Sanofi ($SNY) has decided it is worth building manufacturing capacity in Vietnam, a country with tremendous growth potential. But for all that upside, it is a market with big challenges when it comes to drug production.
According to Thanh Nien News, the biggest obstacle for Vietnam in attracting new drug manufacturing is the cost of raw materials. Investors tell the newspaper that the country still imports 90% of what it needs for manufacturing. That is one reason only about 30% of the drug companies selling in the country have manufacturing capacity there, it said.
Still the potential is significant when other markets are growing so slowly. At $104 per person annually, per capita drug spending is already twice that of India. That will increase with an expanding economy and health system. By 2020, 80% to 90% of Vietnamese are expected to be covered by the national health system, up from 65% today. Still, most of the drugs used in the country are imported. Vietnam has spent $1.25 billion on pharma imports this year, up 7.1% from the same time last year, Thanh Nien News reports, citing numbers from Vietnam's General Statistics Office.
Those growth numbers have attracted some pioneering drugmakers. Sanofi is investing $75 million in a new plant in Vietnam, which it expects to have operating in 2015. The Vietnamese facility will turn out 90 million units a year but could be expanded to 150 million units annually if demand calls for it. It is Sanofi's third plant in the country. It is already selling 80% of its production in Vietnam, and sales there are slated to exceed €100 million ($128 million) this year, the company has reported. The new plant will give it capacity for growth there and for expansion in markets like Indonesia and China.
Japan's Nipro Pharma last year invested $250 million to build its own manufacturing plant there. Some other drugmakers have decided to partner: Since 2010, GlaxoSmithKline ($GSK) has had a deal with Savipharm, a leading Vietnamese pharmaceutical company. Stada has taken a different approach, and now owns nearly half of Vietnamese drug maker Pymepharco.
There are some local producers, but they are finding it hard to compete against imports, even though their drugs cost far less. Patients and doctors prefer drugs with a pedigree. And price is not the determining factor, explains Nguyen Ngoc Hien, deputy director of Bach Mai General Hospital in Hanoi. "Many local drugs are not as good as imports. The most important thing for doctors is to prescribe something that is safe and effective," he said. 'Moreover, many kinds of drugs are not being produced in Vietnam."
- read the Thanh Nien News story