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Vietnam

EU Pharma's strategic imperative

Aditya Agarwal, Principal, Roland Berger

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.

The time is ripe to prioritise Vietnam

Growing demand and COVID dividend

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.

Modernisation of healthcare with new investments

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.

EU-Vietnam FTA provides a clear boost

The real boost for further interest in Vietnam, though, comes from EVFTA. The recently auctioned FTA has 3 clear benefits for EU pharma players:

  • Reduction of most tariffs and barriers, leading to a competitive positioning with pricing and affordability of drugs: about 70 per cent of the tariffs have been reduced, additionally some non-tariff barriers like direct pharma imports which was previously not allowed, is now permitted. EU investors are now allowed to establish a foreign invested enterprise to import pharmaceutical products and sell to local distributors or wholesalers EU FIEs would also have a specific exception that they can build their own warehouses. Post decree 55, FIEs were not permitted to own warehouses.
  • Increased market access under the national procurement schemes: Certain pharma bidding packages which were previously only open to local distributors and pharma players, shall now also be accessible by EU pharma. These include marquee national tenders at Vietnam’s social insurance program, the Ministry of Health, the Hanoi and Ho Chi Minh City Department of Health, and 30+ hospitals. The share reserved for domestic suppliers/producers will diminish over 15 years to a final share of 50 per cent.
  • Reduced requirements of local clinical trials: EU players can now selfconduct or manage trials in Vietnam; additionally, Vietnam will withdraw existing clinical trials requirements on ethnicity which were not in line with international standards
  • Faster market authorisation or longer patent protection by additional years if authorisation process crosses threshold

Key considerations in Vietnam's Pharma market

Hospital channel management:

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.

  • Solution oriented approach: From outdated equipment to shortage of medical staff; from budget shortages to overcapacity – public hospitals are looking at solutions across the board. Private hospitals too while benefiting from demand require help.

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

  • Tailored KOL engagement: while KOLs have adopted digital engagement, a lot more is desired in terms of tailoring content for Vietnam. In a recent survey, nearly 60 per cent KOLs felt that they were not informed enough about the recent breakthrough drugs or indications, in their respective TA's. Further, KOLs expressed following expectations which were less visible to them:

Latest information
– 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:

  • Best of breed for vaccines: to distributors that have vaccine experience and adequate cold chain infrastructure
  • Up-country agency: a distributor who holds the agency for its portfolio in up-country
  • National distributors for prescription drugs: A national distributor who does not have reach in up-country region, but services for various distribution needs others for its prescription drugs

Drug affordability

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.

Additional considerations

  • Government and policy shaping: Like other emerging markets, working closely with the government on policy shaping for new innovative treatments can prove to be valuable. Vietnam has been trying to reduce dependence on neighbouring markets for providing advanced treatments; EU-pharma should consider bringing knowledge from home markets and also facilitate exchange of ideas.
  • Impact investing: Vietnam has been seeing a surge in impact investments in education and healthcare. EU-pharma could try to contribute and participate in these investments to develop the overall health ecosystem.

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.

--Issue 41--

Author Bio

Aditya Agarwal

Aditya is a Principal with Roland Berger in Singapore. He is a core member of the Healthcare and Life Sciences practice, serving clients on a range of strategic and performance improvement issues. You may reach him at aditya.agarwal@rolandberger.com

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