Pharmaceutical M&A on the horizon


Vietnamese pharmaceutical market harbours immense potential, but domestic enterprises are exploiting only half of this at best.

To not lose ground on their home turf, domestic players may increase their scale and capacity through merger and acquisition in order to compete against foreign rivals.

Room remains for more

According to the Vietnam Pharmaceutical Companies Association, the pharmaceutical industry currently ranks number six among the highest earning industries in the world. Currently, worldwide drug usage is $1.2 trillion per year, 50 per cent ($615-645 billion) of which is patented drugs and these patents can last for 20 years. 

Meanwhile, off-patent drugs take up 30 per cent ($400-430 billion). Developed and developing countries show a big difference in drug spending ($609 compared to $91). Vietnamese people currently spend very little, about $40 a year.

Regarding growth, the global pharmaceutical market grows at a rate of 3-6 per cent per year, while the US market 1-4 per cent and developing countries 12-15 per cent.

According to Associate Professor, Doctor Le Van Truyen, former Deputy Minister of Health, the winning factor of pharmaceutical companies is proving the benefits of their products and services.

Nowadays the issue for companies in Vietnam is getting affordable medicine to all patient groups. “Selling cheaper drugs to more people will be more profitable than selling expensive drugs to a small portion of patients,” he said.

The Vietnamese pharmaceutical market is one of the fastest growers in Asia and ranks 17th among the 175 countries in the world with the average growth rate of 17-20 per cent per year between 2010 and 2015. In 2017, the growth rate of this market is expected to be higher than 17 per cent.

According to information released at the recent annual shareholders’ meeting, Cuu Long Pharmaceutical, State Capital Investment Corporation (SCIC) and other partners are investing a total VND1 trillion ($47 million) in a facility to produce anti-cancer drugs.

The construction of the facility is going to start by the end of 2017. The company said it had achieved agreement with parties regarding drug copyright and purchase of equipment. While waiting for the facility to be completed, the company will import the drugs and distribute in Vietnam.

Each year Vietnam records an average 126,000 new cases of cancer and 94,000 deaths from cancer. Only for the six most popular types of cancer in Vietnam namely breast, liver, oral, cervical, stomach cancers, treatment expenses already reached VND26 trillion ($1.14 billion) in 2012.

In Southeast Asia currently there is only one facility in Malaysia producing anti-cancer drugs. Cuu Long Pharmaceutical calculated that after its facility comes into operation, the price of anti-cancer drugs will be cut by 40 per cent compared to the current price. 

A growing trend

Although the pharmaceutical market is considered to have a lot of potential, the current domestic drug production only meets 45 per cent of demand, while the rest must be imported. The value of imports is increasing by 16 per cent a year. This situation shows that money still mostly flows into the pocket of foreign pharmaceutical giants. Therefore, to not lose ground to foreign competitors, domestic players need to step up their game, inevitably stepping on the path of M&A.

The M&A trend in the pharmaceutical industry is showing signs of warming up. The most recent action was in early 2017, when Cuu Long Pharmaceutical JSC signed a $7.5-million share purchase agreement with Euvipharm Pharmaceutical JSC from Valeant Pharmaceuticals International, Inc. This deal is expected to be completed within the first quarter, after which Cuu Long Pharmaceutical will own a 90 per cent stake in Euvipharm.

Nguyen Van Sang, chairman of Cuu Long Pharmaceutical, revealed that buying a controlling share in Euvipharm will help the Vietnamese firm to increase production capacity and develop new medicines by taking advantage of Euvipharm’s modern equipment in the southern province of Long An.

Additionally, through this deal, Cuu Long Pharmaceutical can push their research and development to create new products, especially to treat cardiovascular diseases, cancer, and diabetes.

Euvipharm Pharmaceutical JSC currently owns a pharmaceutical production plant in Duc Hoa district in Long An Province, with the total investment capital of $17 million. The plant has a large production capacity for common medicines, including antibiotic powder products, effervescent, and products that require a special production environment.

Cuu Long Pharmaceutical owns three production plants that meet the GMP-WHO standard. The company supplies medicines, vitamins, medical instruments, syringes, and infusion lines, among others. This is the only unit in Vietnam that produces and supplies capsule products.

The acquisition of Euvipharm is only a single affair, but in the future, many other M&A deals of a similar nature are expected, as domestic pharmaceuticals are looking to improve their competitive edge.


Photo: CBR Investment AG