In a new report, Vietnam's health ministry has issued a bluntly pessimistic assessment of investment prospects for the country's drug industry. According to the state media, the report claims foreign involvement in pharmaceuticals is declining, at a time when the government is increasingly intervening in the sector.

The official data suggests that only 35 foreign-invested pharmaceutical entities are currently active in Vietnam, representing a capital commitment of US$240mn. These companies account for just 2.8% of annual sector output, but roughly 17% of sales value, illustrating the more advanced nature of many foreign companies' products.

Vietnam's official statistics agency concedes that drug prices have soared 40% since 2001, as the government has failed to halt the flood of imports and improve its producers' competitiveness. Following a steady rise in the market share of foreign drug makers in recent years, tough new price control measures saw drug prices rise just 0.5% in October, against a core national inflation rate of 0.4%.

Nevertheless, the outlook for foreign companies may be less gloomy than the health ministry expects. Unconfirmed media reports suggest that UK drug makers GlaxoSmithKline is to invest in local production, serving a market that is developing rapidly. The government's target of local producers capturing 60% of drug sales by 2010 may also act as a further stimulus for more foreign partnerships in the sector.