Hanoi (VNS/VNA) - The pharmaceutical industry is growing steadily becauseinput costs are stable compared to other industries and businesses are lessaffected in a high inflation environment.

Inthe first quarter of 2022, according to the business results of the listedpharmaceutical companies, SSI Research Co estimated that the totalpharmaceutical revenue of the country increased by 7 percent over the sameperiod last year, in which the revenue from the pharmacy channel increased by23 percent over year-on-year and the hospital channel decreased by 5 percentyear-on-year.

SSIResearch assesses that the pharmaceutical industry will grow strongly in thefuture. Pharmaceutical demand will continue to increase until the end of 2022when revenue from the hospital channel recovers strongly, especially insouthern provinces, helping to increase the revenue reach of 13 percent ofthe figure in the second half of 2022 and 11 percent of the whole of 2022,recovering close to pre-COVID-19 revenue levels.

Themass opening of new pharmacy chains is set to boost the pharmaceuticalindustry's revenue in the next few years. The three largest drugstore chains,Long Chau, An Khang and Pharmacity, are rapidly expanding across the country.

Accordingto a survey by IQVIA, the total number of drug stores in the country in 2016was 55,300, with only 186 stores belonging to the pharmacy chain, approximately1 percent of market share. In 2021, after a long period of tighteningregulations for the over the counter (OTC) channel and raising standards foreach pharmacy, the total number of operating drug stores reached 44,600 units,of which 1,600 stores belong to the drugstore chain, accounting for nearly 4 percentof market share.

Althoughthe proportion of drugstore chains is still quite small, the ambitious plan ofthe top three drugstore chains is to bring the total number of drug stores inthe pharmacy chain to 7,300 in 2025, equivalent to 16 percent market share andthus helping the pharmaceutical industry's revenue to increase more than theactual demand of the people in the next 2 - 5 years.

However,these drugstore chains still deal in the majority of supplements and importeddrugs, so the sudden growth in the number of stores of these chains does notimply a rise in the revenue of domestic pharmaceutical manufacturingenterprises.

Importeddrugs continue to be a concern for domestic enterprises. The total value of Vietnam’sdrug imports increased by 21 percent year-on-year in 2021 and continued toincrease by 25 percent in the first quarter of 2022, while imported rawmaterials for domestic drug production increased only 3 percent over the sameperiod in 2021 and down 11 percent year-on-year in the first quarter of 2022.

High profits

Asassessed by SSI Research, the pharmaceutical business is less affected in ahigh inflation environment, with stable input costs compared to otherindustries.

Accordingto the financial statements of the pharmaceutical companies listed in Vietnam,the average input costs of most pharmaceutical companies have quite similarproportions: 60 percent of raw material costs, 20 percent of labour costs, 10 percentfor advertising or marketing costs, 4 percent depreciation, 3 percent R&Dcosts and 3 percent for logistics and other costs.

Althoughthe cost of raw materials accounts for the largest proportion, it is brokendown into many different types of active ingredients and pharmaceuticals. Forexample, paracetamol, which is the most common and simplest formulation, ismade up of three active ingredients, five excipients, capsulesand packaging, and can be further broken down into 20 different basicmaterials such as petroleum, plastic granules, gelatin and corn starch.

Asa result, the cost composition of the final tablet will be very fragmented andthe pharmaceutical business will be less affected by inflation, unless there isa significant disruption in the supply chain of raw materials such as aCOVID-19 outbreak or changes in environmental protection policy and closure ofcontaminated pharmaceutical factories as in China in 2016.

China'simplementation of the "zero COVID" policy in 2022, although it lastsbeyond 2020, has not yet recorded any significant impact on the supply chain ofpharmaceutical ingredients because the main pharmaceutical producing provincessuch as Hubei, Shandong, and Jiangsu currently do not have any strict lockdownpolicy.

India,the second largest producer of medicinal ingredients, is currently acceleratingcapacity expansion with capital incentives of up to 200 million USD and othersignificant tax incentives to replace the dominant position of China in themarket for supplying raw materials for drug production.

Accordingto PwC, 2022 could be a year of recovery for global M&A activities aftertwo years of the COVID-19 pandemic, with the value of global pharmaceuticalM&A deals expected to increase by 32 percent over the same period last year.

Pharmaceuticalcompanies are also searching for M&A deals as they have kept an abundantamount of cash accumulated during the pandemic./.