Pharmaceutical industry sees slowing growth momentum

The pharmaceutical industry's growth momentum started to fade in the first quarter of the year, as companies grappled with fluctuating and rising prices of raw materials and intensifying competition in the market.

The industry is an essential sector that is typically less impacted by economic slowdowns. However, weak demand has posed challenges for this fast-growing industry in Vietnam.

After record profits and strong growth in 2023, the industry's momentum has faced limitations in 2024 due to rising raw material costs and increased market competition, according to SSI Securities Corporation.

The broker forecasts pharmaceutical profit growth of 8.4% in 2024, lower than the 15.5% projected for the market's benchmark VN-Index. It estimates an 8% increase in revenue and 6% net profit growth for companies in the industry.

The lower projected net profit growth is due to the rising costs of active pharmaceutical ingredients (API), as well as the healthcare market having lower gross profit margins compared to retail.

While 2023 was a good year for the industry, SSI believes it will be hard to achieve the same momentum this year.

In fact, the industry's business results have largely remained flat or seen only slight improvements compared to 2023.

Rising revenues, falling profits

In the first three months, top pharmaceutical firms like DHG Pharmaceutical (DHG) and Imexpharm Corporation (IMP) experienced a paradoxical situation as their revenue increased while profit dipped.

Despite a slight rise of 2.4% in net revenue, DHG reported a 38.4% year-on-year decline in profit after tax to VND222.2 billion ($8.7 million).

This was largely attributed to a more than 21% spike in the cost of goods sold, which sharply erased gross profit margins.

Similarly, Imexpharm saw its net revenue grow nearly 2.5% over last year to VND491.1 billion ($19.3 million), but its profit after tax dropped 20.5% to over VND61.9 billion ($2.43 million).

While many companies in the same industry have reported increasing revenues but declining profits, there are still some businesses that have seen both their revenues and profits decrease.

Imexpharm's leadership cited three main reasons for the mixed results, including higher input material prices, intense market competition, and the IMP4 factory coming online in the third quarter of 2023, which led to rising depreciation and operating costs.

Meanwhile, during the same period, Bidiphar saw a slight gain in net revenue to VND383.8 billion ($15.08 million), but the cost of goods sold climbed at a faster pace than revenue, causing gross profits to drop more than VND2 billion to VND188.5 billion ($7.4 million).

After deducting expenses, the company reported a profit after tax of VND67.1 billion ($2.63 million), which showed no change from the same period last year. Nevertheless, it has already earned 25% of its full-year profit target of VND320 billion ($12.57 million) in just the first three months.

Poor results

On the other hand, some companies have witnessed declines in both revenue and profit .

For instance, Vinapharm recorded consolidated net revenue of VND1.19 trillion ($46.74 million), down 3% on-year, and profit after tax of VND94.4 billion ($3.7 million), down 15%. The falls were due to poor business results at its parent company, some subsidiaries, and associated companies in the first quarter.

Traphaco also saw a 11.6% drop in net revenue, to nearly VND547.5 billion ($21.5 million). Although the company reduced costs and its financial income increased, the large decline in revenue led to a loss of 32% in profit after tax to VND54 billion ($2.12 million).

Traphaco had enjoyed three consecutive years of strong profit growth, including a record year in 2022 and its second-highest profits in 2023.

First quarter profits at the pharmaceutical firm were also higher than in the same period in 2021, when Traphaco's strong profit streak began. However, the significant decline in profits is likely to indicate that the company has passed its peak profitability.

According to SSI, policies are expected to continue supporting domestic pharmaceutical manufacturing companies in 2024. A key policy expected to be passed this year is an amendment to the Pharmaceutical Law, which aims to help reduce challenges and provide more incentives for domestic enterprises to pursue higher standards.

The securities firm said that these policies will help local manufacturers improve their market share compared to imported healthcare products. However, the impact of these policies will be more evident in the following years, starting in 2025.

Mirae Asset Vietnam Securities also believes that legal and regulatory reforms will help drive growth in Vietnam’s pharmaceutical sector.

The financial services firm forecasts that the value of the country's pharmaceutical market will reach $7.89 billion in 2024, a 9.1% increase year-on-year.