Vietnam pharmaceuticals healthcare report q1 2015

19 Table: Government Healthcare Expenditure Trends, Historical Data And Forecasts Vietnam 2010-2018.. 20 Table: Private Healthcare Expenditure Trends, Historical Data And Forecasts Vietn

Q1 2015 www.businessmonitor.com

VIETNAM

PHARMACEUTICALS & HEALTHCARE REPORT

INCLUDES 10-YEAR FORECASTS TO 2023

Healthcare Report Q1 2015

INCLUDES 10-YEAR FORECASTS TO 2023

Part of BMI’s Industry Report & Forecasts Series

Published by: Business Monitor International

Copy deadline: December 2014

Business Monitor International

© 2015 Business Monitor International

All rights reserved

All information contained in this publication is

copyrighted in the name of Business Monitor International, and as such no part of this

publication may be reproduced, repackaged,redistributed, resold in whole or in any part, or used

in any form or by any means graphic, electronic ormechanical, including photocopying, recording,taping, or by information storage or retrieval, or byany other means, without the express written consent

of the publisher

DISCLAIMER

BMI Industry View 7

SWOT 9

Political 11

Economic 12

Industry Forecast 14

Pharmaceutical Market Forecast 14

Table: Pharmaceutical Sales, Historical Data And Forecasts (Vietnam 2010-2018) 15

Healthcare Market Forecast 16

Table: Healthcare Expenditure Trends, Historical Data And Forecasts (Vietnam 2010-2018) 19

Table: Government Healthcare Expenditure Trends, Historical Data And Forecasts (Vietnam 2010-2018) 20

Table: Private Healthcare Expenditure Trends, Historical Data And Forecasts (Vietnam 2010-2018) 21

Prescription Drug Market Forecast 22

Table: Prescription Drug Market Indicators, Historical Data And Forecasts (Vietnam 2010-2018) 24

Patented Drug Market Forecast 24

Table: Patented Drug Market Indicators, Historical Data And Forecasts (Vietnam 2010-2018) 26

Generic Drug Market Forecast 27

Table: Generic Drug Market Indicators, Historical Data And Forecasts (Vietnam 2010-2018) 28

OTC Medicine Market Forecast 29

Table: Over-The-Counter (OTC) Medicine Market Indicators, Historical Data And Forecasts (Vietnam 2010-2018) 31

Pharmaceutical Trade Forecast 32

Table: Pharmaceutical Trade Data And Forecasts (Vietnam 2012-2018) 33

Table: Pharmaceutical Trade Data And Forecasts local currency (Vietnam 2012-2018) 34

Other Healthcare Data 34

Key Risks To BMI's Forecast Scenario 35

Macroeconomic Forecasts 36

Expecting Sustained Growth Momentum In 2015 36

Table: Economic Activity (Vietnam 2009-2018) 40

Industry Risk Reward Index 41

Asia Pacific Risk/Reward Index 41

Vietnam Risk Reward Index 47

Rewards 47

Risks 47

Market Overview 49

Industry Trends And Developments 51

Epidemiology 51

Healthcare Financing 53

Hospital Sector 55

Private Healthcare Sector 58

Healthcare Insurance 59

Healthcare And Pharmaceutical Reform 61

Research And Development 62

Biotechnology Sector 63

Clinical Trials 65

Regulatory Development 68

Regulatory Regime 68

Pharmaceutical Advertising 69

Intellectual Property Environment 70

Corruption 73

Pricing Regime 74

Reimbursement Regime 79

Pricing And Reimbursement Developments 80

Competitive Landscape 82

Pharmaceutical Sector 82

Domestic Industry 83

Foreign Industry 84

Traditional Medicines 86

Pharmaceutical Distribution 87

Pharmaceutical Retail Sector 88

Table: Key Aspects Of Good Pharmacy Practice In Developing Countries 89

Company Profile 90

DHG Pharmaceutical 90

GlaxoSmithKline 92

Merck & Co 94

Novartis 96

Pfizer 98

Sanofi 100

Traphaco Pharmaceutical 103

Vidipha Central Pharmaceutical Joint Stock Company 105

Vietnam OPV Pharmaceutical Co 107

Vietnam Pharmaceutical Corporation (Vinapharm) 109

Vietnam Pharmaceutical Joint Stock Company (Ampharco) 112

Demographic Forecast 114

Table: Population Headline Indicators (Vietnam 1990-2025) 115

Table: Key Population Ratios (Vietnam 1990-2025) 115

Table: Urban/Rural Population & Life Expectancy (Vietnam 1990-2025) 116

Table: Population By Age Group (Vietnam 1990-2025) 116

Table: Population By Age Group % (Vietnam 1990-2025) 117

Glossary 119

Methodology 121

Pharmaceutical Expenditure Forecast Model 121

Healthcare Expenditure Forecast Model 121

Notes On Methodology 122

Risk/Reward Index Methodology 123

Index Overview 124

Table: Pharmaceutical Risk/Reward Index Indicators 124

Indicator Weightings 125

BMI Industry View

BMI View: With a growing and ageing population, Vietnam plays host to an attractive target for

pharmaceutical and healthcare growth While per capita spending remains low, and current healthcare infrastructure appears strained, access to healthcare coverage is steadily increasing.

Headline Expenditure Projections

■ Pharmaceuticals: VND69,297bn (USD3.30bn) in 2013 to VND80,730bn (USD3.80bn) in 2014; +17.0%

in local currency terms and +16.2% in US dollar terms Forecast unchanged from previous quarter.

■ Healthcare: VND222,374bn (USD10.57bn) in 2013 to VND254,679bn (USD11.99bn) in 2014; +14.7%

in local currency terms and +13.9% in US dollar terms Forecast unchanged from previous quarter

Risk Reward Index:

Vietnam's Pharmaceutical Risk/Reward Index (RRI) score for Q115 is 49.1 out of the maximum 100 in ournewly improved RRI system The country scored above average for some indicators and sub-indicators,including overall market expenditure, sector value growth and pensionable population Consequently, withthis moderate score, Vietnam is ranked 11th behind India out of the 19 key markets in Asia Pacific

Key Trends And Developments

■ In December, the EU entered a financial agreement with Vietnam to fund EUR114mn (USD141mn) forthe second phase of the EU Health Sector Policy Support Programme (EU-HSPSP-2) in the country Theagreement aims to support Vietnam in restructuring its health sector and implementing reform plansbetween 2015 and 2017 by reducing sustainable poverty and creating harmonious growth in country'shealthcare sector

■ In December, it was announced that by 2020 locally manufactured drugs will account for 80% of

Vietnam's pharmaceutical sector, according to Drug Administration of Vietnam Head Truong QuocCuong Under the 2020 plan, the health ministry will focus on producing 20 materials, along withincreasing the share of domestically manufactured medicines to replace foreign drugs The sector willaim to produce generic medicines, and the ministry will help establish five distribution centres tominimise distribution costs

■ In a November 2014 interview with the journal Health Affairs, Vietnam's Health Minister Nguyen ThiKim Tien discussed the country's healthcare system This discussion included characterising Vietnam'shealth system - its strengths and weaknesses - health financing reform, the control and prevention ofinfectious diseases and how the country has performed in attaining its Millennium Development Goals,among other topics

■ In September 2014 it was reported that the number of people with health coverage has increased to nearly60% in 2010, up from 10% in the early 1990s, according to the World Bank's new report In 2012,Vietnamese Prime Minister Nguyen Tan Dung approved a Master Plan for Universal Coverage to further

expand coverage to at least 70% of the population by 2015 and 80% by 2020 The plan also aims toreduce patients' out-of-pocket expenditure to less than 40% of total healthcare spending by 2015.

BMI Economic View: We expect solid growth momentum in the Vietnamese economy to be carried over

to 2015, on the back of continued foreign direct investment (FDI) inflows, strong performance in themanufacturing and export sectors, and ongoing efforts by the government to address the high level of baddebts in the banking sector We maintain our forecast for real GDP to grow at 5.7% in 2014, ahead of anacceleration to 6.4% in 2015

BMI Political View: Vietnam faces a growing risk of renewed political tensions with China following its

formal submission of its stance on the South China Sea dispute to the international arbitral tribunal We alsosee the potential for China to impose sanctions on Vietnam in retaliation, which would weigh significantly

on the latter's economy

SWOT Analysis

■ 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

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 (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 World Trade Organization membership improving the trading climate andpotentially, in the longer term, redressing pharmaceutical trade issues

■ Requirement for domestic companies to comply with international goodmanufacturing practices should boost exports

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

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

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

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

GDP growth averaging 6.6% annually between 2000 and 2013

■ The economic boom has lifted many Vietnamese out of poverty, with the officialpoverty rate in the country falling from 58% in 1993 to 17.2% in 2012

■ Vietnam has been strengthening its trade and aid ties in a bid to increase exports anddiversify its export sector

Weaknesses ■ Vietnam still suffers from fiscal deficits, leaving the economy vulnerable to global

economic uncertainties The fiscal deficit is dominated by substantial spending onsocial 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

give Vietnam greater access to both foreign markets and capital, while makingVietnamese enterprises stronger through increased foreign competition

■ The government has continued to move forward with market reforms, includingprivatisation of state-owned enterprises, addressing the high level of bad loans in thebanking sector as well as liberalising the banking sector

■ Urbanisation will continue to be a long-term growth driver The UN forecasts theurban population rising from 32% of the population in 2013 to more than 50% by theearly 2040s

on this front could result in a decline in investment

■ The potential for an escalation of political tensions with China over sovereign claims

to parts of the South China Sea could have a negative impact on the economy

SWOT Analysis - Continued

■ Market reforms could progress at a much slower pace as the government remainscautious about ceding ownership to foreign investors

Industry Forecast

Pharmaceutical Market Forecast

Vietnam's pharmaceutical market was valued at

VND69,297bn (USD3.30bn) in 2013, a 17.0%

year-on-year increase in local currency terms Over the

forecast period to 2018, BMI expects

pharmaceutical consumption to reach

VND139,990.34bn (USD7.07bn), equating to a

compound annual growth rate (CAGR) of 15.1% in

local currency and 16.5% in US dollar terms Over

the extended forecast period to 2023, the CAGR will

be slightly lower, but will remain in double-digit

figures

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 USD41.1 This,

combined with an expanding population, higher

levels of health awareness and increased access to pharmaceuticals, creates a strong base for market growthassuming the required resources are put into healthcare sector development However, pricing remains aconcern, due to a lack of controls and regulatory bias 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 bribeVietnamese 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

performed through interviews with 140 people in rural and urban areas who had visited public and private

Pharmaceutical Market Forecast

5 10 15

0 0.5 1 1.5 2 2.5

Drug Administration of Vietnam (DAV), Vietnam Ministry of Health, domestic companies, local press, BMI

hospitals 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 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 good manufacturing practice (GMP)standards by the start of 2010, the deadline was extended to the end of 2010 However, in August 2008, itwas revealed that companies that did not have accreditation could come up with provisory regulations.Firms not planning to establish GMP standards must either shift to other sectors or produce traditionalmedicines, the latter being an area with problems 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 operation Scheme (PIC/S) GMP standards

Co-Table: Pharmaceutical Sales, Historical Data And Forecasts (Vietnam 2010-2018)

Pharmaceutical Sales, Historical Data And Forecasts (Vietnam 2010-2018) - Continued

Drug Administration of Vietnam (DAV), Vietnam Ministry of Health, domestic companies, local press, BMI

Healthcare Market Forecast

In December 2013, we upgraded our forecast for

private health expenditure due to the government's

plan to raise hospitals fees between 2014 and 2018

This quarter, we have slightly upgraded the

healthcare expenditure forecast due to the receipt of

actual 2012 data from the World Health

Organization (WHO) We now forecast that the

sector will reach a value of VND769,394bn

(USD40.18bn) by 2023 Through to 2018 and 2023,

the sector is projected to grow at local compound

annual growth rates of 13.9% and 13.2%

respectively (15.3% and 14.3% in US dollar terms)

Over the long term, Vietnam's healthcare sector is

forecast to grow in accordance with its strong

economic growth However, we highlight that rising

healthcare expenditure does not necessarily equate to

quality healthcare provision According to the

General Statistics Office of Vietnam, the number of hospitals in 2012 was 963 Meanwhile, the number ofhospital beds and doctors per 1,000 people stayed flat - at 2.01 and 0.65 respectively

Moreover, despite a double-digit growth in healthcare expenditure, the country has yet to address the risingburden of communicable diseases such as tuberculosis, AIDS and hand, foot and mouth disease Much of

Healthcare Expenditure Forecast

20 40 60

0 2 4 6 8

e/f = BMI estimate/forecast Source: World Health Organization (WHO), BMI

this increased expenditure will be on health infrastructure, which remains basic in many rural areas Overthe longer term, this is likely to result in greater access to basic medicines.

The country's low per capita health and pharmaceutical expenditure highlights the population's poor access

to healthcare services and low affordability levels for medicines - particularly high-value drugs Thisrepresents a short-term challenge for pharmaceutical firms, but over the long term we believe economicdevelopment will aid growth in the pharmaceutical and healthcare sector Our country risk team remainsbullish about the Vietnamese economy as it forecasts strong economic growth through to 2023

In the meantime, the government has outlined plans for the investment of up to 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 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 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 the

cost 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

2018, we forecast that private health expenditure will increase at a compound annual growth rate of 14.4%(15.8% in US dollar terms) This growth rate is higher than government health expenditure (13.2%, 14.6%

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

Table: Healthcare Expenditure Trends, Historical Data And Forecasts (Vietnam 2010-2018)

Table: Government Healthcare Expenditure Trends, Historical Data And Forecasts (Vietnam 2010-2018)

Table: Private Healthcare Expenditure Trends, Historical Data And Forecasts (Vietnam 2010-2018)

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

over-the-counters (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 pharmacypractice recommendations coming into force in 2011

By 2018, we forecast that prescription medicines will be worth VND104,730bn (USD5.29bn) at consumerprices, posting a compound annual growth rate of 15.5% in local currency terms (thus somewhat above thewider pharmaceutical market) In percentage terms, at this point, prescription drugs will account for 74.8%

of the total market, up from 73.6% in 2013, driven by expanded access to formal healthcare in rural areas

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

Vietnam Respiratory problems are on the rise, including asthma and chronic obstructive pulmonary

disease, 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

Prescription Drug Market Forecast

2009-2023

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

2009 2010 2011 2012 2013 2014f 2015f 2016f 2017f 2018f 2019f 2020f 2021f 2022f 2023f0

2.5 5 7.5 10

0 25 50 75 100

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

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 67.8% while thatfor developed countries is 49.4% In January 2014 a representative from the Vietnam Social InsuranceAgency stated that cancer drugs account for a large percentage of insurance expenses Moreover,

prescribing patterns seem to be influenced by economic considerations, with drug companies payingcommissions to doctors who promote certain types of product The Ho Chi Minh City authorities conducted

an investigation into the practice, with findings revealing that a number of doctors were in receipt of more

than 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 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 Market Indicators, Historical Data And Forecasts (Vietnam 2010-2018)

e/f = BMI estimate/forecast Source: National Sources, BMI

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

2023, we expect the patented drug sector to reach

Patented Drug Market Forecast

1 2 3

0 5 10 15 20 25

e/f = BMI estimate/forecast Source: National Sources, BMI

VND42,771bn (USD2.23bn), but represent a lower

percentage of the total market (18.0% versus 22.3% in 2013) Over the 2013-2023 period, patented drugsare expected to post a compound annual growth rate of 10.7% in local currency (11.7% in US dollar terms)

- 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 intellectual property rights as well as more stringentpenalties 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 2010-2018)

Generic Drug Market Forecast

Although the overall generic drug market is sizeable,

standing at around VND35,508bn (USD1.69bn) in

2013, approximately 51% of the overall market's

value, 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 World Trade

Organization should in theory, result in dubious

copy products gradually being purged from the

market, as the country brings its intellectual property

(IP) regime in line with TRIPS However, given the

notoriously poor standard of IP enforcement in the

country, these illicit products will continue to have a sizeable influence in the near future

Overall, generic products are likely to continue dominating the market in volume terms and we forecast thevalue of the sector should reach VND137,619bn (USD7.19bn) in 2023, accounting for 58.1% of the totalmarket (up from the calculated 51.2% in 2013) Vietnam offers strong prospects for generic market growthdue to low consumer purchasing power However, a number of obstacles still remain, such as a widespreadbelief that generic drugs are inferior to patented products and that in many cases, they are not that muchcheaper than patented counterparts They are also not as widely available as they could be

In an interview with local media VietNamNet Bridge, Vietnam's former deputy minister of health, Dr LeVan Truyen, stated in January 2014 that the population is still reluctant to use domestically 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

Generic Drug Market Forecast

2009-2023

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

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

2.5 5 7.5 10

0 15 30 45 60 75

e/f = BMI estimate/forecast Source: National Sources, BMI

Table: Generic Drug Market Indicators, Historical Data And Forecasts (Vietnam 2010-2018)

OTC Medicine Market Forecast

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 is likely to reach VND56,674bn

(USD2.96bn) in 2023, up from VND18,315bn

(USD871mn) in 2013 At the same time, the sector's

share of the total market as a percentage is expected

to fall to 23.9%, from 26.4%, due to the rising value

of the prescription sector and more expensive

imports, and stricter dispensing controls

Key drivers of OTC market growth will be mostly

limited to volume, as consumers become better

educated and more confident about self-medication

OTC drugs will also benefit as consumers spending

power increases, and - in the case of the low income

population - they may well turn to OTCs and

traditional medicines to seek cheaper alternatives to

patented drugs

Another factor affecting the growth of the self-prescription market is that manufacturers import the bulk ofraw materials and active pharmaceutical ingredients, which disadvantages segments such as vitamins andanalgesics, especially given the local currency depreciation compared with key 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 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

2009-2023

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

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

1 2 3 4

0 6 12 18 24 30

e/f = BMI estimate/forecast Source: Drug Administration

of Vietnam (DAV), Vietnam Ministry of Health, domestic companies, local press, BMI

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 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 ThuongHoang, 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 2010-2018)

Pharmaceutical Trade Forecast

Vietnam is highly reliant on pharmaceutical imports

The latest data from UN Commodities Trade

Database (UNComtrade) showed that the country

imported USD1.8bn worth of pharmaceuticals in

2012 while exporting USD77.1mn worth of products

in the same period Imported pharmaceuticals were

mainly from France (USD235.9mn), India

(USD230.5mn), South Korea (USD164.4mn),

Germany (USD143.4mn) and Italy (USD93.9mn)

Meanwhile, the country exported to countries such

as Germany (USD9.7mn), Nigeria (USD5.6mn),

Cambodia (USD5.5mn), Japan (USD4.2mn) and

India (USD4.2mn) Given that the pharmaceutical

sector is still in its infancy, we expect such reliance

on imports to continue From 2013 to 2018, we

forecast that pharmaceutical exports and imports will

see local compound annual growth rates of 15.1%

and 13.4% respectively in US dollar terms

Data from UNComtrade do not specify the type of finished pharmaceuticals traded (i.e whether they arepatented or generic drugs) However, given that Vietnam is a developing country with low per-capita

pharmaceutical and healthcare expenditure (USD35.94 and USD115.34 respectively in 2013), 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

However, while the pharmaceutical sub-sector may be growing at a double-digit rate, we caution that not allforeign drugmakers will be able to capitalise on this growth opportunity Doubts regarding drug quality andcounterfeit drug problems are two reasons why people prefer imported products in developing markets such

as Vietnam Consequently, we believe that careful branding and marketing is a vital method by which firmscan capture market share in Vietnam and other developing countries Companies that are able to engagephysicians (through their 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

Pharmaceutical Trade Forecast

2009-2018

Pharmaceutical exports, USDmn Pharmaceutical imports, USDmn

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

2,000 4,000 6,000

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

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

(TPP) Interest groups from a number of countries such as Malaysia, Australia and New Zealand havewarned of potential increases in drug prices, as there could be an extension of intellectual property rightsinvolving pharmaceuticals Should member countries agree to extend patent terms, all generic drug

companies will be affected

At the same time, the Vietnamese government is keen to increase domestic drug use in the country InDecember 2013, the Drug Administration of Vietnam (DAV) launched a programme to raise awarenessamong doctors, hospital managers and the community on the use of locally produced drugs In addition topromoting local drugs consumption, the government is aiming to implement universal healthcare by the end

of 2014 The country may opt to subsidise more locally made drugs under the scheme, which would bringdownside risks to foreign drugmakers

Table: Pharmaceutical Trade Data And Forecasts (Vietnam 2012-2018)

Pharmaceutical imports, USDmn 2,138.42 2,465.79 2,868.85 3,354.89 3,905.12 4,432.90

Pharmaceutical trade balance, USDmn -2,044.65 -2,349.33 -2,726.92 -3,184.37 -3,700.79 -4,190.36

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

Table: Pharmaceutical Trade Data And Forecasts local currency (Vietnam 2012-2018)

Pharmaceutical

exports, VNDmn 1,971,852.57 2,474,484.86 2,981,271.69 3,504,680.70 4,086,539.17 4,802,310.60Pharmaceutical

exports, VNDmn,

Pharmaceutical

imports, VNDmn 44,968,827.94 52,388,249.22 60,256,837.22 68,949,445.34 78,102,351.22 87,771,413.64Pharmaceutical

e/f = BMI estimate/forecast 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 USD1mn

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 USD300mn), although none of those projects involvepharmaceutical manufacturing

In 2012, the General Statistics Office put the number of state-run hospitals at 963, which equates to

approximately 11 hospitals for every one million of the population, low compared with other countries at asimilar level of economic development Meanwhile, the number of hospital beds and doctors per 1,000 ofthe population stayed flat - at 2.01 and 0.65 respectively Central hospitals in Vietnam are facing a shortage

of beds to the extent that in some hospitals a single bed is being shared by two or sometimes even threepatients The Ministry of Health says that demand for beds in provincial hospitals is 115%, while in majorcities 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 VND119.5mn (USD5,730), even though these women were not his employees

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 World TradeOrganization membership since early 2007 is expected to stimulate other similar deals in the region

Macroeconomic Forecasts

Expecting Sustained Growth Momentum In 2015

BMI View: We expect solid growth momentum in the Vietnamese economy to be carried over to 2015, on

the back of continued foreign direct investment (FDI) inflows, strong performance in the manufacturing and export sectors, and ongoing efforts by the government to address the high level of bad debts in the banking sector We maintain our forecast for real GDP to grow at 5.7% in 2014, ahead of an acceleration to 6.4%

in 2015.

In line with our positive outlook for the Vietnamese economy, Vietnam's real GDP growth accelerated to6.2% year-on-year (y-o-y) in Q314 from the revised 5.4% print in the previous quarter Notably, thismarked the fastest pace of expansion since Q411, bringing real GDP growth to 5.6% y-o-y in the first ninemonths of 2014, exceeding the Bloomberg consensus estimate of 5.4% for the same period

Fastest Economic Expansion Since Q411

Vietnam - Real GDP, % chg y-o-y

Source: BMI, GSO

The strong headline figure largely owes to a robust performance in the manufacturing and export sectors.Indeed, the manufacturing sector grew by 8.6% y-o-y in September, the fastest pace since February, whileexports rose by 14.1% y-o-y for the first nine months of 2014 versus the same period in 2013 Stronggrowth in these sectors has more than offset sluggish domestic demand in the country, owing to slowerlending by banks The slowdown in credit growth has largely been the result of the high level of bad debts

in Vietnam's banking sector, which has reduced the willingness of banks to lend

Picking Up Speed

Vietnam - Industrial Production, % chg y-o-y

Source: Bloomberg, BMI

While the large amount of non-performing loans continues to pose a risk to the Vietnamese economy, wenevertheless maintain a constructive growth outlook for the country, and are forecasting real GDP growth of5.7% in 2014, followed by a stronger expansion to 6.4% in 2015 Efforts by the government to tacklestructural issues in the banking sector, strong foreign direct investment (FDI) inflows to the country, and acontinued expansion in the manufacturing and export sectors should sustain solid growth momentum goinginto 2015

Taking Positive Steps To Reduce Banks' Non-Performing Loans

The Vietnamese government has already taken steps to address the high level of sour loans in the bankingsector, which constituted 4.2% of total loans as of end-June according to the State Bank of Vietnam While

we expect progress on this front to be gradual, strengthening of the banking sector is a step in the rightdirection by the government to secure the country's long-term growth prospects In July 2013, the

government established the Vietnam Asset Management Company (VAMC) to take bad debts off banks'books, allowing time for banks to undergo restructuring and strengthening of their credit assessmentmechanisms Meanwhile, the government has continued to reform its state-owned enterprises (SOEs),which accounted for more than half of the bad debts in the banking sector While SOE reform has

progressed at a very slow pace over recent years, it should gain some momentum over the coming quarters,

as the government plans to privatise 432 state companies by end-2015

Manufacturing Sector To Sustain Strong Growth

The Vietnamese economy will also ride on a stronger manufacturing performance over the coming quarters.The Purchasing Managers' Index (PMI), a leading health indicator of the manufacturing sector, points tohigher production activity The index came in at 50.3 in August, marking the 12th straight month of

expansion in the manufacturing sector Additionally, given that Vietnam remains a low-cost manufacturingbase for foreign firms, the country has continued to attract fervent foreign investment interest The

manufacturing sector received 68.4% of total registered capital, amounting to USD7.0bn in the first eightmonths of 2014

Exports To Ride On A Recovering US Economy

Continued strong export growth will also be another driver of strong economic growth Given the country'sexport orientation to the US, which received 17.3% of total Vietnamese outbound shipments in 2013, arecovering US economy will lend strength to Vietnam's exports

Robust Export Performance

Vietnam - Exports, % chg y-o-y (3mma)

Source: BMI, GSO

Risk To Outlook

The largest risk to our constructive outlook for the Vietnamese economy comes from the potential for anescalation of the country's ongoing maritime dispute with China in the South China Sea, which wouldfurther strain political relations between both countries This could spur an economic backlash by China,posing significant downside risks to our real GDP growth forecast Indeed, China contributed a significant21.3% of foreign investment to Vietnam in 2013, while accounting for 11.6% of Vietnamese exports

Table: Economic Activity (Vietnam 2009-2018)

2009 2010 2011 2012 2013e 2014f 2015f 2016f 2017f 2018f

f = BMI forecast Source: National Sources/BMI