Vietnamese Pharmaceutical Industry: Regulations & Strategies

Following the article on investment restrictions in the pharmaceutical industry
Certain pharmaceutical activities remain exclusive to Vietnamese entities:

• Direct procurement of pharmaceuticals for public hospitals and clinics
• Distribution of certain essential medicines under national programs
• Operating pharmaceutical retail outlets in remote areas or economically disadvantaged regions
• Direct-to-consumer advertising of pharmaceuticals in Vietnam
• Certain drug registration processes without local partnerships

Case Study: Impact of Restrictions on Foreign Companies
Case Study 1: Novartis Vietnam
In 2023, Novartis sought to expand its direct distribution network in Vietnam but encountered significant obstacles due to a 49% ownership limit. The company ultimately established a complex agreement with a local pharmaceutical distributor, maintaining operational control through management agreements while technically complying with ownership restrictions.

Scenario 2: South Korean Pharmaceutical Manufacturer
A leading South Korean pharmaceutical company established a 100% foreign-owned manufacturing facility in 2024 but encountered unforeseen restrictions when attempting to distribute products directly to hospitals. The company was required to establish a separate joint venture with a local partner for distribution activities, increasing operational costs and complexity.

Strategic Approaches to Overcome Restrictions
Effective Joint Venture Structures
Due to ownership restrictions, strategic joint ventures remain the most viable approach for comprehensive market entry. Successful structures include:

• Production-focused joint venture: Establish 100% foreign-owned production operations while partnering with Vietnamese distributors to access the market
• Two-entity structure: Creating separate legal entities for different activities (production vs. distribution) with varying ownership ratios
• Technology-focused partnerships: Leveraging technology transfer agreements to secure preferential treatment while maintaining intellectual property protection
• Phased investment approach: Start with a minority stake and gradually increase ownership as relationships with regulatory authorities are strengthened
• Trade authorization registration: Register drugs for distribution in Vietnam through a distributor or exclusive agent in Vietnam

Key factors for successful joint ventures include thorough partner due diligence, clear governance structures, and well-defined operational control agreements.

Alternative Investment Structures
In addition to traditional joint ventures, alternative approaches include:

Strategic M&A: Acquiring minority stakes in established Vietnamese pharmaceutical companies with existing licenses and distribution networks
Licensing agreements: Granting technology and product licenses to Vietnamese manufacturers while maintaining brand control
Contract manufacturing agreements: Utilizing Vietnamese manufacturers for production while focusing on marketing and distribution
Research and Development Partnerships: Establish R&D centers eligible for investment incentives while building relationships with regulatory authorities

Leveraging Economic Zones and Incentives
Vietnam offers special investment incentives in specific regions that pharmaceutical investors can take advantage of:

High-tech zones in Hanoi, Ho Chi Minh City, and Da Nang offer tax incentives for pharmaceutical production
Economic zones in Binh Duong and Dong Nai offer streamlined administrative procedures
Specialized pharmaceutical industrial clusters are being developed with enhanced infrastructure
Projects related to advanced technology or meeting specific export thresholds are eligible for additional tax benefits

Strategic Market Entry Procedures

The sequence of market entry activities significantly impacts success rates:

Phase 1: Establish a representative office to build relationships and gain market understanding
Phase 2: Develop production capacity through a 100% foreign-owned entity or strategic joint venture
Phase 3: Establish distribution partnerships with established local entities
Phase 4: Gradually expand into retail and direct marketing when regulations permit

Compliance with Regulations and Documentation
Essential Documents for Investment Approval

A successful pharmaceutical investment dossier requires comprehensive documentation:

Investment Registration Certificate (IRC): The foundational document enabling foreign investment activities
Enterprise Registration Certificate (ERC): Required to establish a legal business entity
Pharmaceutical Business License: Specific to pharmaceutical activities
Good Practice Certificates: Including GMP, GSP, GDP, GPP depending on the activity
Product Registration File: For each pharmaceutical product to be manufactured or distributed
Environmental Impact Assessment: Specifically for manufacturing activities

Each document requires specific supporting documents and approval from different regulatory authorities.

Common Compliance Issues
Foreign investors often face challenges in the following areas:

Inconsistent documentation: Differences between business scope descriptions in different permits
Incomplete technical documentation: Especially data confirming production processes and product stability
Insufficient attention to environmental requirements: Especially for manufacturing activities
Underestimating personnel requirements: Especially regarding certified Vietnamese pharmacists
Failure to comply post-licensing: Lack of mandatory periodic reports or inspection requirements
Successfully navigating the regulatory environment requires:

Establishing early relationships with key regulatory officials
Hiring experienced local pharmaceutical regulatory consultants
Maintain regular communication with the licensing authority
Participate in industry associations to stay updated on regulatory changes
Conducting pre-submission consultations for complex applications

Future Outlook and Regulatory Trends
Upcoming Regulatory Changes
Some upcoming regulatory developments will impact pharmaceutical investments:

Expected revisions to the Drug Registration Circular by the end of 2025
Revised regulations on pharmaceutical price controls affecting profit models
Possibility of adjusting foreign ownership limits in wholesale distribution (draft proposal suggests increasing to 51%)
New regulations on electronic pharmaceuticals and digital health services are under development
Enhanced requirements for pharmaceutical traceability and anti-counterfeiting measures

Impact of International Trade Agreements
Recent and upcoming trade agreements are reshaping the investment environment:

CPTPP: Provides stronger intellectual property protection and gradual liberalization of certain pharmaceutical services
EVFTA: Includes provisions on regulatory cooperation and potential increased investment opportunities for European pharmaceutical companies
RCEP: Creates opportunities for regional supply chain integration in pharmaceutical production

While these agreements signal Vietnam’s commitment to further opening its market, the implementation of pharmaceutical provisions typically takes time, with significant transition periods.

Expert Forecasts on Investment Liberalization
Industry experts and regulatory analysts predict:

Gradual increase in ownership limits for wholesale distribution to 51-74% by 2027
Continued protection of retail pharmacy operations with minimal liberalization
Additional incentives for high-tech pharmaceutical production and R&D
Simplified product registration procedures for certain priority drugs
The ability to create special regulatory pathways for innovative therapies and biosimilar drugs

Opportunities in Vietnam’s Healthcare Development
Despite limitations, significant opportunities are emerging from Vietnam’s healthcare development:

Expanding hospital infrastructure is driving demand for specialized pharmaceutical products
The growing middle class is driving the development of the premium pharmaceutical segment
Expanding national health insurance increases access to pharmaceuticals
Digital healthcare transformation creates opportunities for innovative distribution models
Developing clinical research capabilities support new product development

Conclusion
Summary of Key Investment Constraints
Foreign pharmaceutical investors in Vietnam face a complex and restrictive system that varies significantly depending on business activities:

Manufacturing activities offer the most liberal investment environment, allowing up to 100% foreign ownership
Distribution and wholesale activities are subject to a 49% foreign ownership limit and operational restrictions
Participation in pharmaceutical retail remains strictly restricted, with both ownership and operational limits
All pharmaceutical activities require specific licenses, certifications, and ongoing compliance obligations

Strategic Recommendations
For foreign pharmaceutical companies considering entering the Vietnamese market, recommended approaches include:

Implement a phased market entry strategy, starting with authorized manufacturing or distribution
Conduct thorough due diligence on potential Vietnamese partners, focusing on relationships with regulatory authorities and compliance history
Develop flexible business models that can adapt to evolving legal requirements
Invest in developing relationships with key regulatory agencies
Participate in policy dialogues through industry associations to influence future regulatory directions

Balance Compliance and Business Objectives
Navigating the Vietnamese pharmaceutical industry successfully requires a balance between strict regulatory compliance and commercial objectives. Foreign investors should:

Maintain transparent compliance with all ownership restrictions while optimizing operational influence through management agreements
Develop comprehensive regulatory strategies in parallel with business plans, recognizing that regulatory approvals often determine market success
Leverage Vietnam’s increasing emphasis on pharmaceutical self-sufficiency by aligning investments with national healthcare priorities
Prepare for a long-term market presence, as successful pharmaceutical operations in Vietnam typically require 5-7 years to achieve profitability

Although the Vietnamese pharmaceutical market presents significant regulatory challenges for foreign investors, those who navigate these constraints strategically can access a rapidly growing market with significant long-term potential. The key lies in understanding the specific limitations applicable to each business activity and developing approaches that align with both regulatory requirements and commercial objectives.

Need Professional Guidance?
Harley Miller Law Firm provides specialized legal consulting services for pharmaceutical investments in Vietnam, with a team of experts boasting over 15 years of industry experience.

Our Services
Investment strategy consulting: Analyzing legal restrictions and proposing suitable investment structures
Licensing support: Comprehensive guidance on the process of obtaining Investment Certificates and Pharmaceutical Business Licenses
Legal due diligence: Evaluating potential partners and associated legal risks
Business establishment: Assisting in the establishment of subsidiaries, representative offices, or joint ventures
Compliance: Consulting on GMP, GSP, GDP, and other good practice standards

Why Choose Harley Miller Law Firm?
A team of lawyers specializing in pharmaceuticals and foreign investment law in Vietnam
Experience in assisting international pharmaceutical companies enter the Vietnamese market
A practical approach to help clients navigate complex legal challenges
In-depth understanding of future regulatory trends and new investment opportunities

Contact us today for a consultation on your pharmaceutical investment strategy in Vietnam. Our team of experts is ready to assist you in developing compliant and commercially viable approaches to this promising market.

Email: info@luatminhnguyen.com

Phone: +84 937215585