Foreign drug companies on a buying spree in Vietnam

Japanese pharmaceutical giant Taisho Pharmaceutical has announced plans to acquire an additional 21.7 percent stake in DHG Pharmaceutical Joint-Stock (DHG Pharma), Vietnam’s biggest drug company by revenue. This will increase its holding in DHG Pharma from nearly 35 percent to a controlling 56.69 percent.

The Tokyo-based firm began its acquisition of DHG Pharma in 2016, when it bought 24.44 percent from 34 foreign shareholders, and has since been gradually increasing its stake.

If the deal is successful, DHG Pharma will become the latest Vietnamese drug giant to be acquired by foreign businesses.

According to securities companies, although the pharmaceutical industry itself is highly protected with high technological barriers to entry, major foreign investors have been taking over the sector in the last five years. 

For instance, a 51 percent stake in Domesco, the sixth largest listed pharmaceutical company by revenue, was acquired by CFR International SPA, a subsidiary of U.S. healthcare company Abbott, in December 2017. 

In 2016 Abbott also fully acquired Glomed Pharmaceutical Company Inc (Glomed), a leading Vietnamese drug manufacturer.

Pymepharco, a pharmaceutical company founded in 1989, also saw many foreign investors register to buy shares immediately after its foreign shareholding cap was raised to 100 percent at the end of last year. 

In the event, Netherlands-based Stada Service Holding B.V. ended up with 72 percent of the shares. 

Investors eye Imexpharm and Traphaco, both with foreign ownership of more than 47 percent, as the next big acquisition targets. Overall, of the 10 biggest listed pharma companies, foreign shareholders have a controlling interest, referring to ownership exceeding 50 percent, in half. 

According to IMS Health, Vietnam is among 17 countries in the so-called pharmerging markets, a group of countries that are expected to be the pillars of the global pharma industry. Vietnam’s drug market is expected maintain a growth rate of around 10 percent annually for the next five years.

The slowdown in global markets means leading companies head out to other regions, including Vietnam in search of markets. However, with high entry barriers in many places due to unique production and consumption characteristics, most prefer to acquire stakes in existing companies. 

In a recent analysis, ACB Securities said under WTO regulations foreign enterprises in Vietnam could import but not directly distribute drugs in Vietnam. To circumvent this, they use a Vietnamese firm to distribute their drugs in the market. 

However, Vietnamese pharmaceutical companies with over 49 percent foreign ownership are only allowed to sell drugs they produce. Thus, foreign firms will have to transfer technology to the Vietnamese companies they buy to take advantage of the lucrative market.

According to a report by global research firm Business Monitor International, the Vietnamese drug industry grew at 16 percent a year in 2015-18, with sales hitting $10 billion.

The country still imports 55 percent of its drug needs, especially of patented drugs.

In the first two months of 2019 imports had been worth $396 million, up 5.6 percent over the same period last year, according to General Statistics Office.