Vietnam's Health Minister Nguyen Thi Kim Tien proposed several changes to improvepayment policies and reduce violations in the healthcare sector The health ministry will proposesolutions such as setting up new criteria for starting salaries and adding seniority allowances, Tien stated.Doctors' starting wages need to be higher than those of other agencies due to the training costs involved,Tien added The ministry will also try to reduce hospital overloads to cut down working hours andpressures on doctors The service fees will be recalculated as the government only provides insurance tofamilies living in poverty, near-poverty or other special cases, Tien added The ministry also intends toimprove allowance policies for medical staff and doctors at centres in rural areas
■ In January 2014, US-based Mentholatum Company initiated a voluntary recall of Rohto Arctic, RohtoIce, Rohto Hydra, Rohto Relief and Rohto Cool eye drops The recall was initiated due to a
manufacturing review at its production facility in Vietnam concerning sterility controls The recallincludes only products manufactured in Vietnam
■ In the same month, Vietnam's Deputy Prime Minister Vu Duc Dam held on online meeting in earlyJanuary focussing on the implementation of anti-disease programmes in Hanoi, Vietnam, in 2014 Thecountry's Agriculture and Rural Development Ministry, Health Ministry and associated agencies attendedthe meeting According to the prime minister, the ministries should not be lax in implementing diseaseprevention programmes and need to conduct ongoing programmes to raise awareness of differentdiseases
Trang 8BMI Economic View: We forecast that Vietnam's fiscal deficit will narrow over the forecast period to less
than 1% of GDP in 2018 from 4.7% in 2013 The improvement in the government's fiscal accounts willcome on the back of both higher revenue growth as well as a more tempered expenditure outlook That said,
we see risks to these forecasts on the back of potential for the government to have to absorb liabilities fromthe banking sector
BMI Political View: Vietnam's biggest political question over the coming decade is whether one-party rule
under the Communist Party of Vietnam (CPV) will face growing calls for democratisation, as was the case
in other major South East Asian countries While our core scenario envisages the CPV transforming itself into a technocratic administration, it faces major economic challenges which if mismanaged could lead to widespread unrest On the foreign policy front, we expect an increasingly powerful China to drive Vietnam further into the camp of Asian nations with close relations with the US
Trang 9SWOT Analysis
Strengths ■ Significant growth potential, given a large and growing population
■ The government's commitment to developing the health sector
■ Sizeable local generic drugs sector, which is being encouraged by the government
■ Strong traditional medicines segment with potential to improve the non-prescriptiondrugs market in the longer term, as long as sufficient investment in extractiontechnologies can be found
Weaknesses ■ One of the least developed pharmaceutical markets in Asia, with low per capita
spending on drugs
■ Counterfeit drugs account for a significant amount of market consumption
■ No bioequivalence requirement in place for locally made generic medicines
■ Little distinction made between prescription and over-the-counter drugs, with mostmedicines available without a prescription
■ Complex drug pricing policy biased towards local drug producers
■ Import-reliant market, especially in terms of high-tech products and activepharmaceutical ingredients, which makes it vulnerable to currency movements
■ Underdeveloped primary care services and a shortage of trained pharmacists arecontinuing to hamper access to medicines and product market penetration
■ Population concentrated in rural, rather than urban, areas, preventing access tomodern drugs and encouraging dependence upon traditional medicines
Opportunities ■ The Association of South East Asian Nations (ASEAN) harmonisation initiative,
including the adoption of Western regulatory standards such as InternationalConference on Harmonisation and World Health Organization guidelines
Trang 10SWOT Analysis - Continued
■ Introduction of five-year exclusivity for clinical dossier data encouraging based multinationals
research-■ If investment can be found for technological improvements, then there is greatpotential in the traditional Chinese medicine market, in addition to fledgingbiotechnology
■ Full WTO membership improving the trading climate and potentially, in the longerterm, redressing pharmaceutical trade issues
■ Requirement for domestic companies to comply with international goodmanufacturing practices should boost exports
Threats ■ Government resistance to aligning patent law fully with international standards
deterring multinational sector expansion
■ Need to resolve infrastructural and power supply issues, as well as higher educationprovision, before higher levels of foreign direct investment can be expected
■ The government is increasingly interfering in the industry, protecting indigenous firmsthrough the use of legal trade barriers, which will affect competitiveness
■ Pharmaceutical price inflation threatens to put medicines out of reach of poor andtherefore limit market volume growth
■ Legalisation of parallel imports negatively impacting performance of patented drugs
Trang 11SWOT Analysis
Strengths ■ The Communist Party of Vietnam remains committed to market-oriented reforms and
we do not expect major shifts in policy direction over the next five years The party system is generally conducive to short-term political stability
one-■ Relations with the US have witnessed a marked improvement, and Washington seesHanoi as a potential geopolitical ally in South East Asia
Weaknesses ■ Corruption among government officials poses a major threat to the legitimacy of the
ruling Communist Party
■ There is increasing (albeit still limited) public dissatisfaction with the leadership's tightcontrol over political dissent
Opportunities ■ The government recognises the threat corruption poses to its legitimacy, and has
acted to clamp down on graft among party officials
■ Vietnam has allowed legislators to become more vocal in criticising governmentpolicies This is opening up opportunities for more checks and balances within theone-party system
Threats ■ Macroeconomic instabilities continue to weigh on public acceptance of the one-party
system, and street demonstrations to protest economic conditions could develop into
a full-on challenge of undemocractic rule
■ Although strong domestic control will ensure little change to Vietnam's political scene
in the next few years, over the longer term, the one-party-state will probably beunsustainable
■ Relations with China have deteriorated over recent years due to Beijing's moreassertive stance over disputed islands in the South China Sea and domestic criticism
of a large Chinese investment into a bauxite mining project in the central highlands,which could potentially cause wide-scale environmental damage
Trang 12SWOT Analysis
Strengths ■ Vietnam has been one of the fastest-growing economies in Asia in recent years, with
GDP growth averaging 7.1% annually between 2000 and 2012
■ The economic boom has lifted many Vietnamese out of poverty, with the officialpoverty rate in the country falling from 58% in 1993 to 20.7% in 2012
Weaknesses ■ Vietnam still suffers from substantial trade and fiscal deficits, leaving the economy
vulnerable to global economic uncertainties The fiscal deficit is dominated bysubstantial spending on social subsidies that could be difficult to withdraw
■ The heavily-managed and weak currency reduces incentives to improve quality ofexports, and also keeps import costs high, contributing to inflationary pressures
Opportunities ■ WTO membership and the upcoming ASEAN AEC in 2015 should give Vietnam
greater access to both foreign markets and capital, while making Vietnameseenterprises stronger through increased competition
■ The government will in spite of the current macroeconomic woes, continue to moveforward with market reforms, including privatisation of state-owned enterprises, andliberalising the banking sector
■ Urbanisation will continue to be a long-term growth driver The UN forecasts theurban population rising from 29% of the population to more than 50% by the early2040s
Threats ■ Inflation and deficit concerns have caused some investors to re-assess their hitherto
upbeat view of Vietnam If the government focuses too much on stimulating growthand fails to root out inflationary pressure, it risks prolonging macroeconomicinstability, which could lead to a potential crisis
■ Prolonged macroeconomic instability could prompt the authorities to put reforms onhold as they struggle to stabilise the economy
Trang 13Business Environment
SWOT Analysis
Strengths ■ Vietnam has a large, skilled and low-cost workforce, which has made the country
attractive to foreign investors
■ Vietnam's location - its proximity to China and South East Asia, and its good sea links
- makes it a good base for foreign companies to export to the rest of Asia, andbeyond
Weaknesses ■ Vietnam's infrastructure is still weak Roads, railways and ports are inadequate to
cope with the country's economic growth and links with the outside world
■ Vietnam remains one of the world's most corrupt countries According toTransparency International's 2012 Corruption Perceptions Index, Vietnam ranks 123out of 176 countries
Opportunities ■ Vietnam is increasingly attracting investment from key Asian economies, such as
Japan, South Korea and Taiwan This offers the possibility of the transfer of high-techskills and know-how
■ Vietnam is pressing ahead with the privatisation of state-owned enterprises and theliberalisation of the banking sector This should offer foreign investors new entrypoints
Threats ■ Ongoing trade disputes with the US, and the general threat of American
protectionism, which will remain a concern
■ Labour unrest remains a lingering threat A failure by the authorities to boost skillslevels could leave Vietnam a second-rate economy for an indefinite period
Trang 14Industry Forecast
Pharmaceutical Market Forecast
Vietnam's pharmaceutical market was valued at
VND69,297bn (US$3.30bn) in 2013, a 17.0%
year-on-year increase in local currency terms Over the
forecast period to 2018, BMI expects
pharmaceutical consumption to reach
VND139,832bn (US$7.06bn), equating to a
compound annual growth rate (CAGR) of 15.1% in
local currency and 16.5% in US dollar terms Over
the extended forecast period to 2023, the CAGRs
will be slightly lower, remaining in double digits
Inflation will be a major factor in these high nominal
market growth rates Nevertheless, our forecast for
GDP-beating drug market growth underlines our
view that there is considerable scope for increased
pharmaceutical consumption in a country where per
capita drug expenditure is just US$31.26 This,
combined with an expanding population, higher
levels of health awareness and increased access to
pharmaceuticals, creates a strong base for market growth assuming the required resources are put intohealthcare sector development However, pricing remains a concern, due to a lack of controls and regulatorybias against foreign products
Additionally, some have blamed unscrupulous practices by pharmaceutical companies and prescribers forpharmaceutical expenditure being higher than necessary However, it is not just companies that bribe
Vietnamese healthcare professionals Patients pay doctors and nurses to avoid waiting lists and receiveabove-average care Those on low incomes that cannot afford 'gifts' for staff members have to use
overcrowded facilities and rely on relatives to complement the provision of care
In fact, according to a survey by the Vietnam Union of Science and Technology Associations (VUSTA)published on the VietNamNet Bridge website in September 2009, gifts - which we interpret mostly as cash,but can also be physical goods - accounted for 9% of the cost of a health check-up The research was
Pharmaceutical Market Forecast
2010-2023
Pharmaceutical sales, US$bn (LHS) Pharmaceutical sales at CER, US$bn (LHS) Pharmaceutical sales, % of GDP (RHS)
2010 2011 2012 2013 2014f 2015f 2016f 2017f 2018f 2019f 2020f 2021f 2022f 2023f 0
5 10 15
2 2.5
f = BMI forecast CER = constant exchange rate Source: BMI, Drug Administration of Vietnam (DAV), Vietnam Ministry of Health, domestic companies, local press
Trang 15performed through interviews with 140 people in rural and urban areas who had visited public and privatehospitals over the previous six months Interestingly, 'medications/examinations/tests' only accounted for53% of expenditure It is not clear how the remaining funds were spent.
Vietnam's regulators faced their greatest challenge with the country's entrance to the WTO at the start of
2007 Foreign enterprises have been given the right to open branches in Vietnam and to import medicinesdirectly, although they will still be barred from distributing their products As part of its membershipapplication, Vietnam pledged to set import duties at less than 5% for pharmaceutical products and drugtariffs are expected to average just 2.5% within five years of accession
The liberalised environment could cause problems for Vietnam's small drug production sector
Nevertheless, while the government originally called on firms to adopt GMP standards by the start of 2010,the deadline was extended to the end of 2010 However, in August 2008, it was revealed that companies thatdid not have accreditation could come up with provisory regulations Firms not planning to establish GMPstandards must either shift to other sectors or produce traditional medicines, the latter being an area withproblems of its own, as many traditional drugs are incorrectly labelled and dispensed by unqualified
practitioners According to Savipharm, the country has 108 factories compliant to GMP-WHO, few plants compliant to EU and Japanese GMP as of November 2011 Meanwhile in January 2012, United
International Pharma Company became the first company with a facility that is compliant with the
Pharmaceutical Inspection Convention and Pharmaceutical Inspection Co-operation Scheme (PIC/S) GMPstandards
Table: Pharmaceutical Sales Indicators, 2010-2018
Pharmaceutical
sales (US$bn) 2.06 2.42 2.84 3.30 3.92 4.60 5.34 6.17 7.06 Pharmaceutical
sales (US$bn), %
chg y-o-y 20.2 17.9 17.0 16.2 19.1 17.3 16.1 15.5 14.5 Pharmaceutical
sales (VNDbn) 39,316.0 50,081.5 59,213.7 69,297.5 80,679.8 93,548.9 107,959.6 123,341.6 139,832.4 Pharmaceutical
sales (VNDbn), %
chg y-o-y 29.1 27.4 18.2 17.0 16.4 16.0 15.4 14.2 13.4 Pharmaceutical
sales at constant
exchange rate
(US$bn) 1.87 2.38 2.82 3.30 3.84 4.45 5.13 5.87 6.65 Pharmaceutical
sales, per capita 23.09 26.96 31.24 35.94 42.39 49.27 56.70 64.94 73.80
Trang 16Pharmaceutical Sales Indicators, 2010-2018 - Continued
(US$)
Pharmaceutical
sales, % of GDP 1.82 1.80 1.82 1.93 2.01 2.08 2.14 2.20 2.23 Pharmaceutical
sales, % of health
expenditure 29.04 29.01 29.39 30.11 30.57 31.05 31.67 32.13 32.47
f = BMI forecast Source: BMI, Drug Administration of Vietnam (DAV), Vietnam Ministry of Health, domestic companies, local press
Healthcare Market Forecast
BMI has revised its health expenditure forecast for
Vietnam, following the publication of new data by
the World Health Organization (WHO) in Q213
Subsequently, we upgraded the forecast for private
health expenditure in December 2013 due to the
government's plan to raise hospitals fees between
2014 and 2018 We now forecast that the sector will
reach a value of VND726,892bn (US$38.0bn) by
2023 Through to 2018 and 2023, the sector is
projected to grow at local CAGRs of 13.4% and
12.2% respectively (14.7% and 13.2% in US dollar
terms)
Over the long term, Vietnam's healthcare sector is
forecast to grow in accordance with its strong
economic growth However, we highlight that rising
healthcare expenditure does not necessarily equate to
quality healthcare provision According to the
General Statistics Office of Vietnam, the number of hospitals in 2012 was 963 Meanwhile, the number ofhospital beds and doctors per 1,000 people stayed flat - at 2.01 and 0.65 respectively
Moreover, despite a double-digit growth in healthcare expenditure, the country has yet to address the risingburden of communicable diseases such as tuberculosis, AIDS and hand, foot and mouth disease Much of
Healthcare Expenditure Forecast
2010-2023
Health expenditure, US$bn (LHS) Health expenditure at CER, US$bn (LHS) Health expenditure, % of GDP (RHS)
2010 2011 2012 2013 2014f 2015f 2016f 2017f 2018f 2019f 2020f 2021f 2022f 2023f 0
20 40
f = forecast CER = constant exchange rate Source: BMI, World Health Organization (WHO)
Trang 17this increased expenditure will be on health infrastructure, which remains basic in many rural areas Overthe longer term, this is likely to result in greater access to basic medicines.
The country's low per capita health and pharmaceutical expenditure highlights the population's poor access
to healthcare services and low affordability levels for medicines - particularly high-value drugs Thisrepresents a short-term challenge for pharmaceutical firms, but over the long term we believe economicdevelopment will aid growth in the pharmaceutical and healthcare sector Our country risk team remainsbullish about the Vietnamese economy as it forecasts strong economic growth through to 2023
In the meantime, the government has outlined plans for the investment of up to US$1.5bn in the
pharmaceutical manufacturing sector over the next 10 years to reduce reliance on imports The money is to
be used for a variety of programmes, including upgrading technology to meet GMP standards, the
development and expansion of the pharmaceutical supply network to poor and remote areas, the
establishment of joint ventures (JVs) with foreign players and achieving a greater percentage of domesticpharmaceutical demand
The government's intention to invest in the development of its biotechnology sector is likely to act as acatalyst for wider industry reform, in particular concerning patent protection However, local drug
production is still weak and incapable of meeting domestic demand, although local regulation reform on aconsiderable scale is expected to attract foreign investment In some sectors, such as vaccines, considerableprogress has been made to increase Vietnam's self-sufficiency, with the country now producing sufficientmeasles vaccines domestically to meet national demand
To help make further progress, the government has outlined plans to invest US$241mn in eight projectswithin the local drug manufacturing industry This will include the construction of four pharmaceuticalplants in the next four years The authorities aim to have 80% of domestic demand met by local producers
by 2020, up from around 50% currently
In a workshop help by Vietnam Ministry of Health in August 2013 in collaboration between MedicalExcellence Japan and Japan's Ministry of Economy, Trade and Industry, the two countries reiterated Japan'ssupport towards Vietnamese healthcare through investment in three hospitals including: Bach Mai Hospital,Hue Central Hospital and Cho Ray Hospital
In an interview with local media, Vietnam News, Pham Le Tuan, deputy minister of health, stated thatpublic hospital fees will increase progressively until 2018, in line with Decree 85/2012/ND-CP In 2012, thegovernment increased the prices of three out of seven cost elements incurred by patients, which include the
Trang 18cost of medicines, chemicals, consumable materials, electricity, water, equipment maintenance and others.Under the plan developed by the Ministry of Health on increasing hospital fees, this will cover the
remaining four out of seven cost elements (beds, medical equipment, salaries, and other hospital operationcosts) These four elements were previously covered by the government
Timeline Of Hospital Fees Increments
■ 2014: Hospital fees charged to patients will include the bed cost for inpatient services and part of the cost
of their surgery
■ 2015: Fees will include medical equipment used for patient treatment, hospitals' management andoperating costs and 20-30% of hospital staff's basic salary at provincial hospitals in mountainous regions,central highlands and district hospitals in Ha Noi and Ho Chi Minh City
■ 2016-17: Part of the hospital fee will be used to pay basic salary cost for staff at provincial hospitals,central government hospitals and district hospitals in two major cities of Ha Noi and Ho Chi Minh City
■ Post-2018: full cost recovery policy for medical services will be implemented across the board
The deputy health minister believes that with these increments in fees service quality will improve
considerably, as hospitals will be dependent on patients He added that 'more patients mean more money forhospital and their staff.' We highlight that this is potentially regressive as patients will have to shoulder theburden of healthcare costs due to low funding from the government In addition, we see a risk of
overcharging by hospitals if the implementation of these increments is not properly regulated Conversely,hospitals may also not generate sufficient revenues despite the implementation of the regulation In August
2013, Vietnam News reported that hospitals in Ha Noi ran into problems in applying new hospital fees due
to unclear regulations and staffing shortages
Nevertheless, as a result of these progressive increments, we have upgraded Vietnam's private healthcareexpenditure forecast, as the increased costs will be borne by patients rather than the government Through to
2017, we forecast that private health expenditure will increase at a compound annual growth rate of 14.7%(15.6% in US dollar terms) This growth rate is higher than government health expenditure (12.8%) Theforecast for government health expenditure has remained unchanged We highlight that the government mayspend savings generated elsewhere to boost health services, such as improving health infrastructure
Trang 19Table: Healthcare Expenditure Indicators, 2010-2018
Health
expenditure
(US$bn) 7.1 8.4 9.7 10.9 12.8 14.8 16.9 19.2 21.8 Health
expenditure
(US$bn), %
chg y-o-y 8.2 18.1 15.5 13.4 17.3 15.5 13.8 13.8 13.3 Health
expenditure
(VNDbn) 135,367.8 172,649.9 201,465.8 230,139.8 263,930.9 301,239.9 340,855.7 383,883.7 430,716.9 Health
expenditure
(VNDbn), %
chg y-o-y 16.2 27.5 16.7 14.2 14.7 14.1 13.2 12.6 12.2 Health
expenditure
at constant
exchange
rate (US$bn) 6.4 8.2 9.6 10.9 12.6 14.3 16.2 18.3 20.5 Health
expenditure
per capita
(US$) 79.5 93.0 106.3 119.4 138.7 158.7 179.0 202.1 227.3 Health
expenditure
(% GDP) 6.3 6.2 6.2 6.4 6.6 6.7 6.8 6.8 6.9
Source: BMI, WHO
Trang 20Table: Healthcare Governmental Indicators, 2010-2018
health
expenditure
(US$bn), %
chg y-o-y 3.3 28.3 14.8 12.4 15.7 13.9 12.8 13.1 12.9 Government
health
expenditure
(VNDbn) 50,257.5 69,665.5 80,821.0 91,513.4 103,524.2 116,516.6 130,670.6 146,230.9 163,453.1 Government
health
expenditure
(VNDbn), %
chg y-o-y 10.9 38.6 16.0 13.2 13.1 12.6 12.1 11.9 11.8 Government
sector health
expenditure,
% of total 37.1 40.4 40.1 39.8 39.2 38.7 38.3 38.1 37.9
Source: BMI, WHO
Table: Healthcare Private Indicators, 2010-2018
Private health
expenditure
(US$bn) 4.5 5.0 5.8 6.6 7.8 9.1 10.4 11.9 13.5 Private health
expenditure
(US$bn), %
chg y-o-y 11.3 12.0 15.9 14.1 18.3 16.5 14.4 14.3 13.6 Private health
expenditure
(VNDbn) 85,110.3 102,984.4 120,644.8 138,626.4 160,406.7 184,723.3 210,185.0 237,652.8 267,263.9 Private health
expenditure
(VNDbn), %
chg y-o-y 19.5 21.0 17.1 14.9 15.7 15.2 13.8 13.1 12.5 Private sector
Trang 21Prescription Drug Market Forecast
The market figures for prescription and
non-prescription sectors are blurred by a lack of any
proper distinction between the two In fact,
according to some drugstores, only 20-30% of
patients buy drugs with a prescription Only
medicines that cause dependency, such as
benzodiazepines, are routinely refused sale without a
prescription Antibiotics are the most popular drug
sold without a prescription This has resulted in
worrying levels of antibiotic resistance For
example, nearly 70% of bacteria carried by people
living in urban parts of Vietnam are resistant to
penicillin
Nevertheless, the growth of the prescription
medicines market will outpace the growth of OTCs,
mainly due to the influx of expensive patented
products from abroad and increased demand for
sophisticated drugs Additionally, tighter regulations
in the pharmaceuticals sector as a whole are likely to lead to the introduction of stricter dispensing
guidelines with the good pharmacy practice (GPP) recommendations coming into force in 2011
By 2018, we forecast that prescription medicines will be worth VND104,612bn (US$5.28bn) at consumerprices, posting a CAGR of 15.5% in local currency terms (thus somewhat above the wider pharmaceuticalmarket) In percentage terms, at this point, prescription drugs will account for 74.8% of the total market,from 73.6% in 2013, driven by expanded access to formal healthcare in rural areas
Demographic and environmental trends will be some of the key drivers of the prescription market in
Vietnam Respiratory problems, including asthma and COPD, are on the rise, partly due to the high
prevalence of smoking and partly due to poor air quality Manufacturers of drugs in the respiratory
therapeutic category will, therefore, have considerable room for expansion over the coming years Similarly,increased incidence of cancer, diabetes and hypertension among the Vietnamese population will providescope for drugmakers to expand
Prescription Drug Market Forecast
2010-2023
Prescription drug sales, US$bn (LHS) Prescription drug sales, % of total sales (RHS)
2010 2011 2012 2013e 2014f 2015f 2016f 2017f 2018f 2019f 2020f 2021f 2022f 2023f 0
5 10
72 73 74 75 76 77
f = BMI forecast Source: BMI, Drug Administration of Vietnam (DAV), Vietnam Ministry of Health, domestic companies, local press
Trang 22One therapeutic area that has strong potential is oncology At an international scientific conference in April
2013, Mai Trong Khoa, deputy director of Hanoi-based Bach Mai Hospital, stated that Vietnam reportsabout 110,000 new cases of cancer annually, with over 73% of patients dying from the disease - one of thehighest rates in the world He added that the average death rate in developing countries is 67.8% while thatfor developed countries is 49.4% In January 2014 a representative from the Vietnam Social InsuranceAgency stated that cancer drugs account for a large percentage of insurance expenses Moreover,
prescribing patterns seem to be influenced by economic considerations, with drug companies payingcommissions to doctors who promote certain types of product The HCMC authorities conducted an
investigation into the practice, with findings revealing that a number of doctors were in receipt of more than
VND500mn (US$26,300) each month The investigators looked into the prescribing of Merck & Co's
hepatitis drugs - namely PegIntron (interferon Alfa-2b) in 50mcg and 80mcg dosages, with commissions
reportedly being in the region of 10% to 30% of the drugs' cost Joint monthly revenues for the two drugsare reportedly in excess of VND6bn (US$315,000) In September 2012, Nguyen Thi Kim Tien echoedsimilar view stating that prescribers receive 'commission' from foreign pharmaceutical firms therefore manyprescriptions contain expensive medicines
Local industry representatives claim that large firms can therefore gain an upper hand as they can afford topay higher commissions, although doctors' relationship with companies also have a role to play in theirdecisions Moreover, despite the existence of hospital medicine councils - which are in charge of makingprescribing suggestions and supervising prescribing patterns - many doctors can still suggest different types
of medicines to their patients Patients have also stated that commissions are widespread
Trang 23Table: Prescription Drug Sales Indicators, 2010-2018
Prescription
drug sales
(US$bn) 1.50 1.77 2.08 2.42 2.90 3.41 3.97 4.60 5.28 Prescription
drug sales
(US$bn), %
chg y-o-y 20.5 18.4 17.4 16.5 19.4 17.7 16.5 15.9 14.9 Prescription
drug sales
(VNDbn) 28,622.01 36,603.17 43,419.93 50,982.17 59,553.47 69,283.48 80,224.49 91,963.60 104,611.54 Prescription
drug sales
(VNDbn), %
chg y-o-y 29.5 27.9 18.6 17.4 16.8 16.3 15.8 14.6 13.8 Prescription
Trang 24Patented Drug Market Forecast
Value development of the patented drugs segment
and consequently the overall prescription segment
-will be hampered by the government's plan to
contain pharmaceutical costs through restrictions on
advertising and the request that hospitals and
medical professionals give preference to
domestically produced drugs, as well as the fact that
most of the insured now incur some sort of
co-payment Moreover, a number of high-value drugs
are due to come off patent in the coming years
Nevertheless, the price increase evident since the
start of 2011 may take the value of the prescription
and patented markets beyond current estimates By
2023, we expect the patented drug sector to reach
VND42,723bn (US$2.0bn), but represent a lower
percentage (18.04% versus 22.3% in 2013) of the
total market Over the 2013-2023 period, patented
drugs are expected to post a CAGR of 10.7% in local
currency (11.7% in US dollars term), slightly below the rate of the overall market development
Counterfeit drugs will continue to have a detrimental impact on patented drug sales over the forecast period,despite the government's efforts to the contrary The global economic slowdown has fuelled demand forcheaper drugs, and counterfeit medicines are prospering as a result Supported by the WHO, police, customsand regulatory officials in the country have begun to coordinate their activities, although little can be done
in terms of enforcement without greater commitment to IP rights as well as more stringent penalties forviolators
Corruption also has a role to play in drug prices, with commissions paid to pharmacists and doctors by salesrepresentatives and distributors to persuade them to prescribe their product to push up the retail price ofmedicines Such practices can only damage the industry as a whole, putting many patented products beyondthe budgets of the majority of the Vietnamese population
Patented Drug Market Forecast
2010-2023
Patented drug sales, US$bn (LHS) Patented drug sales, % of total (RHS)
2010 2011 2012 2013 2014f 2015f 2016f 2017f 2018f 2019f 2020f 2021f 2022f 2023f 0
1 2 3
20
17.5
22.5 25
f = BMI forecast Source: BMI, Drug Administration of Vietnam (DAV), Vietnam Ministry of Health, domestic companies, local press
Trang 25Speciality medicines, such as central nervous system (CNS) and cardiovascular drugs, are expected to bethe key growth area, while an increase in cancer, diabetes and hypertension will also generate productdemand However, the basic nature of consumption is illustrated by the continued strong showing ofantibiotics and alimentary/metabolism products The need to contain the HIV/AIDS epidemic and relatedhealth problems will boost the antiretroviral sector, while the prevention of swine flu and similar diseasescontinues to drive the growth of anti-flu drugs.
Table: Patented Drug Market Indicators, 2010-2018
Patented
drug sales
(US$bn) 0.48 0.56 0.64 0.74 0.86 0.99 1.13 1.28 1.43 Patented
drug sales
(US$bn), %
chg y-o-y 18.3 16.2 15.0 14.3 17.0 15.2 13.9 13.2 12.2 Patented
drug sales
(VNDbn) 9,209.95 11,560.38 13,437.90 15,473.92 17,701.95 20,154.14 22,820.78 25,560.85 28,385.62 Patented
drug sales
(VNDbn), %
chg y-o-y 27.1 25.5 16.2 15.2 14.4 13.9 13.2 12.0 11.1 Patented
drug sales,
% of
prescription
sales 32.18 31.58 30.95 30.35 29.72 29.09 28.45 27.79 27.13 Patented
Trang 26Generic Drug Market Forecast
Although the overall generic drug market is sizeable,
standing at around VND35,508bn (US$1.69bn) - or
approximately 51% of the overall market's value - in
2013, most products were actually low-quality
copies of unproven bioequivalence The Ministry of
Health is stepping up its efforts to address the
problem by enlisting the help of medical
professionals in the country, in a bid to improve
generic usage and the utilisation of domestically
made products in hospitals and clinics
Additionally, entrance into the WTO should in
theory, result in dubious copy products gradually
being purged from the market, as the country brings
its IP regime in line with TRIPS However, given the
notoriously poor standard of IP enforcement in the
country, these illicit products will continue to have a
sizeable influence in the near future
Overall, generic products are likely to continue dominating the market in volume terms and we forecast thevalue of the sector should reach VND137,464bn (US$7.18bn) in 2023, accounting for over 58.1% of thetotal market (up from the calculated 51.2% in 2013) Vietnam offers strong prospects for generic marketgrowth due to low consumer purchasing power However, a number of obstacles still remain, such as awidespread belief that generic drugs are inferior to patented products and that in many cases, they are notthat much cheaper than patented counterparts They are also not as widely available as they could be
In an interview with local media VietNamNet Bridge, Vietnam's former deputy Minister of Health, Dr LeVan Truyen, stated in January 2014 that the population is still reluctant to use domestically produced
pharmaceuticals Some of the key reasons mentioned include:
■ Several domestic pharmaceutical firms failing to 'provide enough evidence about the effects of theirdrugs compared with imported drugs', consequently 'deepening people's doubt on the effectiveness andreliability of local drugs'
■ Some drugs used in specialised and central hospitals are still protected by patents, preventing local firmsfrom producing them The situation is made worse by free trade agreements that may extend patent terms
Generic Drug Market Forecast
2010-2023
Generic drug sales, US$bn (LHS) Generic drug sales, % of total sales (RHS)
2010 2011 2012 2013 2014f 2015f 2016f 2017f 2018f 2019f 2020f 2021f 2022f 2023f 0
5 10
45 50 55 60
f = BMI forecast Source: BMI, Drug Administration of Vietnam (DAV), Vietnam Ministry of Health, domestic companies, local press
Trang 27Table: Generic Drug Sales Indicators, 2010-2018
Generic drug
sales
(US$bn) 1.02 1.21 1.44 1.69 2.04 2.42 2.84 3.32 3.85 Generic drug
sales
(US$bn), %
chg y-o-y 21.6 19.4 18.5 17.6 20.5 18.7 17.5 16.9 16.0 Generic drug
sales
(VNDbn) 19,412.06 25,042.78 29,982.03 35,508.25 41,851.51 49,129.34 57,403.72 66,402.74 76,225.92 Generic drug
sales
(VNDbn), %
chg y-o-y 30.6 29.0 19.7 18.4 17.9 17.4 16.8 15.7 14.8 Generic drug
sales, % of
prescription
sales 67.82 68.42 69.05 69.65 70.28 70.91 71.55 72.21 72.87 Generic drug
sales, % of
total sales 49.37 50.00 50.63 51.24 51.87 52.52 53.17 53.84 54.51
f = BMI forecast Source: BMI, Drug Administration of Vietnam (DAV), Vietnam Ministry of Health, domestic companies, local press
Trang 28OTC Medicine Market Forecast
Despite the blurred distinction between prescription
and non-prescription products, OTC healthcare has
been achieving relatively robust value growth in the
last few years The value of OTC sales is likely to
reach VND56,611bn (US$2.96bn) in 2023, up from
VND18,315bn (US$870mn) in 2013 At the same
time, the sector's share of the total market as a
percentage is expected to fall to 23.9%, from 26.4%,
due to the rising value of the prescription sector and
more expensive imports, and stricter dispensing
controls
Key drivers of OTC market growth will be mostly
limited to volume, as consumers become better
educated and more confident about self-medication
OTC drugs will also benefit as consumers spending
power increases, and - in the case of the low income
population - they may well turn to OTCs and
traditional medicines to seek cheaper alternatives to
patented drugs
Another factor affecting the growth of the self-prescription market is that manufacturers import the bulk ofraw materials and APIs, which disadvantages segments such as vitamins and analgesics, especially giventhe local currency depreciation compared with key sources markets like China, Japan and South Korea In
H109, the price of analgesic Salonpas - which is used to treat neck and back pain - increased twice.
Meanwhile, the prices of some 20 eyewashes produced by US-based Alcon rose by 8%.
Nevertheless, despite these setbacks, vitamins and dietary supplements are one of the fastest growing
segments of OTC healthcare in Vietnam, with analgesics remaining the best sellers Single vitamin
supplements have become common household products in the country, while high generic penetration inthis area has helped to make the products affordable to the majority of consumers In fact, according to
survey conducted by market research firm AC Nielsen in partnership with the Association of the European
Self-Medication Industry (AESGP), consumers in Vietnam (at 45% of the total) are among the most likely
to take an OTC drug for a minor ailment as soon as symptoms are present
OTC Medicine Market Forecast
2010-2023
OTC medicine sales, US$bn (LHS) OTC medicine sales, % of total sales (RHS)
2008 2009 2010 2011 2012 2013 2014f 2015f 2016f 2017f 2018f 2019f 2020f 2021f 2022f 0
1 2 3
24 26 28
f = BMI forecast Source: BMI, Drug Administration of Vietnam (DAV), Vietnam Ministry of Health, domestic companies, local press
Trang 29Market research also established that it is common for people in Vietnam to ask the advice of unlicensedpharmacists or friends when choosing a medicine, rather than seeing a doctor and receiving a prescription.Concern surrounds pharmacists who offer customers prescription-only medicines over the counter, which inthe case of drugs such as antibiotics, can lead to resistance if they are overused Like many other Asiancountries, branding and advertising is becoming increasingly prevalent in Vietnam's OTC sector.
Meanwhile, BMI believes that there is great potential for Vietnam's traditional medicines (TM) sector as
long as the government can attract investment in extraction technologies, reduce Vietnam's reliance onimporting raw materials and in turn bring down the retail prices of such products With more than 4,000medicinal herbs and plants in the country, there could be myriad applications in the consumer health sector,which would boost the overall OTC market value
However, the government will also have to improve regulation of the sector It is estimated that up to 70%
of traditional medicines are fakes imported into the country, while many Chinese medicine clinics
investigated by government inspectors during H209 were found to stock poorly labelled goods and manypractitioners lacked professional training Presently, the MoH only allows around 15 herbal brands to be
sold in Vietnam, although the market is saturated with unlicensed offerings BMI believes that in the
coming years, the MoH will increase its reliance on TM and the cultivation of Thuong Hoang, a mushroomthat has been used traditionally to treat cancer, is a positive step in the right direction
In February 2011, Deputy Prime Minister Nguyen Thien Nhan stated that the government wants to continue
to nurture the traditional medicine sector and drafted a plan that aimed to modernise traditional medicine by
2020 under decree 2166/QD-TTg
Trang 30Table: OTC Medicine Sales Indicators, 2010-2018
Trang 31Pharmaceutical Trade Forecast
Partly as a result of this preference, Vietnam is
highly reliant on imported pharmaceuticals
According to data from the UN Commodities Trade
Database (UNComtrade), in 2012 Vietnam imported
US$1.6bn worth of finished pharmaceuticals, while
exporting only US$66.9mn in value terms Imported
pharmaceuticals were mainly from France (US
$235.9mn), India (US$230.5mn), South Korea (US
$164.4mn), Germany (US$143.4mn) and Italy (US
$93.9mn) Meanwhile, the country exported to
countries such as Germany (US$9.7mn), Nigeria
(US$5.6mn), Cambodia (US$5.5mn), Japan (US
$4.2mn) and India (US$4.2mn) Given that its
pharmaceutical sector is still in its infancy, we
expect such reliance on imports to continue From
2013 to 2018, we forecast that pharmaceutical
exports and imports will see local CAGRs of 19.5%
and 14.3% respectively in US dollar terms
Data from UNComtrade do not specify the type of finished pharmaceuticals traded (i.e whether they arepatented or generic drugs) However, given that Vietnam is a developing country with low per-capitapharmaceutical and healthcare expenditure (US$36.17 and US$120.55 respectively in 2013), BMI believesthat the majority of the drugs consumed in Vietnam are generics imported from overseas BMI highlightsthis reliance on imported products as a commercial opportunity for foreign drugmakers
However, while the pharmaceutical sub-sector may be growing at a double-digit rate, we caution that not allforeign drugmakers will be able to capitalise on this growth opportunity Doubts regarding drug quality andcounterfeit drug problems are two reasons why people prefer imported products in developing markets such
as Vietnam Consequently, we believe that careful branding and marketing is a vital method by which firmscan capture market share in Vietnam and other developing countries Companies that are able to engagephysicians (through their salesforces), initiate differential pricing policies and launch various corporatesocial responsibility programmes are likely to be seen in a more positive light than those that fail to do so - and are therefore more likely to succeed in Vietnam
Pharmaceutical Trade Forecast
2010-2018
Pharmaceutical exports, US$mn Pharmaceutical imports, US$mn
2010 2011 2012 2013 2014f 2015f 2016f 2017f 2018f 0
2,500 5,000
Notes: Last updated: 12/12/2013 Comtrade Code = 3002,3003,3004 Source: United Nations Comtrade Database DESA/UNSD, BMI
Trang 32Free trade agreements are seen as an obstacle to the use of domestic drugs due to patent
conditions BMI notes that Vietnam is one of the member countries under the Trans-Pacific Partnership(TPP) Interest groups from a number of countries such as Malaysia, Australia and New Zealand havewarned of potential increases in drug prices, as there could be an extension of intellectual property rightsinvolving pharmaceuticals.Should member countries agree to extend patent terms, all generic drug
companies will be affected
At the same time, the Vietnamese government is keen to increase domestic drug use in the country InDecember 2013, the Drug Administration of Vietnam (DAV) launched a programme to raise awarenessamong doctors, hospital managers and the community on the use of locally produced drugs In addition topromoting local drugs consumption, the government is aiming to implement universal healthcare by the end
of 2014 The country may opt to subsidise more locally made drugs under the scheme, which would bringdownside risks to foreign drugmakers
Table: Vietnam Pharmaceutical Trade Data And Forecasts (US$mn)
Pharmaceutical exports
(US$mn) 48.71 63.14 77.14 93.77 116.47 141.94 170.53 204.33 242.54 Pharmaceutical exports
(US$mn), % chg y-o-y 14.2 29.6 22.2 21.6 24.2 21.9 20.1 19.8 18.7 Pharmaceutical imports
(US$mn) 1,301.31 1,581.35 1,840.89 2,138.42 2,545.83 2,960.58 3,406.47 3,899.60 4,426.63 Pharmaceutical imports
(US$mn), % chg y-o-y 14.1 21.5 16.4 16.2 19.1 16.3 15.1 14.5 13.5 Pharmaceutical trade
balance (US$mn) -1,252.60 -1,518.21 -1,763.75 -2,044.65 -2,429.37 -2,818.64 -3,235.94 -3,695.27 -4,184.09
Source: United Nations Comtrade Database DESA/UNSD, BMI
Trang 33Table: Vietnam Pharmaceutical Trade Data And Forecasts (VNDmn)
Pharmaceutical
exports (VNDmn) 1,304,305 1,610,215 1,971,853 2,395,170 2,885,633 3,447,230 4,086,539 4,802,311 Pharmaceutical
exports
(VNDmn), % chg
y-o-y 40.0 23.5 22.5 21.5 20.5 19.5 18.5 17.5 Pharmaceutical
imports (VNDmn) 32,665,446 38,425,213 44,968,828 52,355,067 60,188,602 68,861,822 77,991,928 87,647,320 Pharmaceutical
imports
(VNDmn), % chg
y-o-y 31.3 17.6 17.0 16.4 15.0 14.4 13.3 12.4 Pharmaceutical
trade balance
(VNDmn) -31361141 -36814998 -42996975 -49959897 -57302969 -65414592 -73905389 -82845009
Source: United Nations Comtrade Database DESA/UNSD, BMI
Other Healthcare Data
The vast majority of hospitals in Vietnam are large state-owned facilities that are frequently overcrowdedand generally offer only basic services A growing number of private facilities offer advanced services, butmany local people on high incomes still travel abroad for healthcare The most common destinations areSingapore, Thailand and Hong Kong It is estimated that approximately 30,000 Vietnamese citizens leavethe country for healthcare treatment each year, at a reported cost of over US$1mn
By May 2010, local press reported that the number of private facilities topped 30,000, including more than
100 private hospitals and more than 5,400 beds, according to a Ministry of Health official To date, some 70private healthcare projects have also received foreign investment Similarly, foreign investors have pouredcapital into the pharmaceutical industry (of more than US$300mn), although none of those projects involvepharmaceutical manufacturing
In 2012, the GSO statistics put the number of state-run hospitals at 963, which equates to a hospital: millionpopulation ratio of 1:11, which is low compared with other countries at a similar level of economic
development Meanwhile, the number of hospital beds and doctors per 1,000 population stayed flat - at 2.01and 0.65 respectively Central hospitals in Vietnam are facing a shortage of beds to the extent that in somehospitals a single bed is being shared by two or sometimes even three patients The Ministry of Health saysthat demand for beds in provincial hospitals is 115%, while in major cities it is 250%
Trang 34According to the Director of Viet Duc Hospital, Nguyen Tien Quyet, the main reason behind such
overloading at central hospitals is the low standard of health staff training at a community level, due towhich a large number of patients are transferred to these central hospitals Each year the health sector needsover 36,000 new health workers but the training system can only provide 24,000, according to the healthministry statements made in June 2008
A year later, in November 2009, overcrowding in hospitals returned to the headlines with Prime MinisterNguyen Tan Dung meeting with other ministers to address the problem Health minister Hguyen QuocTriey announced that Vietnam has only 18 hospital beds per 10,000 citizens and the government wants toraise this ratio to 25 beds, in line with global averages The government views the creation of day centresand increasing the number of family practitioners as a solution to this overcrowding
In August 2013, in bid to tackle overcrowding in central hospitals, the Ministry of Health launched asatellite hospital programme Through to 2015, these hospitals will perform all techniques transferred bycentral hospitals Despite it being a positive aim to ease overcrowding, Nguyen Thi Xuyen, deputy Minister
of Health stated that the programme was already facing difficulties such as shortages of medical
professionals and facilities
Key Risks To BMI's Forecast Scenario
The existence of rampant corruption will continue to hinder the country's progress in the pharmaceuticaland healthcare sector, bringing downside risks to its business environment In August 2012, it was revealedthat Vietnam's social health insurance funds are running a deficit, in part due to mismanagement of fund aswell as a result of corruption In March 2012, Doan Van Cuong, an ex-employee of the Can Tho socialinsurance department, made fraudulent claims He used the names of pregnant women and asked forpostnatal assistance worth VND119.5bn (US$5,730), even though these women were not his employees
According to BMI's Country Risk team, economic data published by the General Statistics Office (GSO) in
November such as positive Purchasing Managers' Index and foreign direct investment highlights its bullishoutlook for the Vietnamese economy The team expects the upcoming release of the Q413 GDP figures toreflect a healthy pickup in economic activity, and believes that the robust momentum they have witnessed inrecent months should give the economy a strong head start in 2014 Positive growth in the economy maylead to increased government health expenditure which is an upside risk to our forecast
Trang 35Risks to export forecasts are mostly to the upside, from the point of view of volumes produced A number
of foreign players have - or are in the process of establishing - export ventures in the country The fact thatsuch facilities comply with international norms will continue to stimulate export potential
The current trend for regional harmonisation provides the ideal background for progress of Vietnam'shealthcare and pharmaceutical industries However, whether such reform can be carried out successfully is amatter for much conjecture given the disorganised state of the sector Nevertheless, Vietnam's WTOmembership since early 2007 is expected to stimulate other similar deals in the region
Trang 36Macroeconomic Forecasts
Economic Analysis
BMI View: Vietnam's latest real GDP reading, which showed that the economy expanded by 6.0%
year-on-year (y-o-y) in Q413, has reaffirmed our conviction that the Vietnamese economy will begin 2014 on a strong note Not only are we witnessing more evidence of a sustained pick-up in production activity and employment in the manufacturing sector, but we also expect foreign direct investment (FDI) inflows to accelerate as the economic recovery gathers pace over the coming quarters We forecast real GDP growth
to come in at 5.9% in 2014, versus Bloomberg consensus of 5.5%.
In line with our view that the Vietnamese economy would accelerate forcefully into the final months of the
year (see 'Economy Picking Up Pace', October 4 2013), latest data released by the General Statistics Office
(GSO) showed that the economy expanded by 6.0% year-on-year (y-o-y) in Q413 This translates into year growth of 5.4% for 2013, just slightly above our forecast of 5.3% The latest GDP reading, combinedwith the strong set of economic data we have seen in recent weeks (accelerating foreign direct investmentinflows, remittances, and merchandise trade exports), have reaffirmed our conviction that the Vietnameseeconomy will begin 2014 on a strong note
Trang 37full-Looking At A Strong Start For 2014
Vietnam - Real GDP Growth, % (LHS) & Contribution By GFCF & Private Consumption, pp (RHS)
Source: BMI, General Statistics Office (e = estimates, f = BMI forecasts)
Signs Of Improvement
Despite the lack of progress with regards to banking sector reforms and efforts to ease lending conditions(credit growth is estimated to have expanded by around 9% in 2013, well under the State Bank of Vietnam'sinitial target of 12%), the economy appears to be holding up well Not only are we witnessing more
evidence of a sustained pick-up in production activity and employment in the manufacturing sector (see 'Strong PMI Reading Reinforces Outlook On Growth', November 5 2013), but we also expect foreign direct
investment (FDI) inflows into the export sector to accelerate as the economic recovery gathers pace over thecoming quarters
Private Sector Investment To Drive Recovery
According to figures published by GSO, FDI-related exports made up an estimated 67% of the country'stotal exports for the first 11 months of the year Thus, although increased FDI inflows could potentiallyresult in a temporary deterioration in the country's trade and current account dynamics due to a burst of
Trang 38capital goods imports in the near term, we believe that this is a long-term positive for the economy.
Furthermore, we view FDI inflows as a crucial source of economic growth over the coming quarters giventhat the Vietnamese government is struggling to unlock domestic lending We forecast real gross fixedcapital formation (GFCF) growth to come in at around 10% in 2014, contributing around 2.7 percentagepoints (pp) to our real GDP growth forecast of 5.9%
Expenditure Breakdown
Private Consumption: We expect private consumption to grow at a relatively resilient pace of 6.5% in
2014 However, we note that the risk of further bankruptcies among SMEs could potentially lead to
widespread job losses, especially in export-driven sectors Uncertainties over the outlook for employmentcould, in turn, prompt households to cut back on spending
Gross Fixed Capital Formation: We foresee a pickup in private sector investment growth in 2014, partly
led by increased foreign direct investment inflows We believe lending rates will gradually ease over thecoming months as the effect of rate cuts in 2013 by the SBV begins to kick in We are also seeing evidencethat credit conditions are improving Accordingly, we expect gross fixed capital formation growth toaccelerate substantially from 4.1% in 2013 to 10.0% in 2014
Public Spending: We expect total public spending to remain relatively resilient in 2014, expanding at a
respectable pace of 6.5% However, there is limited room for the government to increase spending furtherowing to concerns over the need to finance a potential bailout of ailing state-owned commercial banks
Net Exports: Net exports remain the biggest downside risk to our outlook for the Vietnamese economy,
although we expect external demand to pick up in 2014 Vietnam's trade account has fallen back intodeficits in recent months, but we see the case for a substantial pickup in external demand on the back of arebound in regional growth over the coming quarters Accordingly, we still expect exports to expand at amoderate pace of 5.6% in 2014
Trang 39Table: Vietnam - Economic Activity
Nominal GDP,
VNDbn 3 2,779,880.2 3,245,419.2 3,584,261.0 4,012,847.7 4,494,844.6 5,033,219.9 5,616,365.8 6,269,265.3 Nominal GDP,
US$bn 3 134.6 155.6 170.6 195.1 221.1 249 280.8 316.6 Real GDP
growth, %y-o-y 3 6.2 5.2 5.4 5.9 6.4 6.6 6.4 6.4 GDP per capita,
US$ 3 1,497 1,713 1,860 2,108 2,368 2,643 2,957 3,309 Population, mn 4 89.9 90.8 91.7e 92.5 93.4 94.2 95 95.7 Industrial
production,
%y-o-y, ave 1,5 10.9 7.0 5.9 7.7 8.4 8.6 8.6 8.5 Unemployment,
% of labour
force, eop 2,6 3.6 3.2 3.7e 3.5 3.5 3.6 3.5 3.5
Notes: e BMI estimates f BMI forecasts 1 at 1994 prices; 2 Urban Area Only Sources: 3 Asian Development Bank,
General Statistics Office; 4 World Bank/UN/BMI; 5 General Statistics Office; 6 General Statistics Office/BMI.
Trang 40Industry Risk Reward Ratings
Asia Risk/Reward Ratings
BMI View: Geographic diversification may be a favourable strategy for multinational pharmaceutical
companies, but it is vital that firms recognise both the rewards and the risks present in a market, whether
developed or emerging BMI's Risk/Rewards Ratings (RRR) tool, which provides a globally comparative and numerically based assessment of a market's attractiveness, was established to address this In BMI's
Q214 RRRs, the Asia Pacific region scores 52 out of 100, below Western Europe (67), similar to Central and Eastern Europe (52) but compares favourably against Americas (51) and Middle East and Africa (42) regions.
The indicators used to assess the attractiveness of a pharmaceutical market are now visible, improving thetransparency of the rating system and enabling the identification of regional or group outperformers acrosssingle indicators A market's RRR score is made up of a sum of the Rewards score (Industry Rewards +Country Rewards) and the Risks score (Industry Risks + Country Risks)
The weight assigned to each subsector (such as Industry Rewards or Industry Risks) shows its influencewithin the final Rewards or Risks score and the final RRR score The Rewards component accounts for 65%
of the final RRR, while the Risks component accounts for 35%