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Herbs laid on a table

Production, Processing and Distribution of Herbal Ingredients

By Conscious Design on Unsplash

Production, Processing and Distribution of Herbal Ingredients

Compare IOA
Country
Vietnam
Sector
Most major industry classification systems use sources of revenue as their basis for classifying companies into specific sectors, subsectors and industries. In order to group like companies based on their sustainability-related risks and opportunities, SASB created the Sustainable Industry Classification System® (SICS®) and the classification of sectors, subsectors and industries in the SDG Investor Platform is based on SICS.
Health Care
Sub Sector
Most major industry classification systems use sources of revenue as their basis for classifying companies into specific sectors, subsectors and industries. In order to group like companies based on their sustainability-related risks and opportunities, SASB created the Sustainable Industry Classification System® (SICS®) and the classification of sectors, subsectors and industries in the SDG Investor Platform is based on SICS.
Biotechnology and Pharmaceuticals
Indicative Return
Describes the rate of growth an investment is expected to generate within the IOA. The indicative return is identified for the IOA by establishing its Internal Rate of Return (IRR), Return of Investment (ROI) or Gross Profit Margin (GPM).
10% - 15% (in ROI)
Investment Timeframe
Describes the time period in which the IOA will pay-back the invested resources. The estimate is based on asset expected lifetime as the IOA will start generating accumulated positive cash-flows.
Medium Term (5–10 years)
Market Size
Describes the value of potential addressable market of the IOA. The market size is identified for the IOA by establishing the value in USD, identifying the Compound Annual Growth Rate (CAGR) or providing a numeric unit critical to the IOA.
USD 100 million - USD 1 billion
Average Ticket Size (USD)
Describes the USD amount for a typical investment required in the IOA.
USD 1 million - USD 10 million
Direct Impact
Describes the primary SDG(s) the IOA addresses.
Good health and well-being (SDG 3) Zero Hunger (SDG 2)
Indirect Impact
Describes the secondary SDG(s) the IOA addresses.
Decent Work and Economic Growth (SDG 8) Reduced Inequalities (SDG 10)

Business Model Description

The business model may target different parts of the value chain, including herbal plantation (B2B), processing of herbal ingredients into medicines or supplements (B2B), or distribution of herbal medicines/ supplements (B2C). Investors may also choose to invest in companies that aim to set up the whole value chain from plantation to processing, and distribution of final products. Examples of companies active in this space are:

Lamdong Pharmaceutical Company provides lado actiso, which enhances liver, gallbladder, kidney, and digestion functions; lado herbal for use in preventing and curing health. Louis Capital agreed to acquire a 10.23% stake (1.3 million shares at an undisclosed value) in Lamdong Pharmaceutical on December 8, 2021.

Expected Impact

Increase the supply of quality ingredients from domestically produced sources, addressing the issue of a large volume of herbal ingredients imported from sources with unassured quality.

How is this information gathered?

Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.

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Disclaimer

UNDP, the Private Finance for the SDGs, and their affiliates (collectively “UNDP”) do not seek or solicit investment for programmes, projects, or opportunities described on this site (collectively “Programmes”) or any other Programmes, and nothing on this page should constitute a solicitation for investment. The actors listed on this site are not partners of UNDP, and their inclusion should not be construed as an endorsement or recommendation by UNDP for any relationship or investment.

The descriptions on this page are provided for informational purposes only. Only companies and enterprises that appear under the case study tab have been validated and vetted through UNDP programmes such as the Growth Stage Impact Ventures (GSIV), Business Call to Action (BCtA), or through other UN agencies. Even then, under no circumstances should their appearance on this website be construed as an endorsement for any relationship or investment. UNDP assumes no liability for investment losses directly or indirectly resulting from recommendations made, implied, or inferred by its research. Likewise, UNDP assumes no claim to investment gains directly or indirectly resulting from trading profits, investment management, or advisory fees obtained by following investment recommendations made, implied, or inferred by its research.

Investment involves risk, and all investments should be made with the supervision of a professional investment manager or advisor. The materials on the website are not an offer to sell or a solicitation of an offer to buy any investment, security, or commodity, nor shall any security be offered or sold to any person, in any jurisdiction in which such offer would be unlawful under the securities laws of such jurisdiction.

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Country & Regions

Explore the country and target locations of the investment opportunity.
Country
Vietnam
Region
  • Vietnam: Countrywide
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Sector Classification

Situate the investment opportunity within sustainability focused sector, subsector and industry classifications.
Sector

Health Care

Development needs
Regional disparities exist in access to quality and affordable healthcare services between rural and urban areas (1); Increased non-communicable diseases (NCDs) due to unhealthy habits, like excessive smoking and drinking; NCDs were the cause of 77% of deaths in 2016, as opposed to 68% in 2010 (1); Slow reduction of under-5 mortality rate, i.e. 23 in 2013 and 20.6 in 2020. (2)

Policy priority
specified in Decision 531/QĐ-TTg: Increase healthcare service quality, improve the healthcare system efficiency towards accommodating the aging population, international integration, and digital application; diversify medical services, encourage private sector participation, and increase healthcare access for the population (3, 4)

Gender inequalities and marginalization issues
limited access to healthcare for ethnic minorities and mountainous areas, maternal mortality in these areas is 3 times higher than the national average in 2019 (5). The adolescent birth rate in the 15-19 age group strongly increased in the past 10 years, from 24‰ in 2009 to 35‰ in 2019. The adolescents in the 15-19 age group in rural areas have a higher fertility rate than in urban areas, 45‰ vs 16‰ (2)

Investment opportunities introduction
USD 17.3b healthcare market size in 2018, with the spending per capita projected to increase from USD 170 in 2017 to USD 400 in 2027; the pharmaceutical market is the second largest in Southeast Asia, i.e. USD 5.9b in 2018, projected to grow at 14% CAGR by 2025 (6); Medical equipment is estimated at USD 1.6b (2021), with CAGR of 10% for 2017-2021 (7)

Key bottlenecks introduction
some constraints on registration for licensing for medical devices, pharmaceuticals, and patents, regulations on divestment, coverage of healthcare insurance for private health facilities, the form of the public-private partnership involves the problem of state assets, lack of human resources, and limited financial affordability for patients in certain areas.

Sub Sector

Biotechnology and Pharmaceuticals

Development needs
Each year, Vietnam uses about 60,000 - 80,000 tons of medicinal herbs for drug production and treatment, but 80% of these are imported from China through unofficial channels, with unassured quality (8). Counterfeit drugs and poor quality drugs - In 2019, Vietnam had the highest number of enterprises producing quality violating drugs. (9)

Policy priority
Specified in the National Strategy on herbal medicine development (Decision 376/QĐ-TTg, 2021), Development of the pharmaceutical industry and the domestic production of medicinal ingredients; attraction of investment into the pharmaceutical industry; and capitalization of advantages of domestic sources of medicinal herbs, especially the precious medicinal herbs (10)

Gender inequalities and marginalization issues
Developing medicinal plants not only contributes to the conservation of genetic resources of precious medicinal plants, but also helps to eliminate hunger, reduce poverty, and increase people's income level. The income from medicinal plantations can be ~USD 6,000 - 7,000/ ha, i.e. 3-4 times higher than that from conventional crops (11).

Investment opportunities introduction
Vietnam has more than 5000 plant varieties that can be extracted for medicinal formulation. The population spent 20 billion USD on healthcare products and services in 2020, and this figure is expected to rise by 12% per year (12).

Key bottlenecks introduction
Challenging to secure a sufficient supply volume of herbal ingredients from small producers; Technologies and know-how are required to develop products to meet market demand.

Industry

Biotechnology and Pharmaceuticals

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Pipeline Opportunity

Discover the investment opportunity and its corresponding business model.
Investment Opportunity Area

Production, Processing and Distribution of Herbal Ingredients

for Medicinal and Health Supplement purposes
Business Model

The business model may target different parts of the value chain, including herbal plantation (B2B), processing of herbal ingredients into medicines or supplements (B2B), or distribution of herbal medicines/ supplements (B2C). Investors may also choose to invest in companies that aim to set up the whole value chain from plantation to processing, and distribution of final products. Examples of companies active in this space are:

Lamdong Pharmaceutical Company provides lado actiso, which enhances liver, gallbladder, kidney, and digestion functions; lado herbal for use in preventing and curing health. Louis Capital agreed to acquire a 10.23% stake (1.3 million shares at an undisclosed value) in Lamdong Pharmaceutical on December 8, 2021.

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Business Case

Learn about the investment opportunity’s business metrics and market risks.

Market Size and Environment

Market Size (USD)
Describes the value in USD of a potential addressable market of the IOA.

USD 100 million - USD 1 billion

CAGR
Describes the historical or expected annual growth of revenues in the IOA market.

10% - 15%

Critical IOA Unit
Describes a complementary market sizing measure exemplifying the opportunities with the IOA.

The health expenditure per capita is approximately 181 current U.S. dollars (2019) in Vietnam (13)

By statistics, the total value of drug use in Vietnam is about 5.14 billion USD, out of which, the total value of medicinal preparations from medicinal herbs (medicines, traditional medicines, herbal medicines) is estimated at about 440 million USD (8.4% of the total value of disease treatment) (22)

Indicative Return

ROI
Describes an expected return from the IOA investment over its lifetime.

10% - 15%

GPM
Describes an expected percentage of revenue (that is actual profit before adjusting for operating cost) from the IOA investment.

20% - 25%

ROI varies depending on management and products. Financial reports of listed companies (Phytopharma, Pharmedic, Mediplantex, Nam Duoc) show an average ROI of 10-15%. (23)

Investment Timeframe

Timeframe
Describes the time period in which the IOA will pay-back the invested resources. The estimate is based on asset expected lifetime as the IOA will start generating accumulated positive cash-flows.

Medium Term (5–10 years)

Most businesses have a long history. The two young firms, for example, Nam Duoc and Vietmex are successful cases with consistently reported positive profits, established in 2005 and 2016 respectively. In practice, time is most consumed to build up a production base and supply resources (23)

Ticket Size

Average Ticket Size (USD)
Describes the USD amount for a typical investment required in the IOA.

USD 1 million - USD 10 million

Market Risks & Scale Obstacles

Capital - CapEx Intensive

The industry is capital-intensive. However, private placement or focusing on specific target products can reduce the size of the investment.

Business - Supply Chain Constraints

Partnership with other players to secure a sufficient and sustainable supply volume of medicinal herbs is complicated, involving multiple factors (competition from local traders, proper technical application, or collaboration with district governments where the herbal plantations are located).
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Impact Case

Read about impact metrics and social and environmental risks of the investment opportunity.

Sustainable Development Need

Investment in medicinal plantation and processing is needed for Vietnam to reduce the large number of medicinal ingredients imported from China, of which a majority are not traceable and potentially have a serious risk of quality. (24)

Gender & Marginalisation

Opportunity is needed for farmers in various regions, who earn low incomes from the production of traditional low-value crops (for example, maize), to switch to, or diversify into, medicinal plantations with high economic value.

Expected Development Outcome

Improve the quality of herbal medicines/supplements for the population.

Gender & Marginalisation

Improve income for disadvantaged people in remote/ mountainous areas: the medicinal plantations may increase the average income in these areas from 1.5 to 4 times (25)

Primary SDGs addressed

Good health and well-being (SDG 3)
3 - Good Health and Well-Being

3.b.3 Proportion of health facilities that have a core set of relevant essential medicines available and affordable on a sustainable basis

Current Value

78% in 2019 vs 75% in 2015 (2)

Target Value

86.6% in 2025 (2)

Zero Hunger (SDG 2)
2 - Zero Hunger

2.3.2 Average income of small-scale food producers, by sex and indigenous status

Current Value

The average income of people in rural areas is VND 35.8 m (equivalent to about USD 1,700) in 2018 (2)

Target Value

By 2030, increase labor productivity in agriculture and income by 1.5 times of agricultural labor (2)

Secondary SDGs addressed

8 - Decent Work and Economic Growth
10 - Reduced Inequalities

Directly impacted stakeholders

People

Marginalized farmers have opportunities to increase income from medicinal herbal plantations.

Gender inequality and/or marginalization

Women and ethnic minorities who participated in medicinal production will benefit from having improved income and jobs created by investment in processing capacity.

Planet

Contribute to improving the bio-diversity of the tree species

Corporates

The supply of herbal inputs is from agricultural plantations. The growth of the herbal medicine industry will thus, benefit MSMEs and the agriculture sector.

Public sector

The government benefits from reduced import of herbal inputs from China, thus resulting in direct contribution to economic growth.

Indirectly impacted stakeholders

People

Improved health for the communities due to the supply of assured quality of herbal medicines.

Gender inequality and/or marginalization

Women and marginalized groups can benefit from having more options for the medicines supplies for health improvement.

Public sector

The preservation of biodiversities will result in the improved sustainable development of the economy.

Outcome Risks

Value chain sustainability may not be fully achieved because insufficient technical capacity can prevent small producers from participating in the value chain to earn a higher income.

Resource constraints may lead to under-investment, thus compromising the quality of products.

Impact Risks

A complicated level of supply chain control and requirement for technologies/know-how are challenges limiting the expansion of business models.

The absence of effective law enforcement may create opportunities for imported low-quality materials to compete against the high-quality products of the investment.

Impact Classification

A—Act to Avoid Harm

What

The model will likely involve medicinal plantations, primary processing of medicinal herbs, manufacturing of herbal medicines/ supplements, and distribution of final products to users.

Risk

Application of technical instructions and shortage of capital to invest in input production.

Contribution

GoV commits to invest in medicinal plantation (Decision 376/QĐ-TTg/2021) in 2021 - 2030 and vision for 2045, of which the fund is arranged from the state budget.

Impact Thesis

Increase the supply of quality ingredients from domestically produced sources, addressing the issue of a large volume of herbal ingredients imported from sources with unassured quality.

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Enabling Environment

Explore policy, regulatory and financial factors relevant for the investment opportunity.

Policy Environment

Decision 376/QĐ-TTg, 2021: National Strategy on herbal medicine development (25)

Decision 1976/QĐ-TTg: National planning for medicinal plantation to 2020 and orientation to 2030 - Government of Vietnam, aiming to meet 80% of domestic demand by 2030 (26)

Financial Environment

Investors are guaranteed by the local Credit Guarantee Fund to borrow capital at credit institutions Decree No. 34/2018/ND-CP dated March 8, 2018; preferential interest rates - Section 2, Article 13 of Circular No. 39/2016/TT-NHNN dated December 30, 2016 (30)

Preferential income tax rate if the investment is of high tech, healthcare, in investment-encouraged areas (31)

Regulatory Environment

Circular No. 13/2018/TT-BYT dated May 15, 2018, of the Minister of Health: provide regulation the quality of herbal ingredients and traditional drugs (27)

Circular No. 21/2018/TT-BYT dated September 12, 2018: Regulations on the registration of circulation of traditional drugs and herbal ingredients (28)

Circular 03/2016/TT-BYT: Regulations on herbal medicines business activities (29)

Circular No. 19/2018/TT-BYT dated August 30, 2018 promulgating the list of essential drugs

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Marketplace Participants

Discover examples of public and private stakeholders active in this investment opportunity that were identified through secondary research and consultations.

Private Sector

Local processors of medicinal ingredients, pharmaceutical companies (e.g. Traphaco, Mediplantex, Domesco, OPC, and Danaphar), hospitals, traditional clinics

Government

Ministry of Health, Ministry of Agriculture and Rural Development, and local governments at provincial and district levels.

Multilaterals

World Health Organisation (WHO), United Nations Development Programme (UNDP), European Union, Asian Development Bank (ADB), World Bank (WB).

Non-Profit

Private Hospital Association, Vietnam Public Health Association, Vietnam Medical Device Association, National Center for Health Communication and Education, World Wild Fund for Natures (WWF), DAI, Oxfam.

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Target Locations

See what country regions are most suitable for the investment opportunity. All references to Kosovo shall be understood to be in the context of the Security Council Resolution 1244 (1999)
country static map

Vietnam: Countrywide

The national strategy for medicinal plantation development maps out 8 different zones for different herbal varieties. These are Northern Midland, Red River Delta, Northern Center, Southern Center, Highland, and the South. (10)
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References

See what sources were used to establish the investment opportunity’s data and find resources that could be consulted to explore more.
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