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Swings and roundabouts for pharma groups so far in 2021

Spending in Vietnam on healthcare is currently forecast to reach $23 billion next year.

With risks from interruption of the medical ingredient supply chain and losses in the hospital channel, the Vietnamese pharma industry experienced a topsy-turvy first half of 2021, with potential growth set to focus on mergers and acquisitions.

Domesco Medical Import-Export JSC, the third-largest Vietnamese domestic drugmaker, in July announced the dissolution of the Vinh branch, which may be part of the company’s efforts to reorganise operations to increase efficiency amid the COVID-19 pandemic.

The first half of 2021 was not rosy for Domesco after the company made revenues of VND697.54 billion ($30.32 million), only slightly up 0.17 per cent on-year. Meanwhile, its after-tax profit was down nearly 39 per cent on-year.

In its financial statement, Luong Thi Huong Giang, general director of Domesco, blamed the poor result mainly on the fall in sales due to COVID-19 which prevented people from going to hospitals and drugstores; as well as rises in medical ingredient costs.

Although the year has brought challenges for Domesco and other Vietnamese pharmaceutical companies, some still made gains thanks to their strength and new strategies.

Gains with new strategies

Traphaco JSC, the country’s second-largest publicly traded drugmaker, estimated that it made VND1.03 trillion ($44.78 million) in consolidated revenues and after-tax profit of VND124 billion ($5.39 million) in the first six months, up approximately 22 and 38 per cent on-year, and fulfilling 49 and nearly 52 per cent of the year’s targets, respectively.

Tran Tuc Ma, general director of Traphaco, attributed the growth to the new product Traphaton, which adds vitamin and mineral supplements, meeting local strong demands amid hot weather and pandemic developments. “The new product produces good revenue, surpassing the expected plan,” he noted.

Moreover, the strength of Traphaco’s operation is maintaining the growth rate of self-manufactured goods. During the period, the company saw double-digit growth in its self-manufactured goods.

Traphaco now boasts three big shareholders – State Capital Investment Corporation (35.67 per cent), Magbi Fund Ltd. (24.99 per cent), and Super Delta Pte., Ltd (15.12 per cent).

Traphaco set a target of obtaining net revenues of VND2.1 trillion ($91.3 million) and VND240 billion ($10.43 million) in profit after tax in 2021, an increase of 10 and 11 per cent compared to the previous year, respectively.

Similarly, Imexpharm Pharmaceutical JSC (IMP), Vietnam’s fourth-biggest pharma group, witnessed a slight on-year rise of 3.6 per cent to VND613.9 billion ($26.69 million) in the second quarter, while its after-tax profit ascended 3.2 per cent from the same period last year. IMP cited the challenges in the second quarter when the global supply chain of medical ingredients was hit as India, one of the biggest suppliers, experienced dire pandemic developments. As a result, IMP and other Vietnamese pharma firms faced steep price hikes.

Moreover, the latest wave of the pandemic in Vietnam is related to many hospitals, thus negatively affecting the ethical drugs channel (ETC), or the hospital segment, with which pharma giants like IMP are targeting.

Imexpharm targets a 10.7 per cent on-year rise in total revenue and 13.5 per cent in after-tax profit in 2021. SK Investment Vina III Pte., Ltd. is now the biggest foreign stakeholder at IMP with 29.42 per cent.

Likewise, the biggest publicly traded drugmaker DHG Pharmaceutical JSC recorded consolidated net revenue of over VND1.96 trillion ($85.21 million), and a consolidated after-tax profit of VND404.48 billion ($17.58 million), up 17.36 and 11.5 per cent on-year, respectively.

DHG, with the main foreign shareholders being Japan’s Taisho (51.01 per cent), attributed the improvements to its focus on selling strategic and key products, a well-organised distribution system, and reduction of expenses to adapt to COVID-19.

This year, DHG set targets of VND3.97 trillion ($172.6 million) in revenues, up 4 per cent from 2020, and pre-tax profit of VND821 billion ($35.69 million), equal to last year.

Like the others, the third-largest drugmaker aims to gain VND1.54 trillion ($66.95 million) in net revenues and VND215 billion ($9.34 million) in after-tax profit in 2021, up 6 and 20 per cent from 2020, respectively.

Short-term challenges

Blockades and social distancing in southern cities and provinces in July are expected to affect pharma firms’ sales more seriously in the third quarter when both the over-the-counter and ETC channels are hard hit.

Worse still, as most Vietnamese pharma firms are reliant on the import of medical ingredients, mostly from China and India, high risks of price rises in medical ingredients are expected. This has urged pharma firms to ensure reasonable storage of medical ingredients to deal with any possible breaks in the global supply chain.

In this challenge, IMP will strictly control inventory and debts, while focusing on online sales and marketing activities in the second half to ease the difficulties from social distancing and blockades.

To deal with the problem related to medical ingredients, IMP increased its reserves. Statistics from the drugmaker’s financial statement showed that IMP’s total assets rose 15 per cent on-year in the second quarter as the company increased working capital to store up ingredients to serve its demands.

Meanwhile, Traphaco will focus on self-researched and new products. Also, the progress of the technology transfer of modern pharmaceutical products by South Korea’s Daewoong Group to Traphaco is also a drastic focus. In 2021, Traphaco aims to complete the technology delivery of at least three products so that the company can make revenue from them next year. The South Korean partners’ products include diabetes, cardiovascular, and blood pressure medicines, which are now in great demand in Vietnam.

Nevertheless, the long-term prospects of the Vietnamese pharmaceutical industry are bright. According to Fitch Solutions, Vietnam’s spending on healthcare is projected to reach $23 billion in 2022 and $42.9 billion in 2028. Rapid urbanisation is increasing healthcare demands in urban areas and, together with this, an ageing population leads to rising diseases and growing healthcare spending. This reflects much growth room for the local lucrative industry.

In addition, the development of IT applications is widening access to medical services, thus facilitating the operation of pharma giants’ distribution networks. More than that, new modern sales channels will be developed by pharma firms, together with traditional ones. Industry insiders forecast that mergers and acquisitions (M&A) activities will be more bustling in the industry in the months to come as investors want to tap into this growth potential.

Ngo Thanh Hai, senior associate of the law firm LNT & Partners told VIR, “More international businesses are planning to expand in Vietnam, with M&A being a targeted channel because acquiring Vietnamese firms will enable them to have the distribution rights.”

VIR