Vietnam pharma major Imexpharm plans new facilities with proactive investment approach: exec

Imexpharm's ETC (ssential therapeutic care drugs requiring prescription) channel has seen impressive growth in the first half of the year. What’s driving this success?

In the first half of the year, the company's ETC channel revenue grew by 33% compared to the same period last year, outperforming overall market growth. This happened as the result of a rise in market share for Group 2 drugs from 13% to 18.5%. (Group 2 drugs are those produced under EU-GMP-standard lines or equivalent by PIC/S members, who are also ICH members).

Since the onset of the Covid-19 pandemic, which disrupted supply chains, management agencies have implemented policies aimed at alleviating difficulties and promoting localization within the pharmaceutical industry.

In October 2023, the government issued Decision 1165QD-TTg, approving a national strategy for development of the Vietnamese pharmaceutical industry through 2030, with vision until 2045. The goal is for domestically produced drugs to meet approximately 80% of demand and account for 70% of market value, up from the current 60%.

With such clear policies in place, domestic pharmaceutical companies have significant opportunities at home.

However, foreign pharmaceutical firms still lead domestic manufacturers in both innovative drug development and the quality of generic drug production. Therefore, recent policies can be seen as a catalyst for encouraging domestic companies to enhance product quality and capitalize on new growth opportunities.

Ultimately, domestic consumers, patients are the primary beneficiaries as they gain access to high-quality drugs (comparable to imported ones) at more reasonable prices.

According to data from early 2024 provided by the Department of Drug Administration at the Ministry of Health, there are about 250 drug manufacturing facilities in the country meeting GMP standards.

Less than 10% of these meet EU-GMP standards or equivalent, with around 50 production lines, while the remainder are WHO-GMP compliant.

Imexpharm stands out as one of the few domestic companies that embraced high-quality drug production standards early on. Today, it leads in EU-GMP production capacity with three factory clusters and 11 EU-GMP production lines.

Nearly 30 years ago (1997), we pioneered the application of ASEAN-GMP standards, paving the way for domestic pharmaceutical companies to produce drugs for foreign firms (such as Sandoz and Biochemie) for the first time in 1999.

We were also among the first Vietnamese companies to successfully produce under EU-GMP standards in 2016, helping replace imported drugs with domestic alternatives.

With significant advantages in production capacity and quality, Imexpharm sees potential in capturing greater market share in the Group 1 drug segment, building on its success in the Group 2 segment. (Group 1 drugs are those manufactured on EU-GMP lines in Vietnam and licensed for circulation in countries on the SRA or EMA list of generic drugs).

After nearly half a century of growth and development, Imexpharm Pharmaceutical JSC, listed on the HCMC Stock Exchange (HoSE) as IMP, has emerged as leading pharmaceutical manufacturer in Vietnam, boasting three EU-GMP-standard factory clusters and 11 EU-GMP-standard production lines.

What are your further expectations from the ETC channel?

In the first half of 2024, Imexpharm climbed to the No. 3 position in the hospital ETC channel (up from No. 4 at the end of 2023), holding a market share of 2.3% and significantly surpassing other domestic competitors.

Previously, the list of drugs not subject to foreign bidding consisted mostly of WHO-GMP drugs, with only four SKUs (Stock-Keeping Unit) being EU-GMP drugs. However, the newly announced list in Circular 03, applicable only to Group 1 and 2 drugs (which must be produced under at least EU-GMP standards), now includes 93 SKUs.

Any drug produced by three or more domestic companies meeting EU-GMP standards or equivalent will no longer require import bidding.

Imexpharm currently represents 12 out of the 93 SKUs on this list, giving the company a significant advantage in supplying drugs to the ETC channel. This signals positive developments for the Vietnamese pharmaceutical industry as a whole, benefiting consumers and domestic enterprises by reducing reliance on imported drugs.

In terms of business efficiency, this year, Imexpharm aims for a gross revenue increase of 49% over last year from the hospital channel, while the overall market rate is expected to be around 15%.

With a series of newly issued circulars creating a favorable environment and a strategy focused on in-depth R&D for high-quality antibiotic products, especially injectable antibiotics that meet EU-GMP standards, our business results from the ETC channel have exceeded expectations.

By the end of the first eight months of the year, Imexpharm recorded a 54% increase in ETC channel revenue compared to the same period last year, contributing more than 50% of the company’s total revenue.

I have to note that we are the first domestic company to produce lyophilized powder antibiotics for injection that meet EU-GMP standards. This achievement opens up significant opportunities for Imexpharm to expand its market share in Group 2 drugs, as injectable antibiotics are generally high-value products that are primarily imported.

What about OTC (over the counter drugs not requiring prescription)? What are your plans for this channel?

Currently, the ratio of ETC to OTC channels at Imexpharm is about 50:50. The OTC channel has experienced slow growth in the first eight months of the year, largely due to economic challenges; consumers tend to rely more on insurance drugs and limit spending on over-the-counter medications. As a result, Imexpharm saw a 3% decline in OTC channel revenue compared to the same period last year.

In the OTC channel, the company aims to enhance its branding efforts. For instance, while well-established foreign brands dominate the market for common medications like pain relievers and fever reducers, Imexpharm produces similar-quality tablets at more competitive prices. The company has also begun producing effervescent paracetamol tablets.

This effort is fundamentally about branding, ensuring that consumers remember and trust Imexpharm as a high-quality Vietnamese brand.

Imexpharm has recently launched an IMP4 factory. Can you share some key information about this, like capacity and expected break-even point?

The IMP4 factory is a high-tech facility located in Binh Duong province, operational since July 2023. Initially, the management expected to ramp up the factory's capacity gradually, with a break-even point projected after 4-5 years. However, due to substantial market demand for our products, we anticipate reaching the break-even point much sooner.

The IMP4 factory primarily produces injectable antibiotics, which have generated a strong volume of orders. As of now, the factory is operating at only about 20-25% of its capacity. Our first production line received EU-GMP certification in March, and we have another line in the pipeline for certification. Thus, we expect a rapid increase in IMP4's production capacity soon.

Even though the IMP4 factory is yet to reach its break-even point, the company is preparing to invest in the next one, the IMP5 factory. Could you elaborate on that?

The management recognizes that if we don’t begin preparing for future investments now, we risk hitting capacity limits in 3-5 years. By 2027, we estimate that our factories may be operating at full capacity, necessitating the establishment of new facilities. This proactive investment approach is essential.

Our strengths lie in antibiotics and cough medicines, where we currently lead the market in Vietnam, even outpacing foreign competitors. With the new factory, we plan to expand into other treatment areas such as cardiovascular health, diabetes, neurology and digestive medicine.

As for investment capital, the company’s operational cash flow is robust. We will also strategize to secure additional funding for the project.

While the company’s revenue increased in H1/2024, profit decreased. Can you explain?

Yes. Revenue grew 10%, but after-tax profit fell 19%. However, profit before tax, interest and depreciation (EBITDA) decreased by just 7%.

The main reason for this discrepancy is that the IMP4 factory began operations in July 2023. Thus, in the first six months of the previous year, the company didn’t incur depreciation, labor or factory operating costs. This year, although the factory has only been operating one freeze-dried powder production line and is awaiting certification for another, fixed costs like depreciation and labor still apply.

We expect the situation to improve as the factory becomes fully operational and ramps up production in the latter months of the year.

Regarding input material costs, we saw a 3% increase approximately in the first half of the year, but we don’t anticipate significant price hikes for the remainder of the year.

Despite the profit drop compared to last year, our quarterly and monthly results show positive recovery and growth, especially from the first quarter to the second quarter. We are committed to achieving the full-year business plan set by the general meeting of shareholders.

What role does SK Group play in Imexpharm?

Since becoming a major shareholder, SK Group has focused on building strategic initiatives. The company's medium- and long-term vision is to become the top pharmaceutical company in Vietnam and to expand operations on a regional scale.

To achieve these goals, Imexpharm has implemented a series of comprehensive measures and initiatives, including restructuring the organizational model and attracting senior personnel; enhancing and reorganizing sales and marketing activities; improving customer care; upgrading the supply chain system; optimizing production processes and quality management; refining the structure and functions of the financial department; and focusing on ESG (environmental, social, and governance) practices, digitalization, communications, and investor relations.

In particular, SK has directed Imexpharm to prioritize research and development of high-tech, non-antibiotic products in its expansion plan. This includes fostering connections between Imexpharm and companies within SK Group, as well as with reputable international partners for cooperation and technology transfer.

Green development is a buzzword now. How does Imexpharm embrace this?

Sustainable development and ESG practices have always been central to Imexpharm's business strategy. While there are many facets to ESG, a key example is the application of modern technology in antibiotic production to achieve high purity while minimizing the use of chemicals and excipients that may be released into the environment.

Imexpharm produces its antibiotics using an enzymatic fermentation method, which utilizes only water and alcohol to synthesize the active ingredients rather than relying on chemical solvents as in traditional methods. This fermentation process results in a purity level of up to 99%, reducing the use of exciters by 50%. In contrast, traditional antibiotic production typically achieves only 97-98% purity.

Additionally, Imexpharm is committed to increasing transparency with stakeholders by proactively sharing information with shareholders and investors, from large organizations to small investors. These efforts set Imexpharm apart from other domestic pharmaceutical companies in its commitment to sustainable development.