Vietnam pharmaceuticals healthcare report q1 2014

Source: BMI, Drug Administration of Vietnam DAV, Vietnam Ministry of Health, domestic companies, local press... Source: BMI, Drug Administration of Vietnam DAV, Vietnam Ministry of Healt

Q1 2014 www.businessmonitor.com

VIETNAM

PHARMACEUTICALS & HEALTHCARE REPORT

INCLUDES 10-YEAR FORECASTS TO 2022

Healthcare Report Q1 2014

INCLUDES 10-YEAR FORECASTS TO 2022

Part of BMI’s Industry Report & Forecasts Series

Published by: Business Monitor International

Copy deadline: December 2013

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BMI Industry View 7

SWOT 9

Political 11

Economic 12

Business Environment 13

Industry Forecast 14

Pharmaceutical Market Forecast 14

Table: Pharmaceutical Sales Indicators, 2009-2017 15

Healthcare Market Forecast 16

Table: Healthcare Expenditure Indicators, 2009-2017 19

Table: Healthcare Governmental Indicators, 2009-2017 20

Table: Healthcare Private Indicators, 2009-2017 20

Prescription Drug Market Forecast 21

Table: Prescription Drug Sales Indicators, 2009-2017 23

Patented Drug Market Forecast 24

Table: Patented Drug Market Indicators, 2009-2017 25

Generic Drug Market Forecast 26

Table: Generic Drug Sales Indicators, 2009-2017 27

OTC Medicine Market Forecast 28

Table: OTC Medicine Sales Indicators, 2009-2017 30

Pharmaceutical Trade Forecast 31

Table: Vietnam Pharmaceutical Trade Data And Forecasts (US$mn) 32

Table: Vietnam Pharmaceutical Trade Data And Forecasts (US$mn) 33

Other Healthcare Data 33

Key Risks To BMI's Forecast Scenario 34

Macroeconomic Forecasts 36

Table: Vietnam - Economic Activity 39

Industry Risk Reward Ratings 40

Asia Pacific Risk/Reward Ratings 40

Vietnam Risk/Reward Ratings 46

Rewards 46

Risks 46

Market Overview 48

Industry Trends And Developments 50

Epidemiology 50

Healthcare Financing 51

Hospital Sector 54

Private Healthcare Sector 56

Healthcare Insurance 57

Healthcare And Pharmaceutical Reform 59

Research And Development 60

Biotechnology Sector 62

Clinical Trials 65

Regulatory Development 68

Regulatory Regime 68

Pharmaceutical Advertising 69

Intellectual Property Environment 70

Corruption 73

Pricing Regime 74

Reimbursement Regime 78

Pricing And Reimbursement Developments 80

Competitive Landscape 82

Pharmaceutical Sector 82

Domestic Industry 83

Foreign Industry 85

Traditional Medicines 88

Pharmaceutical Distribution 89

Pharmaceutical Retail Sector 90

Table: Key Aspects Of Good Pharmacy Practice In Developing Countries 91

Company Profile 92

DHG Pharmaceutical 92

Traphaco Pharmaceutical 94

Vietnam Pharmaceutical Corporation (Vinapharm) 96

Vietnam OPV Pharmaceutical Co 99

Vietnam Pharmaceutical Joint Stock Company (Ampharco) 101

Vidipha Central Pharmaceutical Joint Stock Company 104

Pfizer 106

Sanofi 108

Novartis 112

Merck & Co 114

GlaxoSmithKline 116

Demographic Forecast 118

Demographic Outlook 118

Table: Vietnam's Population By Age Group, 1990-2020 ('000) 119

Table: Vietnam's Population By Age Group, 1990-2020 (% of total) 120

Table: Vietnam's Key Population Ratios, 1990-2020 121

Table: Vietnam's Rural And Urban Population, 1990-2020 121

Glossary 122

Methodology 124

Pharmaceutical Expenditure Forecast Model 124

Healthcare Expenditure Forecast Model 124

Notes On Methodology 125

Risk/Reward Ratings Methodology 126

Ratings Overview 127

Table: Pharmaceutical Risk/Reward Ratings Indicators 127

Indicator Weightings 128

BMI Industry View

BMI View: The upgrade to our private healthcare forecast stems largely from the Vietnamese government's

plan to pass hospital operating costs to patients We highlight that this is potentially regressive should hospitals attempt to profit from such policies Nevertheless, we remain largely optimistic towards Vietnam's healthcare sector, as it is seeking to implement universal healthcare for its population, which will improve access to services.

Headline Expenditure Projections

■ Pharmaceuticals: VND59,214bn (US$2.84bn) in 2012 to VND69,297bn (US$3.32bn) in 2013; +17.0%

in local currency terms and +16.9% in US dollar terms Forecast unchanged from Q413, long-term forecast slightly upgraded to reflect general bullish sentiments in Vietnam's economy.

■ Healthcare: VND201,466bn (US$9.65bn) in 2012 to VND230,985bn (US$11.1bn) in 2013; +14.7% in local currency terms and +14.5% in US dollar terms Forecast broadly in line with Q313

Risk/Reward Rating: Vietnam's Pharmaceutical Risk/Reward Rating (RRR) score for Q114 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 13th behind Thailand out ofthe 19 key markets in Asia Pacific

Key Trends And Developments

■ In December 2013, Vietnam and Cuba signed a memorandum of understanding (MoU) for regulatingpharmaceuticals and boosting public health cooperation as proposed by the IntergovernmentalCommission at its September session The MoU was signed by Rafael Perez Cristia, the director of theCuban state regulatory agency for medicine, CECMED, and Truong Quoc Cuong, the general director ofVietnam's Drug Administration, in the presence of Vietnamese Vice Minister Nguyen Than Long Earlier

in September 2013, the Intergovernmental Commission met in Havana and expressed its interest tosupport collaboration projects between specialised institutions in the two countries

■ In November 2013, the Vietnamese Ministry of Health's Administration of Science, Technology andTraining (ASTT) signed an agreement with Quintiles to enhance clinical research Under the two-yearagreement, Quintiles and ASTT will jointly address a number of topics, such as improving processes fortrial management, developing streamlined processes to improve trial efficiency and quality as well astraining for investigators and ethics committees

■ In October 2013, Ho Chi Minh City health department inspectors have exposed several regulatoryviolations in an inspection at a Vietnamese public hospital, Nguyen Tri Phuong The inspectors foundthat the hospital had been charging 14% more than the regular VND700,000 (US$32.66) for a MSCTscan over the past two years The inspection also revealed that hospital staff were involved in manycorrupt practices such as purchasing medicines and equipment from unauthorised suppliers, overchargingpatients and embezzling assets from the hospital

BMI Economic View: Our assessment of the Vietnamese economy at the provincial level suggests that

there are attractive opportunities for foreign companies to invest in rapidly-developing provinces that aresituated in the South East region (including Ba Ria-Vung Tau, Dong Nai, and Binh Duong) We expectrising labour costs and intense competition in developed cities to push companies to look for better

opportunities in these provinces

BMI Political View: We view the passing of the revised Land Law in Vietnam as a significant milestone

with regards to government efforts to clamp down on corruption and address mounting public dissent overland rights violations The new law, which aims to establish a fairer process of compensating occupants forthe appropriation of land by the government, will help to significantly reduce cases of land disputes.Furthermore, the new law could also benefit investment, as projects often face long and costly delays due toland disputes arising from unfair compensation

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 South East Asian Nations (ASEAN) harmonisation initiative,

including the adoption of Western regulatory standards such as InternationalConference on Harmonisation and World Health Organization guidelines

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 poor andtherefore limit market volume growth

■ Legalisation of parallel imports negatively impacting performance of patented drugs

SWOT 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

SWOT 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

Business 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

Industry Forecast

Pharmaceutical Market Forecast

Vietnam's pharmaceutical market was valued at

VND59,214bn (US$2.84bn) in 2012, a 18.2%

year-on-year (y-o-y) increase in local currency terms

Over the forecast period to 2017, BMI expects

pharmaceutical consumption to reach

VND121,049bn (US$6.04bn), equating to a

compound annual growth rate (CAGR) of 15.4% in

local currency and 16.3% in US dollar terms Over

the extended forecast period to 2022, 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

2008-2022

Pharmaceutical sales, US$bn (LHS) Pharmaceutical sales at CER, US$bn (LHS) Pharmaceutical sales, % of GDP (RHS)

2008 2009 2010 2011 2012 2013f 2014f 2015f 2016f 2017f 2018f 2019f 2020f 2021f 2022f 0

5 10 15

0 0.5 1 1.5 2

f = BMI forecast CER = constant exchange rate Source: BMI, Drug Administration of Vietnam (DAV), Vietnam Ministry of Health, domestic companies, local press

performed 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, 2009-2017

Pharmaceutical

sales (US$bn) 1.71 2.06 2.42 2.84 3.32 3.92 4.56 5.27 6.04 Pharmaceutical

sales (US$bn), %

chg y-o-y 22.2 20.2 17.9 17.0 16.9 18.2 16.4 15.4 14.6 Pharmaceutical

sales (VNDbn) 30455.08 39315.95 50081.50 59213.71 69297.49 80614.12 92801.26 106471.05 121048.59 Pharmaceutical

sales (VNDbn), %

chg y-o-y 32.3 29.1 27.4 18.2 17.0 16.3 15.1 14.7 13.7 Pharmaceutical

sales at constant

exchange rate (US

$bn) 1.47 1.90 2.42 2.87 3.35 3.90 4.49 5.15 5.86

Pharmaceutical Sales Indicators, 2009-2017 - Continued

Pharmaceutical

sales, per capita (US

$) 19.40 23.09 26.96 31.24 36.17 42.36 48.88 55.92 63.58 Pharmaceutical

sales, % of GDP 1.68 1.82 1.80 1.82 1.89 1.96 2.01 2.06 2.10 Pharmaceutical

sales, % of health

expenditure 26.14 29.04 29.01 29.39 30.00 30.30 30.56 30.98 31.28

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 forecast that the sector will

reach a value of VND660,030bn (US$34.7bn) by

2022 Through to 2017 and 2022, the sector is

projected to grow at local CAGRs of 13.9% and

12.6% respectively (14.9% and 13.7% 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

Healthcare Expenditure Forecast

2008-2022

Health expenditure, US$bn (LHS) Health expenditure at CER, US$bn (LHS) Health expenditure, % of GDP (RHS)

2008 2009 2010 2011 2012 2013f 2014f 2015f 2016f 2017f 2018f 2019f 2020f 2021f 2022f 0

20 40

0 5

f = forecast CER = constant exchange rate Source: BMI, World Health Organization (WHO)

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 ofthis 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 2022

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 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 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

Table: Healthcare Expenditure Indicators, 2009-2017

Health

expenditure

(US$bn) 6.5 7.1 8.4 9.7 11.1 12.9 14.9 17.0 19.3 Health

expenditure

(US$bn), %

chg y-o-y 9.0 8.2 18.1 15.5 14.5 17.1 15.5 13.8 13.6 Health

expenditure

(VNDbn) 116,496.8 135,367.8 172,649.9 201,465.8 230,985.3 266,095.9 303,710.5 343,650.9 387,031.6 Health

expenditure

(VNDbn), %

chg y-o-y 18.0 16.2 27.5 16.7 14.7 15.2 14.1 13.2 12.6 Health

expenditure

at constant

exchange

rate (US$bn) 5.6 6.6 8.4 9.8 11.2 12.9 14.7 16.6 18.7 Health

expenditure

per capita

(US$) 74.2 79.5 93.0 106.3 120.5 139.8 160.0 180.5 203.3 Health

expenditure

(% GDP) 6.4 6.3 6.2 6.2 6.3 6.5 6.6 6.7 6.7

Source: BMI, WHO

Table: Healthcare Governmental Indicators, 2009-2017

health

expenditure

(US$bn), %

chg y-o-y 22.5 3.3 28.3 14.8 13.5 15.5 13.9 12.8 12.8 Government

health

expenditure

(VNDbn) 45,300.9 50,257.5 69,665.5 80,821.0 91,856.8 10,4389.2 11,7490.1 13,1762.4 14,7452.7 Government

health

expenditure

(VNDbn), %

chg y-o-y 32.6 10.9 38.6 16.0 13.7 13.6 12.6 12.1 11.9 Government

sector health

expenditure,

% of total 38.9 37.1 40.4 40.1 39.8 39.2 38.7 38.3 38.1

Source: BMI, WHO

Table: Healthcare Private Indicators, 2009-2017

Private health

expenditure

(US$bn) 4.0 4.5 5.0 5.8 6.7 7.9 9.2 10.5 11.9 Private health

expenditure

(US$bn), %

chg y-o-y 1.8 11.3 12.0 15.9 15.2 18.1 16.5 14.4 14.0 Private health

expenditure

(VNDbn) 71,195.9 85,110.3 102,984.4 120,644.8 139,128.5 161,706.7 186,220.4 211,888.5 239,578.9 Private health

expenditure

(VNDbn), %

chg y-o-y 10.2 19.5 21.0 17.1 15.3 16.2 15.2 13.8 13.1 Private sector

Prescription 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 2017, we forecast that prescription medicines will be worth VND90,254bn (US$4.5bn) at consumerprices, posting a CAGR of 15.8% in local currency terms (thus somewhat above the wider pharmaceuticalmarket) In percentage terms, at this point, prescription drugs will account for 74.6% of the total market,from 73.3% in 2012, driven by expanded access to formal healthcare in rural areas

The retail price of both essential and non-essential pharmaceuticals continues to rise; manufacturers haveattributed the rises to foreign currency increases However, there are accusations that foreign drugmakerscollude with local distributors to keep prices high, while some distributors may pay doctors commissions toensure they prescribe their drugs Research published in September 2009 in the Southern Med Reviewreports that medicine prices in Vietnam are high, both for patented and generic drugs, and that regulation isrequired to control mark-ups One other method of keeping prices to reasonable levels is through controllingthe volume of drugs on the market

Prescription Drug Market Forecast

2008-2022

Prescription drug sales, US$bn (LHS) Prescription drug sales, % of total sales (RHS)

2008 2009 2010 2011 2012 2013f 2014f 2015f 2016f 2017f 2018f 2019f 2020f 2021f 2022f 0

5 10

0 25 50 75

f = BMI forecast Source: BMI, Drug Administration of Vietnam (DAV), Vietnam Ministry of Health, domestic companies, local press

Hospitals remain the primary source of healthcare, a factor that will continue to boost the demand forprescription pharmaceuticals, especially given the government's programme to modernise and expand thenumber of hospitals in the country Additionally, the government's longer-term programme to privatise keysecondary institutions is likely to have a beneficial effect on market values At present, only around 19-20%

of all hospital drugs are sourced locally, according to official figures In Q409, the DAV announced thatdomestic pharmaceutical companies were aiming to meet 60% of the market's demand by 2010 However,the target was not met According to the Ministry of Health in September 2013, there are 178 drug

companies in Vietnam, with 80 of them making only traditional medicines Together, they meet

approximately 50% of the domestic pharmaceutical demand

Demographic and environmental trends will be some of the key drivers of the prescription market inVietnam 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

One therapeutic area that has strong potential is oncology In Vietnam, around 150,000 people a yearcontract cancer and mortality rates are very high, standing at around 50% The most common cancers arelung, liver and stomach Part of the problem is high smoking levels, with Vietnam having the highestprevalence rates among men in the world Diabetes is another therapeutic area with potential for growth.Lifestyle changes influenced by the West, coupled with the growth of fast-food chains mean the incidence

of the disease has increased considerably, especially among young people, and many sufferers do not realisethey suffer from diabetes until complications occur

Moreover, prescribing patterns seem to be influenced by economic considerations, with drug companiespaying commissions to doctors who promote certain types of product The HCMC authorities conducted aninvestigation 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

Table: Prescription Drug Sales Indicators, 2009-2017

Prescription

drug sales

(US$bn) 1.24 1.50 1.77 2.08 2.44 2.89 3.38 3.91 4.50 Prescription

drug sales

(US$bn), %

chg y-o-y 22.7 20.5 18.4 17.4 17.3 18.6 16.8 15.8 15.0 Prescription

drug sales

(VNDbn) 22,110.39 28,622.01 36,603.17 43,419.93 50,982.17 59,505.01 68,729.76 79,118.37 90,253.91 Prescription

drug sales

(VNDbn), %

chg y-o-y 32.8 29.5 27.9 18.6 17.4 16.7 15.5 15.1 14.1 Prescription

Patented 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

2022, we expect the patented drug sector to reach

VND38,272bn (US$2.0bn), but represent a lower

percentage (18.51% versus 22.7% in 2012) of the

total market Over the 2012-2022 period, patented

drugs are expected to post a CAGR of 11.0% in local

currency (12.1% 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

2008-2022

Patented drug sales, US$bn (LHS) Patented drug sales, % of total (RHS)

2008 2009 2010 2011 2012 2013f 2014f 2015f 2016f 2017f 2018f 2019f 2020f 2021f 2022f 0

1 2 3

0 10 20

f = BMI forecast Source: BMI, Drug Administration of Vietnam (DAV), Vietnam Ministry of Health, domestic companies, local press

Speciality 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, 2009-2017

Patented

drug sales

(US$bn) 0.41 0.48 0.56 0.64 0.74 0.86 0.98 1.11 1.25 Patented

drug sales

(US$bn), %

chg y-o-y 20.7 18.3 16.2 15.0 15.0 16.2 14.3 13.2 12.4 Patented

drug sales

(VNDbn) 7,248.31 9,209.95 11,560.38 13,437.90 15,473.92 17,687.55 19,993.06 22,506.13 25,085.65 Patented

drug sales

(VNDbn), %

chg y-o-y 30.6 27.1 25.5 16.2 15.2 14.3 13.0 12.6 11.5 Patented

drug sales,

% of

prescription

sales 32.78 32.18 31.58 30.95 30.35 29.72 29.09 28.45 27.79 Patented

Generic Drug Market Forecast

Although the overall generic drug market is sizeable,

standing at around VND29,982bn (US$1.44bn) - or

approximately 51% of the overall market's value - in

2012, 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 VND118,566bn (US$6.24bn) in 2022, accounting for over 57.3% of thetotal market (up from the calculated 50.6% in 2012) 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 the meantime, the legalisation on parallel imports, which must be cheaper than locally produced drugs,will increase the pressure on companies to compete on price and should also have the impact of breaking updistributor-led monopolies Similarly, the policy of publishing drug prices on the DAV's website should alsoinstil further competition into the market and will allow hospitals to make more informed purchasing

2.5 5 7.5

0 25 50

f = BMI forecast Source: BMI, Drug Administration of Vietnam (DAV), Vietnam Ministry of Health, domestic companies, local press

Table: Generic Drug Sales Indicators, 2009-2017

Generic drug

sales (US

$bn) 0.83 1.02 1.21 1.44 1.70 2.03 2.40 2.80 3.25 Generic drug

sales (US

$bn), % chg

y-o-y 23.7 21.6 19.4 18.5 18.3 19.7 17.9 16.8 16.1 Generic drug

sales

(VNDbn) 14,862.08 19,412.06 25,042.78 29,982.03 35,508.25 41,817.46 48,736.69 56,612.24 65,168.26 Generic drug

sales

(VNDbn), %

chg y-o-y 33.9 30.6 29.0 19.7 18.4 17.8 16.5 16.2 15.1 Generic drug

sales, % of

prescription

sales 67.22 67.82 68.42 69.05 69.65 70.28 70.91 71.55 72.21 Generic drug

sales, % of

total sales 48.80 49.37 50.00 50.63 51.24 51.87 52.52 53.17 53.84

f = BMI forecast Source: BMI, Drug Administration of Vietnam (DAV), Vietnam Ministry of Health, domestic companies, local press

OTC 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 VND49,976bn (US$2.63bn) in 2022, up from

VND15,794bn (US$760mn) in 2012 At the same

time, the sector's share of the total market as a

percentage is expected to fall to 24.2%, from 26.7%,

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

2008-2022

OTC medicine sales, US$bn (LHS) OTC medicine sales, % of total sales (RHS)

2008 2009 2010 2011 2012 2013f 2014f 2015f 2016f 2017f 2018f 2019f 2020f 2021f 2022f 0

1 2 3

0 10 20

f = BMI forecast Source: BMI, Drug Administration of Vietnam (DAV), Vietnam Ministry of Health, domestic companies, local press

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, 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

Table: OTC Medicine Sales Indicators, 2009-2017

Pharmaceutical Trade Forecast

Vietnam is highly reliant on pharmaceutical imports

Latest data from UN Commodities Trade Database

(UNComtrade) showed that the country imported US

$1.9bn worth of pharmaceuticals in 2012 while

exporting US$79.4mn worth of products in the same

period Given that its pharmaceutical sector is still in

its infancy, we expect such reliance on imports to

continue From 2012 to 2017, we forecast that

pharmaceutical exports and imports will see local

CAGRs of 26.0% and 20.0% respectively in US

dollar terms

Local production accounts for around half of

Vietnam's pharmaceutical consumption, but only a

tiny fraction of this is currently exported According

to the UN Comtrade database, key export

destinations include Germany, India and Nigeria

Meanwhile, India will continue to be one of the key

providers of pharmaceuticals to Vietnam, boosted by

volumes, although producers from France and other developed markets also feature heavily in the importmix

The government aims to increase its drug exports, with Deputy Health Minister Cao Minh Quang

announcing in November 2009 that - given that Vietnam had recently become self-sufficient in terms ofmeasles vaccine production - the next step is to look towards exporting these vaccines We expect increasedharmonisation with international GMP standards to provide a major boost for exports by those

manufacturers with sufficient capital to make the necessary investments A further positive for the domesticindustry is reports that the government is looking to increase FDI by multinationals

Like firms from regional neighbours Bangladesh and Pakistan, Vietnamese drug makers are targetingmarkets with low barriers to entry South East Asian countries such as Laos and Cambodia are primetargets, while African states are growing in popularity Meanwhile, the Middle East and the CIS have bothbeen touted as potential future customers for Vietnamese-made pharmaceuticals

Pharmaceutical Trade Forecast

2008-2016

Pharmaceutical exports, US$mn Pharmaceutical imports, US$mn

2008 2009 2010 2011 2012 2013f 2014f 2015f 2016f 2017f 0

2,500 5,000

Notes: Last updated: 12/12/2013 Comtrade Code = 3002,3003,3004 Source: United Nations Comtrade Database DESA/UNSD, BMI

The above strategy is exemplified by Mekophar Chemical Joint-Stock Company Building on an existing distribution relationship, the drugmaker has entered into an agreement with Nigeria's Neros

Pharmaceuticals to build a manufacturing plant in Africa Mekophar also exports medicines to the

Democratic Republic of the Congo, Myanmar and Russia

In the meantime, as a greater proportion of Vietnam's vast population become consumers of

pharmaceuticals, various state agencies are looking for local producers or Vietnamese subsidiaries offoreign firms to increase output rather than relying on imports For example, the health ministry is

facilitating this goal by improving the legal framework for setting up medicine manufacturing businesses.While progress has been made, much more needs to be done to maintain and improve the operating

environment for such goals to be realised According to the Vietnam Pharmaceutical Researchers'

Association, it is imperative that Vietnam continues to observe intellectual property rights as defined by theWTO In addition, the organisation is asking that the government engage in more dialogue with the

industry, to ensure the effective implementation of policies For the time being, we expect imports tocontinue dwarfing exports, increasing the negative trade balance to around US$3.7bn by 2017

Table: Vietnam Pharmaceutical Trade Data And Forecasts (US$mn)

Pharmaceutical exports

(US$mn) 48.71 63.14 79.40 100.04 126.27 159.59 201.91 255.67 Pharmaceutical exports

(US$mn), % chg y-o-y 14.2 29.6 25.7 26.0 26.2 26.4 26.5 26.6 Pharmaceutical imports

(US$mn) 1,301.31 1,581.35 1,850.32 2,162.63 2,556.78 2,977.34 3,435.33 3,937.83 Pharmaceutical imports

(US$mn), % chg y-o-y 14.1 21.5 17.0 16.9 18.2 16.4 15.4 14.6 Pharmaceutical trade

balance (US$mn) -1,252.60 -1,518.21 -1,770.92 -2,062.59 -2,430.51 -2,817.75 -3,233.43 -3,682.16

Source: United Nations Comtrade Database DESA/UNSD, BMI

Table: Vietnam Pharmaceutical Trade Data And Forecasts (US$mn)

Pharmaceutical

exports (VNDmn) 758969.70 931319.89 1304304.96 1657223.04 2090866.24 2596716.86 3244373.71 4081572.51 Pharmaceutical

exports

(VNDmn), % chg

y-o-y 46.2 22.7 40.0 27.1 26.2 24.2 24.9 25.8 Pharmaceutical

imports (VNDmn) 20302239.9 24882558.2 32665445.6 38621886.3 45198993.6 52580216.7 60529227.2 69445285.2 Pharmaceutical

imports

(VNDmn), % chg

y-o-y 41.8 22.6 31.3 18.2 17.0 16.3 15.1 14.7 Pharmaceutical

trade balance

(VNDmn) -19543270 -23951238 -31361141 -36964663 -43108127 -49983500 -57284853 -65363713

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%

According 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

Inflation will be a major factor in these high nominal market growth rates BMI expected general inflation

to spike at 18.6% in 2011 before dropping back to 5% per annum in the latter half of the 10-year forecastperiod Higher costs of production and the lack of a strict government policy of pharmaceutical pricecontrols makes it likely that retail pharmaceutical prices will rise over the forecast period

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 in

recent 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.

The Ministry of Health plans to build a new antibiotics plant, introduce incentives to attract foreign

investment and open GMP-compliant facilities courtesy of state-owned producer Vinapharm, which should

serve to boost market development However, the implementation of this programme remains dependent onfinancial resources, with the economy vulnerable to regional and global fluctuations, as well as politicalwill Similarly, the government may accelerate the implementation of its pricing restrictions, as well aspossibly reverse the price increases witnessed to date, which would threaten current forecasts

Risks 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

Macroeconomic Forecasts

BMI View: Although we expect the Vietnamese economy to record yet another quarter of sub-par growth in

Q413, we are beginning to see potential for upside surprises to domestic demand over the coming quarters Recent data on foreign direct investment inflows, remittances, passenger car sales, and property market launches, suggests to us that domestic demand is on a nascent recovery, setting the stage for stronger 2014 growth

The general consensus is expecting the Vietnamese economy to suffer yet another quarter of sub-par growthmainly due to subdued external demand and the lack of progress on banking sector reforms This is closely

in line with our view that real GDP growth will come in at just 5.3% in 2013, a slight improvement from5.2% in 2012 Looking ahead to 2014, however, evidence of improving macroeconomic fundamentals inVietnam (especially with regards to the outlook for domestic demand) suggests to us the balance of risks toour growth forecast of 6.0% is gradually tilting towards the upside

Robust Remittances Could Boost Domestic Demand

Vietnam - Unrequited Transfers, US$mn

Source: BMI, Asian Development Bank

Remittances: According to estimates published by the World Bank, the Vietnamese economy is on track to

record a bumper year for remittance inflows The country is expected to receive US$10.6bn in remittancesfrom Vietnamese citizens working abroad, a robust 6.5% increase from 2012 Crucially, we believe thatremittance inflows will remain strong over the coming quarters as macroeconomic conditions in Vietnamcontinue to improve Growing confidence in the stability of the Vietnamese dong should also help toencourage Vietnamese workers abroad, to a certain extent, to remit a larger share of their earnings backhome We believe that this will help to boost domestic demand while providing support for the currency

Foreign Direct Investment: Total foreign direct investment (FDI) inflows are also set to surpass the

government's full-year target of US$13bn, after data released by the Ministry of Planning and Investmentshowed that inflows surged by 19.5% year-on-year (y-o-y) growth over the first eight months of the year.The strong reading chimes with our view that the country's solid long-term growth story should continue toattract foreign investors over the coming years

Automobile Sales: We are witnessing signs of a robust recovery in automobile sales, a sign that pent-up

domestic demand is beginning to rebound According to the Vietnam Automobile Manufacturers

Association (VAMA), September vehicle sales of its members surged by 20.6% year-on-year (y-o-y),

exceeding our already bullish forecast of 12.5% for the year (see 'Bullish On CV Sales In The Medium To

Long Term', October 14 2013).

Developers Eyeing Property Market Rebound

Vietnam - Real Estate Index

Source: BMI, Blooomberg

Property Market: Meanwhile, we see increasing evidence that the Vietnamese property market may have

bottomed out (see 'Early Signs Of A Recovery, But No Property Market Boom In Sight', August 14 2013).

According to a quarterly report published by real estate agency CBRE Vietnam, the number of new

launches surged by 12% y-o-y in Q313 Anecdotal evidence from the local media suggests to us thatdemand for real estate following the sharp decline in prices since 2011 may be recovering To be sure, wemaintain our view that we are unlikely to see a property market boom given the healthy pipeline of newunits that will come online in 2014 Nonetheless, we acknowledge that consumer confidence is recoveringand we could potentially see some upside surprises to domestic demand in 2014

Expenditure Breakdown

Private Consumption: We expect private consumption to grow at a relatively resilient pace of 5.0% 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 recent rate cuts 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 slightly from 4.1% in 2013 to 4.8% in 2014

Public Spending: We expect total public spending to remain relatively resilient in 2014, expanding at a

respectable pace of 6.1% 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 5.9% in 2014

Table: Vietnam - Economic Activity

Nominal GDP,

VNDbn 3 2,157,829 2,779,880 3,245,419 3,657,621 4,117,487 4,631,499 5,203,774 5,841,949 Nominal GDP,US

$bn 3 112.9 134.6 155.5 175.0 200.2 227.8 257.4 291.4 Real GDP growth,

% change y-o-y 3 6.4 6.2 5.2 5.3 6.0 6.9 7.0 7.0 GDP per capita,

US$ 3 1,267 1,497 1,712 1,909 2,163 2,439 2,733 3,068 Population, mn 4 89.0 89.9 90.8 91.7 92.5 93.4 94.2 95.0 Industrial

production index,

% y-o-y, ave 1,5 14.1 10.9 7.0 7.6 8.7 9.6 9.9 9.8 Unemployment,

% of labour force,

eop 2,6 4.3 3.6 3.2 3.7 3.5 3.5 3.6 3.5

Notes: 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.

Industry Risk Reward Ratings

Asia Pacific Risk/Reward Ratings

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 Q413

RRRs, the Asia Pacific region scores 53 out of 100, below Western Europe (67), but compares favourablyagainst Americas (51), Central and Eastern Europe (52) 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%