Pharma firms to raise FOLs

For the past month, stocks of many pharmaceutical firms in Vietnam have extended their upwards trend. The most impressive ascent was Domesco Export and Import JSC (DMC), whose shares rose  27.24 per cent last month and hit a one-year high of VND84,000 (US$3.76) on July 8. Similarly, DHG Pharmaceutical Company recorded a 14-per-cent increase since June and reached a one-year peak of VND106,000 (US$4.75) on July 7.

For DHG, the rise came after the Japanese medical corporation Taisho Group announced a US$98-million deal to acquire 24.4 per cent of DHG’s stakes. The leading Vietnamese pharma firm also counts Templeton Frontier Markets Fund as a major shareholder with 9.44 per cent ownership.

In addition, shares of other firms such as Imexpharm Corporation, Benovas Pharmaceutical Company, Central Pharmaceutical Company JSC No3 and Traphaco JSC, also jumped to the highest price point for the entire year.

The UK-based Business Monitor International, which is a market leader in business intelligence, forecasts that the Vietnamese pharma industry will enjoy an annual growth rate of 16 per cent from now until 2018, with revenue ranging between US$3.5 and US$5 billion per year.

A young population, with higher income and a better understanding of healthcare products than previous generations, will be a boon for medicine sales in Vietnam.

According to reports from Maybank Kim Eng, April’s revised Law on Pharmacy has given priority to domestically produced medicine over imported products, if proven that the two are of the same quality and pricing. This is positive news for Vietnamese pharma firms, which usually compete against cheaply imported drugs at hospital biddings. However, this new rule may require further clarification upon its official launch next year.

Rumours of mergers and acquisitions may have also contributed to the dramatic surge in pharma stocks this year. As stated in the law, overseas medicine producers are not allowed to directly distribute their products in Vietnam. To avoid this restriction, foreign firms have to partner up with Vietnamese pharma firms.

For example, analysts at Viet Capital Securities predicted that after becoming a major shareholder at DHG, Taisho Group may eventually set up a joint-venture production plant with the Vietnamese producer, to take advantage of DHG’s network of 12 subsidiaries and 24 branches to distribute the jointly produced drugs.

Likewise, the US’ healthcare firm Abbott Laboratories has expressed interest in raising its stakes at DMC from 45.91 to 51 per cent. Because of this, DMC has become the first Vietnamese pharma firm to suggest scrapping its foreign ownership limit, which currently stands at 49 per cent.

If this proposal is passed by the State Securities Commission, DMC will become a foreign-owned pharma company. It is notable that the firm has made amendments to its business charter to dodge the ban on foreign medicine distribution in Vietnam.

Despite feverish attention from overseas partners, it should also be noted that 11 out of 13 listed Vietnamese pharma firms still have to ask for permission from the State Capital Investment Corporation (SCIC), as the state investor remains their majority shareholder.

Unfortunately, SCIC has not yet announced any divestment plans in the pharma sector, thus foreign investors must continue to hold off on buying large stakes in these firms. 

Moreover, medicine distribution, in general, remains a conditional business sector in Vietnam. This classification will make it more challenging and time-consuming for foreign pharma firms to buy out Vietnamese medicine distributors.