In Vietnam, the primary channels for medicine distribution are over-the-counter (OTC) and essential therapeutic care (ETC) drugs. According to Vietnam Credit's Overview of Vietnam's Pharmaceutical Industry, ETC channels constitute 70% of the medicine market, with OTC channels making up the remaining 30%.

Pursuant to the Pharmaceutical Law 2016, OTC drugs are those that can be dispensed, retailed and used without a prescription from a list promulgated by the Minister of Health. On the other hand, ETC drugs require a medical prescription due to the potential risks to the user's health or life.

Impact of recent regulations on OTC and ETC markets

OTC
Since 2013, there have been new regulations emphasising the selection of cost-effective drugs at hospitals, prioritising affordability. Consequently, businesses are focusing on developing OTC channels to fortify their positions and ensure competitiveness in the market.

The existing scenario indicates a high potential for the growth of demand for OTC drugs, driven by current regulations, their effectiveness and the evolving nature of OTC drug usage. According to SNS Insider, the global OTC drugs market reached a valuation of US$166 billion in 2022, with a projected increase to US$254 billion by 2030. This growth is expected to exhibit a compound annual growth rate (CAGR) of 5.5% from 2023 to 2030.

Primarily, both current and forthcoming regulations emphasise the procurement of domestic drugs at reasonable costs. In October, the prime minister of Vietnam issued Decision No. 1165/QD-TTg, endorsing the "National Strategy for Development of Vietnam's Pharmaceutical Industry to 2030 with a Vision to 2045". This strategic move aligns with the broader objective of developing the pharmaceutical industry in tandem with the expanding middle class and increasing healthcare spending in Vietnam.

The goal by 2030 is for domestically produced drugs to meet approximately 80% of demand and account for 70% of the market value. The aim also includes producing 20% of the raw materials needed for domestic drug production and ensuring that domestically produced vaccines meet 100% of the demand for expanded vaccination and 30% of the demand for service vaccination.

Moreover, the new Bidding Law 2023, effective from 1 January 2024, explicitly supports the state policy of encouraging the development of domestically produced drugs. Article 56 of the law outlines incentives for purchasing drugs, reinforcing the commitment to sourcing from domestic manufacturers meeting specified criteria.

Secondly, OTC drugs, available for direct purchase without a prescription, play a crucial role in self-care and treating common health conditions. The demand for OTC drugs remains significant for the majority of people, and the development of pharmaceutical manufacturing enterprises adds to the competition in providing affordable, quality drugs.

Thirdly, the rapid growth of e-commerce and online retail platforms has reshaped consumer purchasing behaviour, including for OTC drugs.

Fourthly, the OTC drugs market is expected to experience substantial growth, with an impressive CAGR of 7.24% from 2023 to 2028. This growth is attributed to the expansion of Vietnam's pharmaceutical industry, particularly in generics, biosimilars and OTC drugs, as local manufacturers and contract organisations focus on meeting the country's healthcare needs. The projected revenue in the OTC Pharmaceuticals market for 2023 is estimated at US$847.4 million.

ETC
ETC drugs (also referred to as "prescription drugs") are pharmaceuticals available through a doctor's prescription, primarily distributed through hospitals. Strict adherence to the prescriber's instructions is crucial to prevent potential health and life risks.

Over the past five years, the ETC channel, representing therapeutic or prescription drugs and serving as a proxy for hospital distribution, has contributed approximately 75 to 76% of the total revenue.

Since 2017, the Ministry of Health has mandated that pharmacies can only dispense prescription drugs with valid prescriptions, aiming to prevent drug abuse, particularly with antibiotics. Decree 117/2020/NDCP has escalated fines for "selling prescription drugs without a prescription" and discouraged ETC distribution in pharmacies outside hospitals.

Additionally, the extension of drug circulation licences (known as "marketing authorisation" (MA)) poses a significant challenge. The Ministry of Health has announced four batches encompassing 10,572 drugs (8,204 domestic; 2,143 foreign; and 225 vaccines or biological products) with MAs extended until 31 December 2024. Addressing the large number of MAs necessitates proactive measures, such as automatic extensions or continued usage for drugs meeting safety criteria.

To mitigate risks, the new Law on Medical Examination and Treatment 2023 and the Bidding Law 2023 have introduced avenues for medical facilities and hospitals to autonomously decide on procurement. Decision 1165/QD-TTg outlines Vietnam's ambition to become a regional hub for high-value pharmaceutical production, emphasising technology transfer and local production of at least 100 original brand-name drugs, vaccines and biological products.

The Law on Medical Examination and Treatment grants autonomy to state medical facilities, allowing them to use legal revenue or borrow capital for infrastructure and medical equipment investment. Article 55.2 of the Bidding Law 2023 empowers hospitals to independently procure drugs not covered by insurance funds transparently and efficiently.

Despite the potential for ETC medicine development, short-term risks exist due to unclear legal guidance. The implementation of the Law on Medical Examination and Treatment and article 55.2 of the Law on Bidding may face challenges if hospitals lack a clear mechanism for execution.

Impact on pharmaceutical industry players

The forthcoming years are poised to witness significant impacts on pharmaceutical companies due to new regulations governing bidding processes, as well as medical examinations and treatments.

Domestic pharmaceutical production takes precedence, making domestic companies the primary beneficiaries. With years of accumulated resources, domestic pharmaceutical manufacturing enterprises are anticipated to experience rapid and robust growth in the near future. However, as the focus remains on developing OTC channels, the availability of ETC drugs may still heavily rely on importation.

For foreign-invested enterprises engaged in drug importation and multinational corporations operating in the pharmaceutical sector, regulations permit hospitals to proactively procure necessary drugs during shortages. This ensures the stability of drug procurement channels, such as those for brand-name drugs, which are expected to persist and evolve. Nevertheless, the absence of guidance from the Bidding Law and the Medical Examination and Treatment Law regarding the autonomous procurement mechanisms of hospitals may pose challenges in distribution, potentially impacting revenue over a certain period.