Vietnam's rising middle-class and increased modernisation of healthcare had already made it a key market for pharma. Now with the EU Vietnam FTA, winning in Vietnam is a strategic imperative for EU-Pharma. To be successful in Vietnam, EU pharma should consider a range of initiatives.
Vietnam is the European Union's (EU) second largest trading partner in ASEAN and close to 10 per cent of EU exports to Vietnam are pharma products. For various mid-tosmall sized EU pharma players, Vietnam has remained an alliance or a distributor led market. With increase in demand, positive economic prospects, increase in per capita healthcare spending and the boost of EVFTA, Vietnam is a strategic imperative for EU-Pharma.
Vietnam is one of the few economies in Asia which is expected to see a net growth in GDP per capita and income in 2020. It's enjoying a COVID dividend and leading cos across sectors, and is seeing Vietnam as a promising location for supply chain diversification. Healthcare spending in Vietnam is expected to grow at nearly 6.5 per cent annually, with an encouraging sign that portion of public expenditure is rising faster. While traditionally, the market has seen strong growth in branded and unbranded generics, Vietnam lately has shown a higher appetite for patented products, driven by better affordability and improved market authorisation protocols. The pharma market is expected to see a stronger growth than the healthcare services market.
Other factors contributing to growing demand for pharma products is the rising middle-class, and ageing—it is expected that by 2038, 20 per cent of Vietnamese people will be over 60 years old.
In addition to rising demand, a few factors are leading to increased modernisation of healthcare:
A. Medical tourism: Vietnam has been positioning itself as a medical tourism destination. As per official statistics, nearly, 350,000 foreign visitors sought medical treatment last year. Treatments span the full range of medical services, with the most common choices of services including dental care, cosmetic surgery, cardiology intervention and fertility treatment. Medical tourism plans, also call for driving increased modernisation and international standards for outpatient and emergency care services
B. Privatisation: International and regional private players are keen to tap into the growth. Until recently, most of the healthcare services were provided by public hospitals. In the last few years though, public health stakeholders, have shown an interest in driving privatisation of healthcare to reduce fiscal pressures; this led to stake sales in public hospitals and, a positive outlook towards private financing and partnerships by public hospitals
C. Increased sophistication of public players: Public players, especially leading educational institutions have been forming cross-border partnerships to increase industry know-how and improve the talent pool Similarly, beyond use of simple tools of external pricing referencing, pricing of the products in recent years has started including other tools like cost plus method. Government policy has also fostered a burgeoning health platform industry with several players emerging.
EU-Pharma can take advantage of these trends: exchange of information, engagement of the broader set of stake holders is easier for them compared to their non-EU peers, due to the strengthening of trade relations between EU and Vietnam.
The real boost for further interest in Vietnam, though, comes from EVFTA. The recently auctioned FTA has 3 clear benefits for EU pharma players:
Hospitals are a key dispensing channel facing a multitude of challenges - talent, budget and capacity. EU-pharma players, especially those which are mid-sized could go beyond the usual engagement techniques and adopt a solution driven approach to win share and advocacy, such an approach might have a higher return on investment rather than deploying a large sales force. Additionally, KOLs in Vietnam are looking for better content, and a targeted approach focusing on their needs; digitisation of HCP engagement provides a strong opportunity to address this.
A leading private hospital CEO said, "Young qualified doctors often choose to work for public hospitals to get more clinical experience and opportunities to study abroad"; Led by MedTech players, a solution driven model has been working well with public and private hospitals. For example, a leading device player in clinical microbiology realised the lack of trained staff on advanced tests and set up an education program with public hospitals.
Due to long reimbursement cycles, hospitals are forced to manage working capital pro-actively, further accentuating the affordability challenge. Innovative financing of treatments, some already being piloted need to be launched at scale; private insurance players have expressed a strong interest in developing
companion products or indication specific offerings, as such products help with driving distribution for some of their core offerings.
During bidding and tenders, some of these unique offerings can be combined as value added services, to gain nonprice related advantages; With their strong experience of developed markets, EU-pharma could create a differentiated value proposition for its customers.
The four broad themes of solutions for hospitals which can be considered: i) infrastructure support; ii) financing (including working capital) support to enable better treatments; iii) training HCPs; iv) new treatment protocols and design of workflows
– Latest clinical trials
– Other related topics like discovery, adverse events
> Various information
– Drug information (efficacy, side effects…)
– Other disease management
> Timely and appropriate
– Quick response to demands for information
– Appropriate information according to treatment stage
Collaborating with distributors
With decree 54, FIEs had to rely and work closely with local distributors or work with regional ones to manage them. While EVFTA allows for FIEs to establish warehouses, and participate in tenders, distributors would continue to play a pivotal role, especially for small to midsized players. FIEs will need support from distributors on provincial tenders, engaging with KOLs and increasing footprint in new channels. While working with regional players is an option, regional players also rely on local players due to factors like reach, presence and regulations. Working with local distributors at least for a part of the portfolio is recommended, to increase local footprint and manage risks of decree 54. Local players though might lack some capabilities, hence collaborating with them or investing is a key strategic consideration. For example, one leading specialty pharma has been arranging for training to improve KAM capabilities of the distributor.
Bespoke models of distribution: Given the varying nature of distribution reach and capability, established pharma players in Vietnam, also tend to adopt bespoke distribution models. For example: a multi-speciality player with generics and innovative drugs, has chosen 3 different models:
A large part of healthcare spending in Vietnam continues to be out of pocket. While price regulations have ensured that prices are regulated and managed effectively, affordability of patients continues to be a challenge.
Decree 54, local trials and related protocols for working through additional layers for drug import, have led to an increase in compliance and drug supply costs, impacting competitiveness. Given the strong market access allowance through bidding packages, reduction in requirements for local trials and reduced drug import hand-offs, EU-Pharma might be able to command a certain cost advantage which could be used for driving patient affordability or adherence.
Setting up M&A's / JVs has been a proven way for various MNCs to enter the market, but EU-pharma could also set up a trading company to avail the benefits of EVFTA. Investors are required to obtain an import license along with other certifications, obtain proof of origin for EU pharmaceutical products. While several challenges in winning the market exist, starting now provides an opportunity to work with different stakeholders and shape the market.