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New Potential in Vietnam's Pharmaceutical Industry for Foreign Investors

New Potential in Vietnam's Pharmaceutical Industry for Foreign Investors

“Since the first wave of Covid began globally, countries started focusing more resources on pharmaceuticals. In this context, Vietnam is no exception as both economic development and overcoming the impact of Covid epidemic have become national goals.”

Regarding market demand, Deputy Director of the Drug Administration (Ministry of Health) Mr. Le Viet Dung said that the size of Vietnam’s pharmaceutical market now meets the needs of 100 million people. The total value of medicine consumption by 2020 was 6.23 billion USD, of which, the value of domestic production reached 2.9 billion USD, and the value of imported medicines was about 3.5 billion USD. The pharmaceutical sector is rapidly expanding with about 250 manufacturing plants, 200 import and export establishments, 4,300 wholesale agents and more than 62,000 resellers. However, in recent years, the development of Vietnam’s pharmaceutical industry has fallen short of expectations and has not been commensurate with the country’s potential. Hence, now is an excellent time for investors to enter Vietnam’s pharmaceutical market and benefit from preferential policies and government incentives on investments.

In terms of policy, in recent years, Vietnam has successfully entered free trade agreements with other countries for expanding trade. In particular, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP“) signed in 2018 and the Free Trade Agreement between Vietnam and the European Union (“EVFTA“) signed in 2021 are of great significance.

Within the framework of these two agreements, many documents guiding cooperation and investment have been stipulated. In ‘Circular No. 09/2020/TT-BKHDT’ (Circular 09), preparation of bidding dossiers for procurement of goods and packages within the CPTPP agreement were laid down effective January 15, 2021. ‘Decree No. 95/2020/ND-CP’ laid down guidelines for procurement bidding under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and mentioned the term “intra-regional tendering”. The term refers to tendering activity in which only the contractors from the signatory countries in FTA can participate in the bidding and such contractors must offer goods originating in those countries. Point c, Article 3.1 of ‘Circular 09’ provides the basis for determination of intra-regional tendering as follows:

“c) In case of intra-regional tendering, the bidding dossier clearly states that only intra-regional tendering contractors are allowed to offer goods originating from the participating States. A member country is a country that meets the following conditions:

  • Has Signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (hereinafter referred to as CPTPP) on March 8, 2018,
  • At the time of approving bidding dossiers of bidding packages, CPTPP agreement takes effect with that country.”

As such, investors from countries that have joined the CPTPP such as Japan, Australia, Singapore, and so on, who can ensure that the offered goods are originating from their country will be able to participate in the bidding under the same conditions as Vietnamese contractors, without further constraints. Intra-regional tendering also increases the chance of being selected from the participating countries in the Agreement instead of having to compete with many other countries that are not a signatory to the Agreement.

In addition, the Circular has provisions to loosen some conditions on foreign contractors such as:

  • Must not set conditions that will limit the participation of contractors or create undue advantage for one or several contractors causing unfair competition based on specified mark or origin of the goods, or the naming of the country, group of countries or territories leading to discrimination, unless in case of intra-regional tendering as prescribed.
  • Must not require a contractor to sign a contract to perform one or more contracts with the procurement authority of a particular country or territory or the contractor to have experience in providing goods or services within the territory of that country or territory as criteria for removal of the contractor.

These regulations have partly opened doors for foreign companies to enter the pharmaceutical market in Vietnam. The Ministry of Health issued ‘Decision 2442/QD-BYT’ on May 17, 2021, on EVFTA implementation. In order to promote full and effective implementation of EVFTA, the Ministry of Health will carry out a number of legal and institutional developments, such as continuing to review the regulations on management of medical equipment in ‘Decree No. 36/2016/ND-CP’, ‘Decree No. 169/2018/ND-CP’, and ‘Decree No. 03/2020/ND-CP’ on management of medical equipment to comply with EVFTA during implementation, developing a Circular guiding the procurement of pharmaceuticals as committed in EVFTA, enforcing regulations on import of refurbished medical equipment, etc.

In terms of the market situation of the Vietnamese pharmaceutical industry, most recent trends include the acquisition of companies, factories, or shareholdings in Vietnamese pharmaceutical companies. In 2016, ‘Abbott’, a global healthcare company, acquired ‘Glomed Pharmaceuticals’, one of Vietnam’s major domestic pharmaceutical manufacturers. Most recently, in 2019, ‘Taisho’, one of Japan’s top five pharmaceutical “empires” with total assets of $ 7.2 billion, gradually acquired shares of ‘Hau Giang Pharmaceutical Company’, increasing its share ownership to more than 50%.

Investors can choose the type of business suitable to their business objectives within the framework of the Investment Law 2020 and specialized laws on pharmaceuticals and health. Currently, the permitted forms of investment under the Investment Law 2020 include:

“Article 21. Form of investment:

  1. Investment in establishment of economic organizations
  2. Investment in capital contribution, purchase of shares and contributed capital
  3. Investment in implementation of investment projects in the form of BCC contracts
  4. New forms of investment and types of economic organizations as prescribed by the government.”

In terms of business lines, depending on the main operation of the company, investors can choose the industry accordingly. Some of the professions related to the pharmaceutical business can be chosen such as medicine manufacturing, pharmaceutical chemistry and pharmaceuticals, technical testing and analysis, etc.

In addition to complying with the law on investment, enterprises in general, especially in the pharmaceutical industry, must also meet the conditions of specialized laws. Pursuant to Article 2.43 of the ‘Law on Pharmacy 2016’, it is stipulated that:

“Pharmaceutical business is the implementation of one, some or all stages of the investment process, from production to consumption of products or the provision of services related to drugs and drug-making materials on the market for gaining profit.”

Accordingly, in order to carry out pharmaceutical business, depending on the scope of operation, companies must be granted certificates and licenses to operate. Some types of certificates and licenses must be registered such as ‘certificates of eligibility for pharmaceutical business’, ‘certificates of “Good practice of drug production” (for drug production establishments)’, and ‘certificate of meeting GMP pharmaceutical packaging standards (for packaging production establishments directly with drugs)’.

Furthermore, foreign investors can initially promote their business by signing distribution contracts with pharmaceutical distributors in Vietnam. This allows consumers to become acquainted with their products and brands. To do this, investors should study the conditions for pharmaceutical product distribution as well as the protection of trademarks, product designs, and patents in the Vietnamese market.

The Covid-19 pandemic has changed the consumption habits of the consumers. Pharmaceutical products and health-care products have become more valuable. Consumers tend to seek for new products in addition to existing products, resulting in massive purchasing demands. This is an excellent opportunity for new investors to enter the Vietnamese pharmaceutical market and expand their market share in business.

Published time: October 25, 2021

The article is based on applicable law at the time noted as above and may no longer be appropriate at the time the reader approaches this article as the applicable law has changed and the specific case that the reader wishes to apply. Therefore, the article is only for reference.

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