Unlocking Opportunities: Vietnam's Pharmaceutical FDI Policies Explained

Vietnam’s pharmaceutical market has been experiencing significant growth in recent years, capturing the attention of foreign investors. This article explores the impact of Foreign Direct Investment (FDI) policies on the pharmaceutical sector in Vietnam, shedding light on the opportunities and challenges that international stakeholders may face in this rapidly expanding market.

Introduction: Vietnam’s Growing Pharmaceutical Market

The Vietnamese pharmaceutical sector has rapidly emerged as one of the most dynamic and attractive markets in Southeast Asia. With a population exceeding 97 million and growing healthcare expenditure, the country offers significant opportunities for pharmaceutical companies across the globe.

In 2023, Vietnam’s pharmaceutical market was valued at approximately $7 billion, with projections indicating an annual growth rate of 8-10% over the next five years. This impressive growth has piqued the interest of international investors keen to tap into the expanding healthcare landscape. For more information about the data of Vietnam’s growing pharmaceutical market, you can refer to this article from Statista and World Bank 

Understanding Vietnam’s Pharmaceutical FDI Policies

The Vietnamese government has been actively working to create a more favorable environment for foreign investment in the pharmaceutical sector. Recent policy changes have aimed to streamline the investment process and provide greater clarity for international companies looking to enter the market.

Key aspects of Vietnam’s pharmaceutical FDI policies include:

• Allowing 100% foreign ownership in pharmaceutical manufacturing companies: foreign investors can now establish wholly-owned companies in pharmaceutical manufacturing which offers full control over intellectual property and strategic decisions for the foreign investors. It is a major shift from the previous provisions that curbed the autonomy and control of investors who had to form joint ventures with local entities. (Appendix I of Decree 31/2021/ND-CP guiding the investment law and Vietnam’s WTO commitments)  
• Simplifying registration procedures for new drugs and medical devices: the government tried to streamline the procedures for foreign investors, including aligning Vietnamese regulations with international standards, reducing delays (Article 56.5 71.2 of Law on Pharmacy 2016) and introducing an electronic registration system (Circular 08/2022/TT-BYT).
• Encouraging technology transfer and local production: there is several measures such as tax incentives and preferential treatments for foreign investors who bring new technologies or engage in R&D with Vietnamese companies. (Article 9.7 of Law on Pharmacy 2016 and ArticlesArticle 15.1 and 15.2d of Law on Investment 2020)
• Offering tax incentives for investments in high-tech pharmaceutical projects: Companies participating in R&D and high-tech benefit from a preferential rate of 10% within their 15 first years, an exemption for 4 years and then a tax reduction of 50% for the next 9 years. (Article 13.1 and 14.1 of Law on Corporate Income Tax 2014) 

You can refer to news on the official website of the Vietnam Ministry of Health

Key Regulations Governing Pharmaceutical FDI in Vietnam

Foreign investors seeking to enter Vietnam’s pharmaceutical market must navigate a complex regulatory framework. Key regulations include:

1. The Law on Pharmacy (2016) and Its Implementing Decrees: This law outlines the regulatory requirements for the production, distribution, and sale of pharmaceutical products in Vietnam.
2. The Law on Investment (2020) and Related Circulars: The law governs foreign direct investment (FDI) in Vietnam, providing guidelines on investment registration, procedures, and incentives for foreign investors.
3. Good Manufacturing Practice (GMP) Standards: Pharmaceutical manufacturers must adhere to GMP standards to ensure the quality and safety of their products. Compliance with these standards is crucial for market entry.
4. Intellectual Property Protection Laws: Vietnam has strengthened its intellectual property laws to protect patents, trademarks, and other intellectual property rights, which are important for pharmaceutical companies.

Foreign investors should familiarize themselves with these regulations and seek local legal expertise to ensure compliance with all relevant laws.

Opportunities for Foreign Investors in Vietnam’s Pharmaceutical Sector

Vietnam’s pharmaceutical market presents numerous growth opportunities, including:

• Rising Demand for High-Quality Medicines: As the middle class grows, there is an increasing demand for high-quality and innovative pharmaceutical products.
• Healthcare Infrastructure Expansion: The Vietnamese government is investing heavily in healthcare infrastructure, presenting opportunities for pharmaceutical companies to expand their market presence.
• Focus on Preventive Care and Wellness: With a growing emphasis on wellness and preventive healthcare, there is a rising demand for products in these areas.
• R&D Collaboration Opportunities: Foreign investors have opportunities to collaborate with local institutions on the research and development of new pharmaceutical products.
• Biotech and Biosimilars: The demand for biotechnology and biosimilar products is increasing, offering a growing segment for foreign investors.

Navigating Challenges in Pharmaceutical FDI

While the opportunities in Vietnam’s pharmaceutical market are promising, foreign investors may face several challenges, including:

• Evolving Regulatory Environment: The pharmaceutical industry in Vietnam is subject to frequent regulatory changes, which can pose challenges for compliance.
• Competition: Investors will face competition from both local manufacturers and other multinational pharmaceutical companies.
• Price Controls and Government Procurement: The government’s price controls on essential medicines and procurement policies may impact profitability.
• Limited Skilled Workforce: There is a shortage of skilled professionals in specialized pharmaceutical fields, which could affect operations and growth.
• Intellectual Property Concerns: Although intellectual property laws are improving, enforcement remains a challenge, and foreign investors must take proactive steps to protect their IP.

By understanding the regulatory landscape and addressing these challenges, foreign investors can successfully navigate the Vietnamese pharmaceutical market and capitalize on its growth potential.

Success Stories: Foreign Pharmaceutical Companies in Vietnam

Several leading multinational pharmaceutical companies have successfully entered and thrived in the Vietnamese market, showcasing the country’s growing appeal as a hub for healthcare investment. Notable examples include:

• Sanofi-Aventis Vietnam With over 50 years of presence in Vietnam, Sanofi-Aventis has made substantial investments in local manufacturing and production facilities, reinforcing its commitment to the market and contributing to the country’s healthcare infrastructure.
• Novartis Vietnam Partnering with local institutions, Novartis has played a significant role in enhancing access to innovative medicines and conducting clinical trials. Their collaborations have contributed to the development of Vietnam’s healthcare capabilities.
• AstraZeneca In a strategic partnership with the Vietnamese government, AstraZeneca has focused on improving the diagnosis and treatment of non-communicable diseases, further solidifying its presence in the country while addressing crucial health challenges.

Future Trends and Projections for Pharmaceutical FDI in Vietnam

Looking ahead, several trends are likely to shape the future of pharmaceutical FDI in Vietnam:

• Increased Focus on Digital Health and Telemedicine: As technology continues to advance, digital health solutions and telemedicine are becoming increasingly integrated into healthcare services. The Vietnamese government is investing in digital infrastructure to improve healthcare delivery, which opens up opportunities for pharmaceutical companies focused on innovation and technology in the sector.
• Rising Demand for Biologics and Specialty Medicines: With an aging population and the increasing prevalence of chronic diseases, there is a growing demand for biologic drugs and specialty medicines. This trend is anticipated to drive FDI in the research and development of high-value, cutting-edge treatments.
• Expansion of Public-Private Partnerships: To strengthen its healthcare system, Vietnam is increasingly fostering public-private partnerships. Pharmaceutical companies can benefit from these collaborations, particularly in areas such as drug distribution, manufacturing, and healthcare infrastructure development.
• Emphasis on Local Production and Technology Transfer: The Vietnamese government continues to promote local production of pharmaceutical products and the transfer of technology from foreign investors. This presents an opportunity for international pharmaceutical firms to establish manufacturing operations within the country, tapping into both the domestic market and regional export opportunities.
• Ongoing Regulatory Reforms: To attract more foreign investment, Vietnam is continually reforming its regulatory environment. These reforms aim to streamline processes related to drug registration, intellectual property protection, and market access, making the country an even more attractive destination for pharmaceutical FDI.

Conclusion: Capitalizing on Vietnam’s Pharmaceutical Market Potential

Vietnam’s pharmaceutical sector presents a wealth of opportunities for foreign investors willing to navigate the complex regulatory landscape. With favorable FDI policies, a growing market, and increasing demand for quality healthcare products, Vietnam is poised to become a key player in the global pharmaceutical industry.

As the country continues to refine its policies and improve its business environment, foreign investors who enter the market early and establish strong local partnerships will be well-positioned to capitalize on the long-term growth potential of Vietnam’s pharmaceutical sector.

For those considering an investment in Vietnam’s pharmaceutical industry, it’s essential to conduct thorough market research, seek expert legal advice, and develop a comprehensive strategy that aligns with the country’s healthcare goals and regulatory requirements. By doing so, foreign investors can unlock the full potential of this dynamic and rapidly evolving market.

Harley Miller Law Firm “HMLF”

Address: 14th floor, HM Town Building, 412 Nguyen Thi Minh Khai, Ward 05, District 3, Ho Chi Minh City.

Phone: +84 937215585

Website: hmlf.vn

Email: miller@hmlf.vn