FIEs will have greater rights to import drugs into Vietnam

According to Decree No. 54/2017/ND-CP (the “New Decree”) guiding Pharmaceutical Law 2016 which took effect 1 July 2017, foreign pharmaceutical investors are allowed to import and sell drugs to local partners in Vietnam. This new regulation creates an excellent opportunity for foreign investors interested in Vietnam’s pharmaceutical market. 

Article 24 of Decree 79/2006/ND-CP guiding Pharmaceutical Law 2005 limited the right to import drugs to manufacturers and local partners (“LPs”):

“1. Drug-producing or wholesaling enterprises which have certificates of full satisfaction of drug business conditions and have drug warehouses up to good practice standards on drug preservation shall be permitted to import drugs according to the provisions of law on pharmacy, regulations of the Health Ministry, and relevant legal provisions.”

However, this restriction was removed when Pharmaceutical Law 2016 was issued and took effect on 1 January 2017 because the New Decree guiding this law specifies the importation right is now expanded to foreign invested enterprises (“FIEs”).

Article 33.1(b) of Pharmaceutical Law 2016 states a drug business establishment can import drugs if it has the following: a physical premises; a GSP warehouse for drug storage; storage equipment; vehicles to transport drugs; quality control systems; technical documents; and personnel that fulfill Good Storage Practice requirements.

Article 44.1(d) of Pharmaceutical Law 2016 and Article 91.10 of the New Decree provide that FIEs will have the right to import and sell drugs to local partners for distribution. Article 91.12 also states that FIEs that want to import and sell drugs to LPs must register their LPs with the Ministry of Health (“MOH”) before they begin selling, as well as when they terminate their contracts with the LPs. The MOH will publish the list of LPs eligible to purchase imported products from FIEs on the MOH’s website within three working days.

The New Decree’s regulations were promulgated pursuant to Vietnam’s WTO commitments and other treaties, such as the EU – Vietnam Free Trade Agreement (“EVFTA”). Specifically, Paragraph 1 of Article 14 EVFTA (Trading Rights) states that:

“1. Vietnam shall adopt and maintain in force appropriate legal instruments allowing foreign pharmaceutical companies to establish foreign-invested enterprises in order to perform importation of pharmaceuticals [emphasis added], which duly got the marketing authorization from Vietnam’s authority.”

All of this bodes well for Vietnam’s pharmaceutical sector. Vietnam’s pharmaceutical sector has shown high growth rates over the last few years. For instance, the value of imported pharmaceutical products in the first nine months of 2016 reached USD 1.9 billion, up 16.44% from the same period in 2015. FIEs are responsible for an estimated 15% of domestic pharmacy production[1]. These figures prove that Vietnam’s pharmaceutical business has potential market space for FIEs to take advantage of.

With the passing of new laws in a dynamic country of nearly 90 million citizens, Vietnam promises to be a fertile pharmaceutical market for FIEs’ investment.

By Net Le & Hai Ngo, LNT & Partners

Disclaimer: This article is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us at info@LNTpartners.com or visit the website: Http://LNTpartners.com

[1] Source: http://viracresearch.com/vi/standardreport/vietnam-pharmaceutical-comprehensive-report-q12017/

New tendering law challenges foreign pharma producers

On November 26 2013 the National Assembly passed the new Law on Tendering, which came into force on July 1 2014. The new law (which replaces the 2005 Law on Tendering) relates to state management of the tendering process and governs the responsibilities of concerned parties as well as tendering activities.

While the new law is expected to afford greater equality among local tender participants (and promote access for small and medium-sized enterprises), its promotion of local players in the drug market at the expense of foreign players has caused concern. The law now explicitly provides preferential treatment to domestically produced drugs, which is expected to have a considerable impact on foreign investors active in this burgeoning market.

Extent of preferential treatment

Before the enactment of the new law, no clear preferential treatment was given to domestic drugs under Vietnamese law. The only minor mention was Article 16 of Circular 1/2012/TTLT-BYT-BTC (January 19 2012), pursuant to which the relevant authority gave priority to drugs produced domestically (but only for drugs of similar quality and a price no higher than the drugs imported at the time of tender). Under this circular, the criteria for selecting the winning bid was based on both the price and quality of the pharmaceutical products. No other preferential treatment existed.

However, the new law takes a protectionist approach, which directly and indirectly adversely affects foreign players in the market. The preferential treatment afforded by the circular is drastically expanded under the new law – almost to the extent that it drives foreign players out of the market.

As a direct impact, the law now prohibits those offering tenders from providing imported drugs if there are domestic drugs available that fully satisfy the requirements on medical treatment, price and availability (according to criteria published by the Ministry of Health). To add a further layer of restriction, Decree 63/2014/ND-CP (June 26 2014), which guides the tendering selection provisions in the new law, states that if any tenders are ranked equally after applying all preferential treatments, the tender that involves higher domestic production costs and uses more local employees will prevail.

As an indirect impact, the law sets a preferential treatment regime for participants in domestic and international tenders. This does not apply only to pharmaceutical players. Participants in domestic or international tenders to supply goods in which domestic production costs account for 25% of production or more will receive preferential treatment. For the supply of services, foreign tenderers in partnership with domestic tenderers which give 25% or more of the work value of the tender package to domestic tenderers will receive preferential treatment.

While these provisions apply to all industries, among the hardest hit will be those in the pharmaceutical industry.

Ambiguity in new law

While the term ‘domestic pharmaceutical products’ is used extensively in the law, a clear definition has not been provided. As domestic products are given preferential treatment, the law’s ambiguous system of classification is problematic. The number of disputes concerning the precise classification of ‘foreign’ pharmaceutical products which are partly produced (eg, packaging) in Vietnam has already increased considerably.

Decree 63/2014/ND-CP (which guides the new law) fails to address this matter, despite commentators previously stating that it was a pressing issue that had to be addressed. The lack of clarity has led to industry-wide uncertainty as to whether foreign pharmaceutical products processed in Vietnam should be considered domestic pharmaceutical products, thereby creating roadblocks in tendering activities.

Comment

As the protectionist provisions of the law come into force, foreign pharmaceutical players are expected to face greater obstacles in building a presence in Vietnam. This comes at an inconvenient time, when the number of drugs imported by domestic pharmaceutical companies is increasing. It also comes at a time when the government is increasing its efforts to promote foreign direct investment into the economy.

Together with the already stringent restrictions against foreign pharmaceutical players in Vietnam, the new law seems to pave the way for an environment that fosters an almost monopolistic position for domestic pharmaceutical companies. While Vietnam has a competition law regime in place, these provisions effectively compromise their effectiveness in the pharmaceutical industry.

As the demand for life-changing innovations increases, the only real winners in this industry are domestic players. However, as the industry’s competitiveness is lessened, the losers will be not only foreign players, but also the Vietnamese economy as a whole.

By Vietnam Law Insight, LNT & Partners.

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://LNTpartners.com

Biomedicine: The Pillar Industry of the World’s Economy

Vietnam’s biomedicine (BME) sector has attracted much attention over the past few years. In 2010 Vietnam hosted an international two-day conference, with experts from 21 countries. The conference attendees identified a tremendous need for BME in areas of rehabilitation, neurosurgery and orthopaedics.

At the present time Vietnam is importing the majority of its BME products, but it is also developing its own solutions used in therapeutics, diagnostics and vaccinations, which are being used in Vietnam as well as being sold abroad.

It is still early, but with a few modest commercial successes thus far, I expect more and more innovations and investment will be made in Vietnam’s BME industry.

In 2013, approximately 92% of Vietnam’s medical device market was supplied by imports, with most of the devices being supplied by Japan, USA, Singapore and China.

However, we are starting to see more Vietnamese companies becoming much more adept at developing their own BME products. Specifically, we are seeing more and more companies develop and manufacture products in Vietnam with sales in developed countries. For example, diagnostic products have been simplified yet are yielding more accurate information, competing with established international brands. We are also seeing an increase in use of stem cell therapy.

The country is also deploying more foreign trained experts into the education system to lead more research and development and innovation at universities. There is also a push for researchers to collaborate with the private sector to accelerate product development for commercial use domestically and globally.

The biomedical field in Vietnam is driven, in large part, by a desperate need to care for 92 million people. The government has allocated hundreds of millions of dollars to develop health care facilities and foreign investors are active in the health care sector. With a large consumer base and growing middle class, local biomedical firms in Vietnam have a viable market to sell products.

In terms of developing products, Vietnamese students with specialized skills in this area are dramatically underpaid compared to their counterparts from more developed countries. A biomedical company in Vietnam can develop products at a fraction of the cost in other countries, yet can sell at margins that would dwarf margins currently enjoyed by biomedical companies in jurisdictions like the US and Japan.

In so far as challenges for the BME industry In Vietnam, there is a lack of industry cohesiveness. Investors do not readily have reliable information about viable biomedical companies to financially support them. We believe, however, that the components of a BME industry are starting to come together and foreign investors are starting to notice, in large part due to Vietnamese abroad who are returning to Vietnam to establish companies or conduct research.

A strong organization devoted to the dissemination of information related to the BME industry would accelerate the development of a viable environment to support and further grow this industry. Government support as well as a coordinated effort among universities to encourage innovative research would further push BME forward.
For example, we are supporting the development of the $100 million Biotechnology Center in Ho Chi Minh City. This centre may serve as the magnet to attract a critical mass of researchers, investors, and private companies to come together in this sector.

The outlook for biomedicine over the next 12 months is very bright. Vietnam has all the key ingredients that will propel it forward: a large population experiencing a rise in chronic and acute illnesses, a successful diaspora trained and educated abroad that are returning to create companies and conduct research, and a plentiful pool of young and highly skill professionals who can be hired at highly cost effective rates.

For example, in 2012 four Vietnamese students studying at Portland State University under the auspices of the Intel Vietnam Scholars Program won the top prize at the Cornell Cup, a design competition created to empower student teams to become the inventors of the newest innovative applications of embedded technology. This nation-wide competition in the US attracted 22 other teams, including engineers from MIT and the University of California, Berkeley. The Vietnamese team developed a prescription drug identification device used to help doctors prescribe the correct medication for patients.

The world is beginning to notice Vietnam. From Japan alone, seven Japanese medical equipment manufacturers comprising of Konica Minotal, Toshiba, Fujifilm, Olympus, Hitachi, Mitsubishi Electric and Nihon Kohden are targeting increased sales in Vietnam.

There is, however, increasing evidence that Vietnamese researchers are rising to the challenge of harnessing biotechnology to improve health care for healthier society as well as advancing the sciences.

The biotech progresses for medical applications in Vietnam include gene diagnostics for genetic disorders of human diseases, in-vitro synthesis and production of therapeutic proteins including insulin, IFNs or similar forms of monoclonal antibodies for targeted therapies, and cell therapies via application of cord blood and bone marrow stem cells for cancer therapies. We fully expect at least one Vietnamese biomedical company will be acquired or listed on a public exchange in the next 12 to 18 months.

By Vietnam Law Insight, LNT & Partners.

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://LNTpartners.com

Draft circular to make foreign drug importers sick

The Ministry of Health (MoH) has just introduced the latest draft circular (Draft 13) providing guidelines for foreign direct investment (FDI) pharmaceutical enterprises to implement import-export rights in the pharmaceutical field in Vietnam.

Although it reflects some suggestions by FDI enterprises in relation to the expansion of businesses’ rights, LNT & Partners’ partner Nguyen Anh Tuan says it still has some shortcomings that need to be addressed before promulgation.

The category of “FDI enterprises in the pharmaceutical field” that are permitted to carry out drug import-export activities is defined by Article 3.11 of Draft 13.

According to this provision, in order to implement the drug import and export rights, FDI enterprises must invest in one of the following activities – drug manufacturing, drug storage services and drug testing services. This provision expanded the range of enterprises permitted to have the drug import-export rights defined under Decree No79/2006.

However, enterprises with drug import rights stipulated in their investment certificates still cannot directly import from overseas, even if pursuant to the Pharmaceutical Law, drug import and export are drug business activities that are independent from these aforementioned activities. In addition to the aforementioned business lines, in accordance with Article 5 of Draft 13 “Conditions for implementing the drug import rights”, FDI pharmaceutical enterprises must meet other conditions for being considered a grant of a Certificate of Satisfaction of Conditions (CSC) for drug import activities. These include(1) being licenced with drug import rights in its investment certificate, (2) holding the respective CSC for implementing drug manufacturing, drug storage services and drug testing services and (3) having drug storage warehouses with GSP standards. Upon satisfaction of all these conditions, FDI enterprises operating in the pharmaceutical field seeking to implement drug import and export rights need to undertake the following steps, (1) complete the registration for issuance of the investment certificate with the investment management authorities, (2) have a drug preserving warehouse of GSP standard and (3) request for issuance of the CSC in the pharmaceutical field (Article 6 of Draft 13). As a direct consequence of the above restrictions, FDI pharmaceutical enterprises are not permitted to conduct drug import activities independently. In order to implement the drug import rights, they are required to engage other drug trading businesses (such as drug manufacturing or drug storage services) together with drug import activities in their investment licences, obtain the relevant CSC and build a warehouse of GSP standard for drug preservation.

These requirements not only increase the investment capital of FDI pharmaceutical enterprises, but also consume a lot of time. In addition, as mentioned above, these restrictions conflict with Vietnam’s WTO commitments and Article 11 of the Pharmaceutical Law. Hence, their legitimacy is in dispute.

Notwithstanding being restricted on conditions for drug import, FDI pharmaceutical enterprises are also limited to choices of business partners in Vietnam. According to Article 7.3 of Draft 13, FDI enterprises are only permitted to carry out trading activities with and selling imported drugs to certain Vietnamese pharmaceutical entrepreneurs who meet distribution conditions regulated by the MoH, namely the enterprises that either (1) engage a chain of GPP pharmacies, (2) have distribution centers as regulated by the MoH or (3) have warehouses of GSP standard, and a drug distribution system of GSP standard and a computer software system to manage goods. As such, this regulation if passed, will directly limit FDI enterprises’ right to choose business partners, thereby centralising the imported drug distribution rights to a few domestic enterprises that meet the above standards. As a matter of law, since the Pharmaceutical Law and its promulgating documents regulate the conditions for granting the CSC for drug distribution activities, these limitations are not necessary and lack convincing foundations.

In relation to distribution activities, FDI enterprises are still not allowed to implement drug distribution activities in Vietnam, except for distributing drugs that are manufactured by themselves in Vietnam (Articles 9.1 and 9.2 of Draft 13). Also, FDI enterprises are not allowed to conduct some activities relating to the implementation of distribution rights as specified in Article 9.3, which includes contributing charter capital to Vietnamese distribution enterprises. This limitation conflicts with Vietnam’s WTO Commitments in which foreign investors are allowed to do their business by way of establishing new companies, contributing capital or purchasing shares in enterprises in Vietnam.

Moreover, when the circular is promulgated remains a valid question. It appears that FDI enterprises that seek to be licenced with a CSC must wait until this proposal is officially promulgated. It is not difficult to recognise that these limited regulations of adjusting the FDI enterprises’ activities relating to drug import-export activities regulated by the MoH decrease the competitiveness of FDI enterprises in the Vietnamese pharmaceutical market. Hence, FDI enterprises face many difficulties in expanding their business in order to meet their patients’ needs and to serve the public’s health system.

For the time being, pharmaceutical products may only be imported into Vietnam through domestic pharmaceutical companies possessing import licences. FDI pharmaceutical enterprises that have been granted drug import rights in their investment licences can only import drugs through consignment due to an absence of a CSC for drug import activities.

The inconsistency in the regulations and the MoH’s postponement of promulgating documents instructing the import-export activities of FDI pharmaceutical enterprises has inadvertently created policy barriers against FDI pharmaceutical enterprises in penetrating drug import and distribution fileds in Vietnam.

Although it was expected to remove these barriers to create free and fair competition between FDI and local enterprises in pharmaceutical markets, unfortunately Draft 13 has not yet met this expectation and requires further revisions to meet this goal.

By Vietnam Law Insight, LNT & Partners.

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://LNTpartners.com