New chapter for the development of Vietnam’s pharmaceutical market

Le Net and Ngo Thanh Hai, lawyers at LNT & Partners - the Vietnam Law Firm

Sanofi, a multinational corporation operating in Vietnam, has just obtained the Certificate of Satisfaction of Conditions (CSC) for drug import activities. With this licence, Sanofi may carry out direct imports and sell to local wholesalers. These wholesalers will then perform distribution activities. This may allow foreign-invested enterprises (FIEs) like Sanofi to expand their business operations with a greater involvement in pharmaceuticals in Vietnam.

In fact, the movement fits with the policy of the government and the Ministry of Health (MoH), both through the treaties that Vietnam has been participating in, and the provisions of applicable laws in country.

The governmental policy on granting pharma FIEs to implement the right to import drugs is to help patients gain access to high-quality medicinal products and services.

Policy changes clear path

On June 30, 2019, Vietnam and the European Union officially signed their free trade agreement (EVFTA), in which Article 2.1.5 regulates other trading rights and related rights for pharmaceuticals. Particularly, the article regulates, “Vietnam shall adopt and maintain appropriate legal instruments allowing foreign pharmaceutical companies to establish foreign-invested enterprises for the purposes of importing pharmaceuticals which have obtained a marketing authorisation from Vietnam’s competent authorities.” The requirements under this article, however, were already reflected in the Law on Pharmacy 2016 and its guiding legal documents.

Though the 2005 version of the law (effective until 2017) regulated the importer as a type of drug business establishment, it does not have any provision to grant the FIE to carry out the drug import. Furthermore, Decree No.102/2016/ND-CP dated July 01, 2016 on drug business requirements clearly states that one of conditions for issuance of CSC to a drug exporter/importer is that the enterprise has had the CSC for wholesaling.

This document, however, cannot be provided by an FIE since they are not allowed to carry out the drug wholesale under the 2005 law and Vietnam’s World Trade Organization commitments on services. Thus, until 2017, the FIE was not allowed to carry out drug imports under the laws of Vietnam.

When the Law on Pharmacy 2016 came into effect from January 2017, the right of the FIE to carry out drug import was recognised. Article 44.1(d) of the law regulates, “In the event the exporter/importer is not allowed to do the distribution in Vietnam, they have the right to sell medicinal products or medicinal materials imported in accordance with regulations of the Ministry of Health.”

However, until the effectiveness of Decree No.54/2017/ND-CP dated May 8, 2017 on guidelines for implementation of the Law on Pharmacy (effective from July 2017), Decree No.155/2018/ND-CP dated November 12, 2018 on amending Decree 54 (effective from November 2018), and Circular No.36/2018/TT-BYT dated November 22, 2018 on goods storage practice (GSP) for medicinal products or medicinal materials (effective from January) are realised, there is a full legal basis for the FIE to apply for the issuance of a CSC for drug import activity. Particularly, decrees 54 and 155 provide application forms and more detailed guidance for the FIE to apply for getting the CSC. Circular 36 regulates the conditions for the warehouse using for goods storage – which are one of significant requirements to apply for the CSC of drug import activity.

Article 91.10 of Decree 54 clearly provides the FIE to import and sell products to local wholesalers. The FIE will not have the right to do the distribution activities or any activity in relation to drug distribution (for example, providing medicinal products or medicinal materials transport, developing the plan for supply of drugs for health facilities, and providing financial assistance for buyers to control distribution of imported drugs and ingredients).

Article 91.12 of Decree 54 also regulates the FIE will notify the MoH in writing before it starts to sell or stops selling drugs to a wholesaler that distributes the imported medicinal products or medicinal materials.

New chapter for the development of Vietnam’s pharmaceutical market, illustration photo

New chapter for the market

It can be seen that the applicable laws of Vietnam already align with the requirements under treaties that Vietnam is a signatory to. By signing the EVFTA and the opening in the provisions of applicable laws, Vietnam is promising to welcome many multinational pharmaceutical firm, especially from the EU, to invest in Vietnam in the form of drug exporter and importer.

The change of governmental policy in the pharmaceutical field will affect significantly the local market, from both sides. As a positive, the grant for FIEs will help patients receive drug products and services of good quality and at a cheaper price.

The local wholesalers may have more contracts with the FIE to distribute imported products to hospitals, pharmacies, and retailers. They can also lease the warehouse to the FIE for them to carry out import activities.

On the other side, the opening for the FIE to carry out the drug import will place local and foreign pharmaceutical companies in a more competitive environment. An FIE with great financial resources may defeat other local companies with smaller and weaker financial resources.

Moreover, Article 2.21 of the EVFTA regulates the parties, including Vietnam and the EU, to implement commitments on sector-specific ­nontariff measures on pharmaceutical/medicinal products and medical devices.

At that time, the products imported by FIE will have more competitive prices and may affect the products imported or manufactured by local companies.

However, with a very large market of more than 96 million people, there are many chances for both FIEs and local partners to perform their business ­activities in pharmaceutical fields, especially when the local companies have the right to carry out the distribution, while the FIEs cannot do so.

This movement will provide more positive effects for the pharmaceutical market rather than negative ones. This is because the involvement of a FIE in import activity will ­provide a good quality product with a competitive price to consumers.

It will align with the general development trend of Vietnam which is attracting more foreign investors to pour money into the country, and form a competitive environment for companies to maintain and develop their business ­activities.

The application of the CSC for carrying out drug imports can be conducted through the following steps:

-Step 1: Register the investment project at the ­licensing authority (for example department of planning and ­investment) to obtain the ­investment registration certificate and enterprise registration certificate, which records the import right.

-Step 2: Prepare dossier and warehouse for applying the CSC and GSP certificate.

-Step 3: Conduct self-audit, training in GSP, standard operating procedures of the company

-Step 4: Submission the CSC dossier to the Drug Administration of Vietnam (DAV).

-Step 5: The DAV’s audit (site visit at the warehouse)

-Step 6: The DAV (i) grants GSP and requests the minister of Health to issue the CSC if the company meets all requirements; or (ii) requests to remedy pending issues; or (iii) rejects the CSC dossier in case the company has critical deficiencies

-Step 7: If (ii), remedy pending issues after the audit, make the remedy report

-Step 8: The DAV checks the remedy report and grants the GSP, requests Minister of Health to issue the CSC.