Pharmas keep foreign cap

Local pharmaceutical firms are hesitant to raise their foreign ownership levels as it may limit their distribution rights

Hau Giang Pharmaceutical JSC (DHG), Vietnam’s biggest publicly-traded drug maker, declared at its shareholders’ recent annual meeting that it would keep the foreign ownership limit (FOL) unchanged at 49 per cent.

Hoang Nguyen Hoc, chairman of DHG’s Board of Directors, said at the event that “Pharma is a sensitive industry. Although the government allows foreign investors to hold over 49 per cent chartered capital of a domestic pharma firm, it still lacks detailed guidelines for the issue. Therefore, the board would take no further steps at the moment.”

Imexpharm (IMP) and Traphaco (TRA), which are two of the four biggest domestic drug makers, also decided to make no move related to the FOL at their shareholders’ recent annual meetings. IMP and TRA’s piece for foreign investors remained only 0.009 per cent and 3.266 per cent respectively, as of September 2015.

In fact, raising the FOL in the pharmaceutical industry is not a new issue. It has been discussed by shareholders at general meetings for years. Experts blame a long hesitation among the pharma firms, firstly, for delayed issuance of a full list of conditional businesses for foreign investors, and secondly, harbouring fears of losing distribution rights.

Under the current rules, if a pharma firm lifts its FOL to 100 per cent, it must divest from its distribution business.

“Raising the FOL at pharma firms is controversial because if a Vietnamese pharma firm’s foreign partners hold a 51 per cent stake, this could cause the firm to be labelled as a foreign-invested enterprise, thus depriving it of its profitable rights to distribute medicines,” Tran Thi Hong Tuoi, analyst at BIDV Securities, told VIR.

With no new move from DHG, IMP, and TRA, Domesco remains the first drug maker to remove the FOL.

“Lifting the FOL in the pharmaceutical industry would send another positive signal to foreign investors. A clear path in converting partnerships into majority ownership would provide companies with much stronger arguments to convince their global headquarters to invest in Vietnam,” said EuroCham’s Pharma Group.

With the potential of Vietnam’s domestic pharmaceutical market, which is home to more than 90 million people and valued at $3.5 billion, the formation of the ASEAN Economic Community, and the signing of several landmark free trade agreements (FTAs), including the EU-Vietnam FTA and the Trans-Pacific Partnership, Vietnam has a competitive advantage in the region in terms of attracting foreign investors. The country seems to be well on its way to becoming a regional hub for innovative pharmaceutical manufacturing in the not-too-distant future.