Vietnamese Medtech Industry on the Rise

By Ames Gross
December 21, 2016


• Categories: Market Access

Behind Indonesia and the Philippines, Vietnam is the third most populated country in South East Asia, with a population of more than 90 million. Currently, 5% of Vietnam’s population is 65 and older, but this is expected to double in the next 20 years. In addition, Vietnam has a growing middle class, and has reached the lower middle-income status in 2010, according to the World Bank. These two factors increase the need for healthcare, while also increasing the income available to spend on healthcare. Recently, Vietnam has made significant progress in lowering the prevalence of certain conditions such as malnutrition.  However, the country is now targeting infectious diseases such as HIV/AIDS, cholera, measles and Avian flu. With an upcoming boom in the elderly population, emerging non-infectious diseases in Vietnam include cancer, diabetes, cardiovascular diseases and mental disorders. In order to meet these healthcare needs, the Vietnamese government must increase investment in hospitals, pharmaceuticals and medical devices.

Vietnam’s Hospitals

Currently, Vietnam’s public hospitals are severely overcrowded due to insufficient funds and lack of qualified staff. The country’s hospital system is a network, composed of provincial and national level facilities. While all public hospitals face overcrowding, typically national-level hospitals in large cities experience the most overcrowding. National hospitals are viewed as having better medical equipment and staff than provincial hospitals. Patients are therefore more willing to travel to national hospitals for better care, furthering the overcrowding issue.

The Vietnamese government is now planning on modernizing the healthcare system. Since 2012, the government has released multiple “master plans” to improve key areas such as public health insurance, hospital service and access to medication. One such improvement is through the privatization of hospitals in Vietnam. Private hospitals are rapidly growing, with numbers quadrupling to almost 200 in the last 10 years. Foreign investors can establish 100% foreign ownership of Vietnamese hospitals, with no restrictions on the number of practicing foreign doctors or foreign insurance companies. Top Western foreign investors of hospitals include French and U.S. companies, such as Eukaria S.A, a French company that owns Hanoi French Hospital. In addition to adding more hospitals, modernization of the healthcare system opens up many opportunities for foreign medical equipment and drug manufacturers.

Medical Device Needs in Vietnam

The medical device market in Vietnam is also one of the fastest growing in the Asian region due to the recent hospital improvement efforts. BMI Consulting predicts that the medical device market will surpass $1 billion by 2019, up from $748.9 million in 2014. Sectors experiencing the most growth include orthopedics and prosthetics. Other business opportunities for Western companies include devices related to cancer, diabetes, cardiovascular disease, sterilization and infection control, and diagnostic and operating devices. Another upcoming sector to note is devices and technologies used in telemedicine.

Medical Device Purchasing Demands

According to a report published by the Netherlands Embassy, there are four main classes of medical device purchasers:

1. Government-funded hospitals. The largest class, accounting for 70% of the medical device market. However, foreign suppliers must work with a domestic partner in order to sell to these hospitals.
2. Local private hospitals. Expected to experience the strongest growth.
3. Foreign-owned hospitals and clinics. Tend to purchase devices from the sponsoring country.
4. Medical education and research institutions. Open to experimentation with new and innovative techniques, they will account for some demand.

Importing and Producing Medical Devices in Vietnam

The Department of Medical Equipment and Construction under the Ministry of Health in Vietnam is solely responsible for determining medical device purchase guidelines for all public healthcare systems. Almost 85% of medical devices in Vietnam are imported. Of these, almost half come from the United States, Japan, Singapore and China. For imports into Vietnam, devices are not required to be registered, but foreign companies must have a registered local business entity and have an import license. Local distributors and agents that have import licenses are often used by foreign companies to fulfill such requirements.

While imports account for a large proportion of the medical device market, domestic production of devices is on the rise. Recently, Japanese, American and European companies have taken advantage of Vietnam’s low labor rates and other manufacturing costs. To further incentivize domestic production, the Vietnamese government has exempted import taxes on components utilized for domestic production or assembling of medical equipment. Together, both exports to Vietnam and domestic production of medical devices present opportunities for foreign companies to expand their business.

In May 2016, the Vietnamese government released Decree 36, detailing the management of medical devices. This decree brought imported devices and domestically manufactured devices under one management system, when previously, two separate systems of legislation governed the two categories. Highlights of Decree 36 include classifying all devices based on risk level (type A to type D), and managing all devices through marketing authorization (MA) licenses. Overall, management of medical devices will be tightened under this decree and will make conducting medtech business in Vietnam easier.

Success for Medical Device Companies in Vietnam

Various Western medtech companies have already found success in Vietnam or are planning on taking advantage of the growing market. In July 2016, Medtronic launched the Variloc Locking Compression Plate System in China. Medtronic will also launch the system in nine other countries by the end of 2016, including Vietnam. The system is a device that allows surgeons to correct a variety of fractures, is covered by multiple patents, and has features such as an anatomical shape, as well as both a variable angle locking screw and a cannulated locking screw. Currently, the device is not available in the United States and is pending approval in Vietnam.

In early 2015, Terumo BCT began manufacturing operations at its new facility in Ho Chi Minh City, Vietnam. The company produces blood components, therapeutic apheresis and cellular technologies. The new 91,440 square-meter facility in Vietnam cost $100 million and employs around 900 employees. Terumo BCT’s move follows in the footsteps of other medical device companies such as Sonion, a Danish producer of hearing instrument components. Sonion took advantage of low labor costs and government incentives, moving its manufacturing facilities to Vietnam in 2006.

Pharmaceuticals in Vietnam

If the Trans-Pacific Partnership (TPP) is ratified, Vietnamese tariffs on pharmaceuticals will drop to 0%, and drug patents will be extended from five years to up to 10 years. The TPP agreement will be one of the main driving forces behind pharmaceutical market growth in Vietnam. According to PricewaterhouseCoopers, the Vietnamese pharmaceutical market is expected to reach $7.2 billion USD by 2019, up from $3.8 billion USD in 2014. More than 50% of pharmaceuticals are imported into Vietnam, and France and Germany are two of the biggest Western suppliers. In addition, the Ministry of Health states that around 90% of raw drug materials are imported. Drugs treating cancer, diabetes, respiratory diseases and infectious diseases are currently in high demand. In addition, products for minor ailments, such as eye care and digestive remedies, along with preventative OTC products such as vitamins and dietary supplements, are also becoming increasingly popular.

Top pharmaceutical companies such as Pfizer, Novartis and GlaxoSmithKline already have established offices in Vietnam, and foreign presence is continuously growing. In September 2016, the Vietnamese government allowed the Vietnamese drug company Domesco Medical Import-Export Joint Stock Corporation (Domesco) to increase its foreign investment limit. Previously, the foreign investment limit was at 49% for Vietnamese drug companies and approximately 45% of Domesco shares were owned by the Chilean company CFR International (owned by Abbott Laboratories in the United States). Domesco is the first Vietnamese company to now have 100% foreign ownership of a factory in Vietnam, and market experts predict that other pharmaceutical companies will follow, potentially leading to more merger and acquisition opportunities of Vietnamese drug companies by foreign companies.

A variety of factors are leading to a healthcare reform in Vietnam. These reforms will increase the number of hospitals in Vietnam, thus increasing the need for medical devices and pharmaceuticals. Western medtech companies should continue watching these trends and take advantage of these opportunities.