Lack of raw materials puts foreign drug firms off production

TN News

Email Print

 
Workers at a pharmaceutical factory of Imexpharm Company

Though the pharmaceutical market is expected to see rapid growth, foreign companies are not interested in investing in drug production, leaving Vietnam heavily dependent on imports.

The country's pharmaceutical and healthcare sectors are set to see strong growth, albeit from a low base, given the bullish outlook on the economy and rising affluence.

Besides, the government is committed to universal healthcare coverage, according to Business Monitor International, a UK-based information provider on country risk and industry research.

Spending on drugs is expected to increase from US$2.84 billion last year to $3.31 billion this year, it said.

Two-thirds of Vietnam's 90 million people are covered by health insurance, and the ratio is expected to rise to 70 percent by 2015 and 80 percent by 2020, according to Deputy Minister of Health Nguyen Thi Xuyen.

But despite the promise, the market is not attractive to foreign investors since Vietnam is still heavily reliant on imported raw materials, which could increase production costs, industry insiders said.

Foreign investors said pharmaceutical production in Vietnam is not really profitable because the country has to import 90 percent of the raw materials.

The government has allowed foreign drug firms to establish wholly-owned subsidiaries and branches since 2009 under its WTO commitments.

But setting up a subsidiary can be a long process and entails having a manufacturing facility in the country.

So, instead of establishing wholly-owned subsidiaries in Vietnam, foreign pharmaceutical companies prefer tying up with local partners for manufacturing and distribution.

GlaxoSmithKline, for instance, signed an agreement in 2010 with leading Vietnamese drug company Savipharm. The UK firm is responsible for marketing, technical support, and quality control, while Savipharm takes care of manufacturing and distribution.

Most foreign companies restrict themselves to imports, with only 30 percent being in production in the country. Even they focus on turning out low-cost generics, not sophisticated drugs.

There are 178 drug companies in the country, 80 of them making only traditional medicines. Together they meet only around half the country's demand, according to the Ministry of Health.

Weak local firms

Most local drug companies are small to medium-sized.

Hau Giang, Traphaco, Vinapharm, Domesco, and the Central Pharmaceutical Company account for most of the market share, with Hau Giang being the largest.

Vietnamese drugs are not very popular, with doctors and patients preferring foreign-made ones. Industry insiders blame this on the advertising by foreign pharmaceutical firms.

An executive at the Central Pharmaceutical Company said his firm produces around 300 products which are much cheaper than imports, but still finds it hard to attract customers.

He blamed this on the disparity in regulations that limit the capability of domestic firms to advertise and offer commissions.

The law caps pharmaceutical firms' advertising expenditure at 10 percent of their total spending.

One industry insider estimated that spending by Vietnamese drug manufacturers to win over doctors and hospital procurement officers is only 6-10 percent of that of their foreign counterparts.

But Nguyen Ngoc Hien, deputy director of Bach Mai General Hospital in Hanoi, said: "Many local drugs are not as good as imports. The most important thing for doctors is to prescribe something that is safe and effective.

"Price is not a decisive factor in convincing a patient to buy a certain drug. Moreover, many kinds of drugs are not being produced in Vietnam."

Unable to sell their products, most have stopped production to focus on imports. According to the Vietnam Pharmaceutical Companies Association, only 10 percent of over 2,000 drug firms are still in production with 90 percent now preferring to trade.

The association said only 11.9 percent of central hospitals' spending on drugs is for local products, while the ratio is 33.9 percent for provincial facilities.

Pham Khanh Phong Lan, deputy director of the Ho Chi Minh City Department of Health, said while it is easy for foreign pharmaceutical products to infiltrate into Vietnam even if they could be produced locally, other countries use technical barriers to prevent this.

Ong Van Dung, general director of pharmaceutical firm Stada Vietnam, said the biggest rivals for Vietnamese companies are India, Pakistan, Bangladesh, and South Korea.

Foreign firms are not allowed to directly distribute pharmaceutical products in Vietnam, but some firms are getting around that restriction by investing in local companies.

Chile-based CFR International SPA bought a 44 percent stake in Domesco, a local drug manufacturer.

Vietnam has spent $1.25 billion on importing drugs so far this year, 7.1 percent higher than in the same period last year, according to the General Statistics Office.

Like us on Facebook and scroll down to share your comment

More Business News