Vietnam pharmaceuticals healthcare report q1 2016

15 Table: Healthcare Expenditure Trends, Historical Data And Forecasts Vietnam 2011-2019.. 18 Table: Government Healthcare Expenditure Trends, Historical Data And Forecasts Vietnam 2011-

Q1 2016 www.bmiresearch.com

VIETNAM

PHARMACEUTICALS & HEALTHCARE REPORT

INCLUDES 10-YEAR FORECASTS TO 2024

Vietnam Pharmaceuticals & Healthcare

Report Q1 2016

INCLUDES 10-YEAR FORECASTS TO 2024

Part of BMI’s Industry Report & Forecasts Series

Published by: BMI Research

Copy deadline: December 2015

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BMI Industry View 7

Table: Headline Pharmaceuticals & Healthcare Forecasts (Vietnam 2013-2019) 7

SWOT 9

Industry Forecast 11

Pharmaceutical Market Forecast 11

Table: Pharmaceutical Sales, Historical Data And Forecasts (Vietnam 2011-2019) 14

Healthcare Market Forecast 15

Table: Healthcare Expenditure Trends, Historical Data And Forecasts (Vietnam 2011-2019) 18

Table: Government Healthcare Expenditure Trends, Historical Data And Forecasts (Vietnam 2011-2019) 18

Table: Private Healthcare Expenditure Trends, Historical Data And Forecasts (Vietnam 2011-2019) 19

Prescription Drug Market Forecast 20

Table: Prescription Drug Market Indicators, Historical Data And Forecasts (Vietnam 2011-2019) 22

Patented Drug Market Forecast 23

Table: Patented Drug Market Indicators, Historical Data And Forecasts (Vietnam 2011-2019) 24

Generic Drug Market Forecast 25

Table: Generic Drug Market Indicators, Historical Data And Forecasts (Vietnam 2011-2019) 26

OTC Medicine Forecast 27

Table: Over-The-Counter (OTC) Medicine Market Indicators, Historical Data And Forecasts (Vietnam 2011-2019) 29

Pharmaceutical Trade Forecast 30

Table: Pharmaceutical Trade Data And Forecasts (Vietnam 2013-2019) 32

Table: Pharmaceutical Trade Data And Forecasts local currency (Vietnam 2013-2019) 32

Pharmaceuticals & Healthcare Risk/Reward Index 33

Asia Pacific Risk/Reward Index 33

Vietnam Risk/Reward Index 40

Rewards 40

Risks 40

Regulatory Review 42

Pharmaceutical Advertising 43

Intellectual Property Issues 44

Corruption 47

Pricing Regime 48

Reimbursement Regime 53

Pricing And Reimbursement Developments 54

Market Overview 56

Healthcare Sector 57

Hospital Sector 60

Table: Healthcare Resources (Vietnam 2009-2014) 60

Table: Healthcare Personnel (Vietnam 2009-2014) 60

Table: Healthcare Activity (Vietnam 2009-2014) 61

Private Healthcare Sector 63

Healthcare Insurance 64

Healthcare And Pharmaceutical Reform 65

Research And Development 66

Biotechnology Sector 67

Clinical Trials 70

Competitive Landscape 75

Research-Based Industry 75

Domestic Industry 76

Foreign Industry 77

Traditional Medicines 78

Table: Multinational Market Activity 79

Pharmaceutical Distribution 80

Pharmaceutical Retail Sector 81

Table: Key Aspects Of Good Pharmacy Practice In Developing Countries 82

Company Profile 83

DHG Pharmaceutical 83

GlaxoSmithKline 86

Sanofi 88

Traphaco Pharmaceutical 91

Vietnam Pharmaceutical Corporation (Vinapharm) 93

Demographic Forecast 96

Table: Population Headline Indicators (Vietnam 1990-2025) 97

Table: Key Population Ratios (Vietnam 1990-2025) 97

Table: Urban/Rural Population & Life Expectancy (Vietnam 1990-2025) 98

Table: Population By Age Group (Vietnam 1990-2025) 98

Table: Population By Age Group % (Vietnam 1990-2025) 99

Glossary 101

Methodology 103

Pharmaceutical Expenditure Forecast Model 103

Healthcare Expenditure Forecast Model 103

Notes On Methodology 104

Risk/Reward Index Methodology 105

Index Overview 106

Table: Pharmaceutical Risk/Reward Index Indicators 106

Indicator Weightings 107

BMI Industry View

BMI View: Vietnam will be a highly attractive market for private healthcare providers in the region.

Beyond the expected strong increases in healthcare spending, there are also significant service gaps in the market that will provide revenue earning opportunities to companies looking to invest in the sector These stem from the underdeveloped state of the public health sector characterised by overcrowded hospitals and patients with limited access to advanced medical treatments This will in turn affect the strategies employed

by pharmaceutical firms, as private hospitals will present an alternative sales channel for high value medicines.

Headline Expenditure Projections

■ Pharmaceuticals: VND80.73trn (USD3.81bn) in 2014 to VND92.47trn (USD4.17bn) in 2015; +14.5%

in local currency terms and +9.4% in US dollar terms Forecast unchanged from last quarter

■ Healthcare: VND234.91trn (USD11.08bn) in 2014 to VND258.67bn (USD11.66bn) in 2015; +10.1% in

local currency terms and +5.2% in US dollar terms Forecast unchanged from last quarter

Table: Headline Pharmaceuticals & Healthcare Forecasts (Vietnam 2013-2019)

f = BMI forecast Source: WHO, National Sources, BMI

Risk Reward Index

Vietnam's Pharmaceutical Risk Reward Index score for Q116 is 48.4 out of the maximum 100 The countryscored above average for overall market expenditure and sector value growth Consequently, with thismoderate score, Vietnam is ranked 12th (same as in the previous quarter) out of the 19 key Asia Pacificmarkets, level with Thailand and Indonesia

Key Trends And Developments

■ As announced in September, under a new circular issued by Vietnam's Ministry of Health and Ministry ofFinance, patients will be allowed to pay hospital fees through their health insurance for health

examinations and treatments on weekends and holidays as long as the correct number of medicalpersonnel are present and assure proper professional conditions with enough equipment; the circular isexpected to help working people who face difficulties coming to check ups and treatments on weekdays

■ In September, Vietnam's education and training ministry has ordered the department of education andtraining, universities and colleges to increase awareness on health insurance programmes amongststudents, pupils and parents in a move towards universal health coverage in the country Based on thecountry's social insurance data, social health insurance covers 85% of students and pupils at present andthe participation rate is low due to poor attention being given by some educational establishments,ineffective communication and insufficient collaboration between the education department and thehealth and social insurance sectors

■ As announced in September, the Japanese government is promoting its healthcare and preventivemedicine industries to foreign markets and Vietnam is among the targeted countries, according to theJapan External Trade Organization's Director Yasuzumi Hirotaka Heart diseases, diabetes and obesityare among the biggest risks threatening the Vietnamese and people with rising incomes prefer better,premier healthcare services that Japanese businesses can offer

BMI Economic View

We expect Vietnam's fiscal revenue growth to accelerate on the back of a robust economy, ongoing SOEreforms and the positive tax reform policies that have been implemented in recent years That said, acontinued lack of spending prudence by the government will act as a drag As such, we forecast thecountry's fiscal deficit as a share of GDP to narrow marginally to 4.9% in 2016, from an estimated 5.0% in2015

BMI Political View

Political and economic ties between Vietnam and Japan look set to strengthen further over the comingyears, as both countries seek to forge a strategic partnership to counterbalance China's growingassertiveness in the region

Pharmaceutical SWOT 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 Southeast Asian Nations harmonisation initiative, including the

adoption of Western regulatory standards such as International Conference onHarmonisation and WHO guidelines

Pharmaceutical SWOT 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 the poor andtherefore limit market volume growth

■ Legalisation of parallel imports negatively impacting performance of patented drugs

Industry Forecast

Pharmaceutical Market Forecast

BMI View: Inflation will be a major factor in these high nominal market growth rates However, we

highlight that there is considerable scope for increased pharmaceutical consumption in a country where per capita drug expenditure is just USD41.20 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 into healthcare sector development.

Latest Updates

■ The prices of vaccines in Vietnam have risen by around 5% to 10% lately due to shortages and changes inpricing policies by foreign manufacturers, according to director of Hanoi Preventive Medicine Center,Nguyen Nhat Cam Several factors have contributed including changes in exchange rates and the supplyand demand law coupled with the mandatory vaccination programme for all children

■ The Drug Administration of Vietnam, part of the Health ministry, has launched an online public servicefacilitating drugmakers to register drug prices Companies will be able to submit documents, pay fees andcheck the progress of documents being processed through the online platform from the beginning of2016

Pharmaceutical Market Forecast

2010-2024 (2010-2024)

Pharmaceutical sales constant exchange rate, USDbn (LHS) Pharmaceutical sales, USDbn (LHS) Pharmaceutical sales, % of GDP (RHS)

2010 2011 2012 2013 2014 2015f 2016f 2017f 2018f 2019f 2020f 2021f 2022f 2023f 2024f0

5 10 15

0 1 2 3

f = BMI forecast Source: National Sources/BMI

Structural Trends

Vietnam's pharmaceutical market was valued at VND80.73trn (USD3.81bn) in 2014, a 16.5% year-on-year

(y-o-y) increase in local currency terms Over the forecast period to 2019, BMI expects pharmaceutical

consumption to reach VND151.09trn (USD6.72bn) equating to a compound annual growth rate (CAGR) of13.4% in local currency and 12.0% in US dollar terms Over the extended forecast period to 2024, theCAGR will be slightly lower, but will remain in double-digit figures

Lack of control and corruption is widespread in Vietnam Some have blamed unscrupulous practices bypharmaceutical companies and prescribers for pharmaceutical expenditure being higher than necessary.However, it is not just companies that bribe Vietnamese healthcare professionals Patients pay doctors andnurses to avoid waiting lists and receive above-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 ofcare

In fact, according to a survey by the Vietnam Union of Science and Technology Associations published onthe 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 performed throughinterviews with 140 people in rural and urban areas who had visited public and private hospitals over theprevious six months Interestingly, 'medications/examinations/tests' only accounted for 53% 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 World Trade

Organization at the start of 2007 Foreign enterprises have been given the right to open branches in Vietnamand to import medicines directly, although they will still be barred from distributing their products As part

of its membership application, Vietnam pledged to set import duties at less than 5% for pharmaceuticalproducts and drug tariffs 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, it was revealed that companies that did not haveaccreditation could come up with provisory regulations Firms not planning to establish GMP standardsmust either shift to other sectors or produce traditional medicines, the latter being an area with problems ofits 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 PharmaCompany became the first company with a facility that is compliant with the Pharmaceutical InspectionConvention and Pharmaceutical Inspection Co-operation Scheme (PIC/S) GMP standards

Table: Pharmaceutical Sales, Historical Data And Forecasts (Vietnam 2011-2019)

Healthcare Market Forecast

BMI View: 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.

Latest Updates

■ In September, Vietnam's Prime Minister Nguyen Tan Dung has signed an order, asking the People'sCommittees of 63 cities and provinces in the country to extend health insurance coverage to 84.3% of thepopulation by 2020 via a variety of educational and incentivising measures, while by the end of 2015around only 75.4% of the population is expected to be covered by health insurance

■ In October, several hospitals in Vietnam have begun a service of doctors visiting homes of elder patientsand those with disabilities or chronic diseases

Structural Trends

In 2014, healthcare expenditure reached VND234.91trn (USD11.08bn) which corresponded to year-on-year(y-o-y) growth of 10.1% in local currency terms and 9.2% in US dollar terms We now forecast that thesector will reach a value of VND619.29trn (USD28.80bn) by 2024 Through to 2019 and 2024, the sector isprojected to grow at local compound annual growth rates of 10.1% and 10.2% respectively (8.8% and10.0% in US dollar terms)

Despite a double-digit growth in healthcare expenditure, the country has yet to address the rising burden ofcommunicable diseases such as tuberculosis, AIDS and hand, foot and mouth disease Much of this

increased expenditure will be on health infrastructure, which remains basic in many rural areas Over thelonger 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 2024

In the meantime, the government has outlined plans for the investment of up to USD1.5bn 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 good manufacturing practicestandards, the development and expansion of the pharmaceutical supply network to poor and remote areas,

the establishment of joint ventures 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 drugproduction 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 USD241mn 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 thecost 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 theremaining 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 Fee 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 forhospitals 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

2019, we forecast that private health expenditure will increase at a compound annual growth rate of 10.9%(9.6% in US dollar terms) This growth rate is higher than government health expenditure 9.0%, (7.7% in

US dollar terms) We highlight that the government may spend savings generated elsewhere to boost healthservices, such as improving health infrastructure

Table: Healthcare Expenditure Trends, Historical Data And Forecasts (Vietnam 2011-2019)

f = BMI forecast Source: World Health Organization, BMI

Table: Government Healthcare Expenditure Trends, Historical Data And Forecasts (Vietnam 2011-2019)

Table: Private Healthcare Expenditure Trends, Historical Data And Forecasts (Vietnam 2011-2019)

Prescription Drug Market Forecast

BMI View: The market figures for the 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.

Prescription Drug Market Forecast

2010-2024 (2010-2024)

Prescription drug sales, USDbn (LHS) Prescription drug sales, % of total sales (RHS)

2010 2011 2012 2013 2014 2015f 2016f 2017f 2018f 2019f 2020f 2021f 2022f 2023f 2024f0

2.5 5 7.5 10

0 25 50 75 100

f = BMI forecast Source: National Sources/BMI

Structural Trends

By 2019, we forecast that prescription medicines will be worth VND113.41trn (USD5.04bn) at consumerprices, posting a compound annual growth rate of 13.7% in local currency terms (thus somewhat above thewider pharmaceutical market) In percentage terms, at this point, prescription drugs will account for 75% ofthe total market, up from 74% in 2014, driven by expanded access to formal healthcare in rural areas

The market figures for the prescription and non-prescription sectors are blurred by a lack of any properdistinction 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 salewithout 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 inurban parts of Vietnam are resistant to penicillin

Nevertheless, the growth of the prescription medicines market will outpace the growth of over-the-countersmainly 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 tolead to the introduction of stricter dispensing guidelines with the good pharmacy practice recommendationsestablished in 2011

Demographic and environmental trends will be some of the key drivers of the prescription market inVietnam Respiratory problems are on the rise, including asthma and chronic obstructive pulmonarydisease, partly due to the high prevalence of smoking and partly due to poor air quality Manufacturers ofdrugs in the respiratory therapeutic category will, therefore, have considerable room for expansion over thecoming years Similarly, increased incidence of cancer, diabetes and hypertension among the Vietnamesepopulation will provide scope for drugmakers to expand

One 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 68% while thatfor developed countries is 49% 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 Ho Chi Minh City authorities conducted

an investigation into the practice, with findings revealing that a number of doctors were in receipt of morethan VND500mn (USD26,300) 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 (USD315,000) In September 2012, Nguyen Thi Kim Tien echoed asimilar 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' relationships 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

Table: Prescription Drug Market Indicators, Historical Data And Forecasts (Vietnam 2011-2019)

Patented Drug Market Forecast

BMI View: 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.

Patented Drug Market Forecast

2010-2024 (2010-2024)

Patented drug sales, USDbn (LHS) Patented drug sales, % of total sales (RHS)

2010 2011 2012 2013 2014 2015f 2016f 2017f 2018f 2019f 2020f 2021f 2022f 2023f 2024f0

1 2 3

0 25 50 75 100

f = BMI forecast Source: National Sources/BMI

Structural Trends

By 2024, we expect the patented drug sector to reach VND43.88trn (USD2.04bn) but represent a lowerpercentage of the total market (18% versus 22% in 2014) Over the 2014-2024 period, patented drugs areexpected to post a compound annual growth rate of 9.5% in local currency (9.3% in US dollar terms) -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 World HealthOrganization, police, customs and regulatory officials in the country have begun to coordinate theiractivities, although little can be done in terms of enforcement without greater commitment to intellectualproperty rights as well as more stringent penalties for violators.

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

Speciality medicines, such as central nervous system and cardiovascular drugs, are expected to be the keygrowth area, while an increase in cancer, diabetes and hypertension will also generate product demand.However, the basic nature of consumption is illustrated by the continued strong showing of antibiotics andalimentary/metabolism products The need to contain the HIV/AIDS epidemic and related health problemswill boost the antiretroviral sector, while the prevention of swine flu and similar diseases continues to drivethe growth of anti-flu drugs

Table: Patented Drug Market Indicators, Historical Data And Forecasts (Vietnam 2011-2019)

Generic Drug Market Forecast

BMI View: Although the overall generic drug market is sizeable, standing at around VND41,878bn

(USD1.98bn) in 2014, approximately 52% of the overall market's value, most products were actually 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.

low-Generic Drug Market Forecast

2010-2024 (2010-2024)

Generic drug sales, USDbn (LHS) Generic drug sales, % of total sales (RHS)

2010 2011 2012 2013 2014 2015f 2016f 2017f 2018f 2019f 2020f 2021f 2022f 2023f 2024f0

2.5 5 7.5

0 25 50 75 100

f = BMI forecast Source: National Sources/BMI

Structural Trends

Generic products are likely to continue dominating the market in volume terms, and we forecast the value ofthe sector to reach VND146.72trn (USD6.82bn) in 2024, accounting for 59% of the total market (up fromthe calculated 52% in 2014) Vietnam offers strong prospects for generic market growth due to low

consumer purchasing power However, a number of obstacles still remain, such as a widespread belief that

generic drugs are inferior to patented products and that in many cases, they are not that much cheaper thanpatented counterparts They are also not as widely available as they could be.

Entrance into the WTO should in theory, result in dubious copy products gradually being purged from themarket, as the country brings its intellectual property (IP) regime in line with Trade-Related Aspects ofIntellectual Property Rights (TRIPS) However, given the notoriously poor standard of IP enforcement inthe country, these illicit products will continue to have a sizeable influence in the near future

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 producedpharmaceuticals 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

Table: Generic Drug Market Indicators, Historical Data And Forecasts (Vietnam 2011-2019)

OTC Medicine Forecast

BMI View: 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.

OTC Medicine Market Forecast

2010-2024 (2010-2024)

OTC medicine sales, USDbn (LHS) OTC medicine sales, % of total sales (RHS)

2010 2011 2012 2013 2014 2015f 2016f 2017f 2018f 2019f 2020f 2021f 2022f 2023f 2024f0

1 2 3

0 25 50 75 100

f = BMI forecast Source: National Sources/BMI

Structural Trends

Despite the blurred distinction between prescription and non-prescription products, over the counter (OTC)healthcare has been achieving relatively robust value growth in the last few years The value of OTC sales islikely to reach VND59,038.67bn (USD2.75bn) in 2024, up from VND21,139.70bn (USD997mn) in 2014

At the same time, the sector's share of the total market as a percentage is expected to fall to 23.7%, from26.2%, due to the rising value of the prescription sector and more expensive imports and stricter dispensingcontrols

Besides already mentioned, another factor affecting the growth of the self-prescription market is thatmanufacturers import the bulk of raw materials and active pharmaceutical ingredients, which disadvantagessegments such as vitamins and analgesics, especially given the local currency depreciation compared withkey sources markets like China, Japan and South Korea.

Nevertheless, despite these setbacks, vitamins and dietary supplements are one of the fastest growingsegments of OTC healthcare in Vietnam, with analgesics remaining the best sellers Single vitaminsupplements 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 asurvey conducted by market research firm AC Nielsen in partnership with the Association of the EuropeanSelf-Medication Industry consumers in Vietnam (at 45% of the total) are among the most likely to take anOTC drug for a minor ailment as soon as symptoms are present

Market 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 Presently, the Ministry of Health (MoH) onlyallows 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 mushroom that 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

Table: Over-The-Counter (OTC) Medicine Market Indicators, Historical Data And Forecasts (Vietnam 2011-2019)

Pharmaceutical Trade Forecast

BMI View: Data from UNComtrade do not specify the type of finished pharmaceuticals traded (i.e whether

they are patented or generic drugs) However, given that Vietnam is a developing country with low capita pharmaceutical and healthcare expenditure (USD41.2 and USD119.9 respectively in 2014), BMI believes that the majority of the drugs consumed in Vietnam are generics imported from overseas BMI highlights this reliance on imported products as a commercial opportunity for foreign drugmakers.

per-Pharmaceutical Trade Forecast

2010-2019 (2010-2019)

Pharmaceutical exports, USDmn Pharmaceutical imports, USDmn

2010 2011 2012 2013 2014 2015f 2016f 2017f 2018f 2019f0

1,000 2,000 3,000 4,000 5,000

f = BMI forecast Source: United Nations Comtrade Database DESA/UNSD, BMI

Structural Trends

Vietnam is highly reliant on pharmaceutical imports Data from UN Commodities Trade Database(UNComtrade) showed that the country imported USD1.8bn worth of pharmaceuticals in 2012 whileexporting USD77.1mn worth of products in the same period Imported pharmaceuticals were mainly fromFrance (USD235.9mn) India (USD230.5mn) South Korea (USD164.4mn) Germany (USD143.4mn) andItaly (USD93.9mn) Meanwhile, the country exported to Germany (USD9.7mn) Nigeria (USD5.6mn)

Cambodia (USD5.5mn) Japan (USD4.2mn) and India (USD4.2mn) Given that the pharmaceutical sector isstill in its infancy, we expect such reliance on imports to continue From 2014 to 2019, we forecast thatpharmaceutical exports and imports will see local compound annual growth rates of 19.5% and 11.0%respectively in US dollar terms.

While the pharmaceutical sub-sector may be growing at a double-digit rate, we caution that not all foreigndrugmakers will be able to capitalise on this growth opportunity Doubts regarding drug quality and

counterfeit 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 sales forces) 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

Free 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.

Interest groups from a number of countries such as Malaysia, Australia and New Zealand have warned ofpotential increases in drug prices, as there could be an extension of intellectual property rights involvingpharmaceuticals Should member countries agree to extend patent terms, all generic drug companies will beaffected

At the same time, the Vietnamese government is keen to increase domestic drug use in the country InDecember 2013, the Drug Administration of Vietnam launched a programme to raise awareness amongdoctors, hospital managers and the community on the use of locally produced drugs The country may opt tosubsidise more locally made drugs under the scheme, which would bring downside risks to foreign

drugmakers

Table: Pharmaceutical Trade Data And Forecasts (Vietnam 2013-2019)

Pharmaceutical exports, USDmn, %

Pharmaceutical imports, USDmn, %

f = BMI forecast Source: United Nations Comtrade Database DESA/UNSD, BMI

Table: Pharmaceutical Trade Data And Forecasts local currency (Vietnam 2013-2019)

Pharmaceuticals & Healthcare Risk/Reward Index

Asia Pacific Risk/Reward Index

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 Index (RRI) tool, which provides a globally comparative and numerically based assessment of a market's attractiveness, was established to address this In BMI's Pharmaceutical

Q116 RRIs, the Asia Pacific region scores 52.1 out of 100, comparing relatively well with Central andEastern Europe (49.6), the Americas (48.9) and the Middle East and Africa (40.3) regions but belowWestern Europe (66.8)

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 RRI 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 RRI score The Rewards component accounts for 65%

of the final RRI, while the Risks component accounts for 35%

Q116 Asia Pacific Pharmaceutical Risk/Reward Index

Rewards and Risks Scores

Source: BMI RRI scores out of 100, with 100 highest.

The Industry Rewards, Country Rewards, Industry Risks and Country Risks subsectors are each made up of

a number of indicators The weighting of each indicator (such as market expenditure which is used to assessIndustry Reward or economic diligence which is used to assess Country Risk) reflects its relative

importance to the pharmaceutical industry and subsequently the relative reward or risk that each factorposes to drug companies In Q116, Japan is ranked as the most attractive market in the Asia Pacific region

(scoring 73.3 out of 100), followed by South Korea (66.2) and Australia (65.8) In the same quarter,

Myanmar is ranked as the least attractive market in the region (scoring 29.3 out of 100), followed byCambodia (33.1) and Sri Lanka (38.2)

With regards to assessing rewards, we identify industry-specific factors, such as the size of the

pharmaceutical market, and country-specific factors, such as the size of the pensionable population, whichrepresent opportunities to would-be investors Focusing on the rewards component of the rating system,Japan scores a total of 45.8 out of 65, the highest score in subsector Japan's score is boosted by the largemulti-billion dollar drug market (market expenditure score of 18.0 out of 20) and large pensionable

population (pensionable population score of 8.0 out of 8), but dragged down by a declining pharmaceuticalmarket (sector value growth score of 0 out of 12) and a declining population (population growth score of 1.0out of 5) Meanwhile, Myanmar scores a total of 20.9 out of 65, the lowest in the subsector

Q116 Asia Pacific Pharmaceutical Rewards

Industry Rewards And Country Rewards Scores

Source: BMI RRI scores out of 100, with 100 highest.

With regards to assessing risks, we identify industry-specific dangers, such as approvals expediency, andthose emanating from the state's political and economic profile, such as bureaucracy, which call intoquestion the likelihood of anticipated returns being realised over the assessed time period With regards to

the economic and political assessment, only the aspects most relevant to the pharmaceutical industry areincorporated into the assessment Focusing on the risks component of the rating system, Myanmar scores atotal of 8.4 out of 35, the lowest score in subsector Compared to its peers, Myanmar's score is draggeddown by industry characteristics such as the absence of patent respect (patent respect score of 0 out of 7)and policy enforcement (policy enforcement score of 1.5 out of 7) Meanwhile, Singapore scores a total of28.1 out of 35, the highest score in the subsector.

Q116 Asia Pacific Pharmaceutical Risks

Industry Risks And Country Risks Scores

Source: BMI RRI scores out of 100, with 100 highest.

In the table below, the subsector scores (ie, Industry Rewards) and full component scores (ie, Rewards)have been expressed as a percentage of the total weight or as a percentage of the maximum score that can be

achieved This allows for the identification of the sub-sector or component that will most positively ornegatively affect a single market.

Q116 Asia Pacific Pharmaceutical Risk/Reward Index

Rewards And Risks Scores As A Percentage Of The Maximum Score

Source: BMI RRI scores out of 100, with 100 highest.

Vietnam Risk/Reward Index

Vietnam's Pharmaceutical Risk Reward Index score for Q116 is 48.4 out of the maximum 100 The countryscored above average for overall market expenditure and sector value growth Consequently, with thismoderate score, Vietnam is ranked 12th (same as in the previous quarter) out of the 19 key Asia Pacificmarkets, level with Thailand and Indonesia

Rewards

Industry Rewards: Vietnam is an attractive market currently experiencing double-digit growth (scoring 9.6

out of 12 for Sector Value Growth, above the regional average of 6.3) and, importantly, we expect this trend

to continue for at least the next five years However, very low annual per capita pharmaceutical spending (atUSD41.2 in 2014) limits the country's score to 2.4 out of 12 in the Spending Per Capita section, below theregional average of 3.9

Country Rewards: Vietnam scores poorly because of its large rural population which lacks access to

healthcare providers such as hospitals, clinics and pharmacies, scoring 9.4 out of 21, below the regionalaverage of 11.9 As a result of the Vietnam War, when 2.5mn people died, demographics are skewed, sothere are many more youths than elderly people The country therefore scores 3.2 out of eight forPensionable Population, below regional average of 4.1, on this indicator Since old people consume moremedicines, the opportunities for drugmakers in a country with a population of 89mn are fewer thanexpected However, the country is getting increasingly aged According to the latest Vietnam AgeingSurvey 2011, the proportion of elderly people aged 65 and above represents 7% of the total population.Over the long term, the increasingly ageing population will present commercial opportunities forpharmaceutical firms

Risks

Industry Risks: One of the most obvious drawbacks of the Vietnamese pharmaceutical market is erratic

pricing In 2009, numerous products saw double-digit price hikes, with some companies raising prices fortheir drugs twice in a couple of months This was partly due to currency depreciation and rises in the cost ofimported active pharmaceutical ingredients, but is also partly due to poor state monitoring Some companieshave in the past increased drug prices in a bid to increase revenues generated from the market

Country Risks: Vietnam is a stable communist state and therefore scores highly for Policy Continuity

(scoring 2.1 out of three, slightly below the regional average of 2.2) Its economic structure, which ischaracterised by increasing privatisation, is below global standards, but improvements are expected