Falling tariffs and inadequate investment will put domestic pharmaceutical manufacturers under significant pressure when the TPP comes into being.
Tariffs on pharmaceuticals imported into Vietnam will be cut from 2.5 per cent to 0 per cent when the TPP comes into effect, putting domestic enterprises under intense competitive pressure.
Vietnamese people generally have a preference for foreign pharmaceuticals, according to Mr. Le Van Truyen, former Deputy Minister of Health. The arrival of major global pharmaceutical companies in Vietnam will create problems for local enterprises, with some likely to be forced out of the market.
Market research released recently by Business Monitor International shows that Vietnam ranks 13th among 175 countries with the highest growth in medicine spending; evidence of the sector’s potential. Foreign pharmaceutical enterprises dominate the market, accounting for 60-70 per cent.
Pharmaceuticals produced by local enterprises used in central hospitals account for about 12 per cent in value terms and around 40 per cent nationwide, Mr. Truyen said.
According to the United Nations Industrial Development Organization (UNIDO), Vietnam’s pharmaceutical industry is around Level 3 in its five-level rating scale for development.
Local pharmaceuticals account for only 0.11 per cent of the total revenue in the industry. There are 121 domestic pharmaceutical production plants, 61 local companies producing herbal medicines, and 130 local facilities registered as household businesses producing herbal medicines. Almost all are small-scale in terms of both financial resources and human resources.
Pharmaceutical procurement will be publicly organized when the TPP begins, according to Mr. Nguyen Thanh Binh, General Director of the Hanoi CPC1 Pharmaceutical JSC (CPC1 Hanoi). Foreign pharmaceutical enterprises, therefore, will have equal status at auctions. “Local enterprises will lose out as the country’s pharmaceutical industry is weak and heavily dependent upon imported raw materials,” Mr. Binh said.
The TPP will also boost growth in Vietnam’s pharmaceutical sector by some 20 per cent per year from now to 2017, with pharmaceutical spending per capita of about $200 per year, Mr. Binh added.
It will also extend copyright protection for drugs (from five to ten years) and after that restrict local businesses from accessing and producing new medicines. This will present a major challenge for local enterprises as most of their existing products are generic drugs.
The major challenge for local enterprises is that Vietnamese people prefer imported pharmaceuticals, according to Ms. Tran An Khanh, Deputy Head of the Business Department of Central Pharmaceutical Company No. 1 (CPC1). In addition, per capita incomes are likely to increase, creating a greater shift towards foreign pharmaceuticals.
Its heavy dependence on imported raw materials is also a major issue for the domestic industry. Imports of raw materials in the first seven months of this year reached $199.4 million, primarily from China, which accounted for 56.6 per cent. “This is a big challenge for local enterprises, which have not paid sufficient regard to investing in advanced technologies and depend heavily on imports,” Mr. Binh said. “If Vietnam does not adopt special measures, foreign pharmaceutical companies will gain an even larger market share.”
The risk of losing market share is exacerbated by the fact they do not work together.
To seize the opportunities brought by the TPP domestic pharmaceutical enterprises need to upgrade their manufacturing plants to reach international standards such as PIC/S-GMP and EU-GMP.
The DHG Pharmaceutical JSC has completed the construction of a new pharmaceutical manufacturing plant, and Imexpharm has also built a new penicillin factory in southern Binh Duong province. Hanoi Pharma JSC, meanwhile, has invested tens of millions of dollars in a production line for plastic injection tubes and distilled water with Blow-Fill-Seal (BFS) technology.
Although local enterprises see many disadvantages heading their way, Mr. Truyen believes they are ready for the upcoming race. Most have plans for feasible production and business and have invested in advanced production lines to produce high-quality products, he added. This also contributes to realizing the target contained in the National Strategy for the Pharmaceutical Industry Development to 2020 and Vision to 2030, approved by the government, of local manufacturers accounting for 80 per cent of the market.