November 1, 2014
– The recent arrest of the chairman and general director of Vietnam Pharma, a local pharmaceutical joint stock company, for allegedly forging bidding documents and smuggling drugs has thrown new light on hidden corners of pharmaceutical import and bidding in Vietnam. A deeper look into the local medicine investment and distribution network has unveiled a convoluted issue.
Statistics released by the Industry and Trade Information Center under the Ministry of Industry and Trade show that Vietnam imported pharmaceutical products worth US$963.3 million in the first haft, a year-on-year rise of 8.27%. Imports accounted for more than 70% of Vietnam’s pharmaceutical market value, and almost all the high-end medicines in the country.
According to Business Monitor International, Vietnam ranked 13th out of 175 countries and territories in terms of pharmaceutical spending growth.
Vietnam’s major pharmaceutical suppliers are India, France, Germany, South Korea, the U.K., Italy, Switzerland, the U.S., Belgium and Thailand, which represent 69.5% of the value worth US$670.1 million.
Under Vietnam’s commitments to the World Trade Organization (WTO), foreign firms have been allowed to ship their products to the country since January 1, 2009, a practice which has led to a change in the local distribution model, from producers to consumers. Formerly, pharmaceutical products were imported from foreign producers by authorized importers in Vietnam and were distributed to local wholesalers and then retailers. Now, no longer in need of authorized importers, the process has been shortened as Vietnam allows the establishment of wholly foreign-owned companies to reduce costs and help parent companies better control their business.
However, it may be a time-consuming and complicated process to establish a subsidiary because the parent companies are required by the Vietnamese Government to set up their production bases in Vietnam. As a result, only those firms seeking long-term profits would open production facilities in Vietnam. Some global pharmaceutical firms in Vietnam say regulations are often equivocal and applicable to only on a case-by-case basis. This uncertainty is undoubtedly a hindrance to foreign pharmaceutical firms that want to enter the Vietnamese market.
Although subsidiaries of many multinationals have been present in the country, their operations are lackadaisical, and authorized importers are still powerful enough to manipulate the market.
Foreign pharmaceutical companies wishing to open representative offices in Vietnam are allowed to do marketing activities only. To distribute their products, they have to collaborate with multinational distributors as local distributors are still short of international recognition. Then, they have to resort to Vietnamese importers and distributors; without an import-export function, they have to pay fees of 1.5-3% of the total value of a shipment. Whether the fees are high or low depends on the size of the shipment.
A chief representative of a big pharmaceutical group in Vietnam said the group has had to sign contracts with multinational distributors such as Zuellig Pharma, DKSH Vietnam and Mega Lifesciences to deliver drugs in the country. These companies then have to clinch deals with Vietnamese partners because the latter have the legal status in striking deals, issuing receipts and taking the money.
Complicated profits
It is easier for registration on the generic drug market. However, complication is still pervasive.
Commenting on Vietnam Pharma’s being awarded contracts for providing medicines for hospitals, an expert in pharmaceutical trading and distribution in Vietnam says those companies winning bids at low prices often work with other smaller companies in Asia without transaction registration on the global market. Doing business with such companies requires Vietnamese establishments to acquire huge capital and extensive relationships at home and abroad, as it is impossible to file lawsuits because there is no written confirmation.
For example, a pill made in South Korea is priced at VND2,000. When the company sells it to a South Korea distributor, the price is raised to VND4,000. As soon as it reaches a distributor in Vietnam, these two distributors will jointly raise its price to VND8,000. The local distributor will earn a profit of VND2,000; VND2,000 will be used to pay to doctors in the forms of overseas trips. The pill will then be sold to hospitals in Vietnam for VND9,000, with VND1,000 being used to offset “intermediary” costs.
As Vietnam Pharma offered such a surprisingly low price for one product requiring the same material imports, other companies tried to find what was really behind. The expert also says other companies could do exactly what Vietnam Pharma did.
The local drug distribution sector has been in the hand of interest groups. Massive profits also render the sector more and more appealing, thus making the competition in the pharmaceutical business fiercer and fiercer.
(By Hoang Nhung – The Saigon Times)