Amended law on pharmacy: several breakthrough new regulations

At the 8th session of the 15th National Assembly on the afternoon of November 21th, the National Assembly officially passed the Law on Amendments and Supplements to a number  of articles of the Law on Pharmacy (“Amended Law on Pharmacy”), which is scheduled to come into effect on July 1^st 2025, with some provisions taking effect earlier on January 1^st , 2025. After nearly eight years of implementation, the Law on Pharmacy 2016 has proven to be an important legal tool for regulating the production, business, distribution, and use of pharmaceuticals in Vietnam. However, in the context of international integration and the development of Vietnam's pharmaceutical industry into a key sector, amending the Law on Pharmacy to support pharmaceutical enterprises and improve efficiency and transparency is an inevitable step. Based on this, the following article will analyze the impact of several provisions in the Amended Law on Pharmacy on domestic pharmaceutical enterprises and foreign-invested pharmaceutical enterprises.

Source: Government News

1. Strong Impact on Domestic Enterprises

In general, the amendments and supplements to the Law on Pharmacy 2016 bring practical benefits to Vietnamese pharmaceutical enterprises without foreign investment. However, they also pose several challenges that businesses must carefully consider in order to develop sustainably in the new business environment.

Firstly, the Amended Law on Pharmacy has diversified the pharmaceutical market business system by introducing new types of business models and methods, such as pharmacy chain models and the sale of medicines on e-commerce platforms, along with the rights and obligations of the stakeholders. This aims to create a legal framework to manage emerging business models that have arise[1]n in current practice. This presents a good opportunity for new enterprises to enter the pharmaceutical market and for existing businesses to expand their scale and enhance customer reach, especially for large pharmacies that already have an advantage with a pharmacy chain model. However, this also means that small and medium-sized enterprises will face the pressure of investing in technology and competing with the larger pharmaceutical corporations mentioned above.

Secondly, the Amended Law on Pharmacy has simplified the procedures for issuing Drug Registration Certificates in order to improve the timely access of medicines to the public while still ensuring quality, safety, and efficacy, in line with international standards. Specifically, the amendments reduce the number of documents required for the renewal, modification, or supplementing of Drug Registration Certificates and active pharmaceutical ingredient registrations. Additionally, the revised law allows for the continued use of a Drug Registration Certificate after its expiration, provided that the application for renewal has been submitted as per regulations, until the certificate is renewed or the Ministry of Health issues a relevant notice. This provision ensures the continuous supply of medicines and active pharmaceutical ingredients to the market, helping to prevent disruptions in supply chains[2].

Additionally, the Amended Law on Pharmacy eliminates the requirement for the dossier evaluation and consultation by the Advisory Council when processing the issuance of Drug Registration Certificates and active pharmaceutical ingredient (API) registrations. The processing time for renewal, modification, or supplementation of certificates has also been reduced from three months to less than one month for certain cases where there are no changes in dosage, composition, or other aspects that would significantly impact public health[3]. Furthermore, the law abolishes certain business conditions, such as the requirement for confirming drug information content and the approval of drug advertising materials, in order to create a more streamlined process and enhance the flexibility and autonomy of businesses[4].

It can be seen that streamlining the procedures will help businesses quickly bring products to market, save time and costs, increase operational efficiency, and free up resources for investment in other areas. This will alleviate the burden on businesses and encourage even those without foreign support to engage in the production and distribution of medicines. At the same time, it reflects the effort to implement the plan for reducing and simplifying regulations related to business activities under the Ministry of Health’s management, as approved in Decision No. 1661/QĐ-TTg dated October 4^th 2021 by the Prime Minister of Vietnam.

Thirdly, the Amended Law on Pharmacy provides tax incentives, including corporate income tax and import tax exemptions for pharmaceutical ingredients that are not yet produced in Vietnam, while also increasing the allocation rate and extending the usage period of the Science and Technology Development Fund for activities related to research, development, production of pharmaceutical ingredients, biotechnology transfer, and specialized treatments[5]. As a result, Vietnamese enterprises can reduce production costs and invest more in research and development activities, improving product quality and manufacturing capacity. However, similar to the diversification of business models mentioned earlier, domestic enterprises may face increased competition from foreign businesses or foreign-invested enterprises, as the tax incentives are applied equally to all companies in the pharmaceutical sector.

Fourthly, the Amended Law on Pharmacy demonstrates a policy of supporting the development of domestic pharmaceuticals through special investment incentives for activities such as research, technology transfer, investment in the production of herbal medicines and traditional medicines made from Vietnamese medicinal materials bearing the national brand[6]. It also supports the conservation of rare and endemic medicinal plant genetic resources in Vietnam, research to develop new strains from domestic medicinal plant genes, and the cultivation of high-value medicinal plants[7]. The law facilitates the registration process for traditional medicines produced using advanced technology and sourced from medicinal materials that meet GACP-WHO standards. Additionally, it offers investment incentives for the development of biotechnology in Vietnam, helps preserve traditional medicinal resources, and encourages domestic enterprises to conduct research, formulate, and produce medicinal products derived from local plant sources.

2. Expansion of Rights for Foreign-Invested Enterprises

Vietnam has entered into numerous free trade agreements (FTAs), such as the CPTPP and the EVFTA, which include commitments to market liberalization and institutional reform. These agreements require the flexibility to adjust legal regulations in the pharmaceutical sector, specifically the Law on Pharmacy, to align with international commitments while fostering a transparent and attractive business environment for foreign investors. Before the official amendment of the Law on Pharmacy 2016, the business rights of foreign-invested pharmaceutical enterprises (FIEs) were primarily governed by subordinate legal documents such as Decree No. 54/2017/ND-CP, which resulted in a lack of stability and transparency. FIEs' rights to distribute medicines and pharmaceutical ingredients were also limited, making it difficult for them to deeply integrate into the domestic supply chain and reducing their incentives to invest in local production. Therefore, the amended Law on Pharmacy has explicitly defined the rights and responsibilities of FIEs within the law itself, ensuring greater transparency and clarity in state management. This is seen as a significant step forward for the domestic legal framework in the pharmaceutical sector, marking an important shift toward a more open and predictable environment for foreign investment.

First, the new regulations expand the business rights of foreign-invested pharmaceutical enterprises (FIEs) in Vietnam by allowing these companies to participate more deeply in Vietnam's pharmaceutical supply chain. Specifically, the amendments allow FIEs to directly distribute medicines that they produce, contract manufacture, or transfer technology for in Vietnam. This aims to attract FIEs to invest in the sector, enhancing local production capacity, facilitating access to advanced drug manufacturing technologies, strengthening the development of the pharmaceutical industry, and ensuring a reliable and secure supply of medicines for the country’s healthcare system.

Previously, the regulations regarding the distribution rights of medicines and pharmaceutical ingredients by foreign-invested pharmaceutical enterprises (FIEs) were only stipulated in Article 91 of Decree No. 54/2017/ND-CP (which was not included in the Law on Pharmacy 2016). These regulations were limited and lacked incentives to promote investment in production and technology transfer by FIEs. The amended Law on Pharmacy, however, allows FIEs to engage in certain activities directly related to the distribution of medicines and pharmaceutical ingredients within defined limits. These activities include selling medicines and pharmaceutical ingredients imported by the FIE to wholesale distributors and selling medicines and pharmaceutical ingredients that the FIE has manufactured, contracted for, or transferred technology for within Vietnam, in accordance with regulations set by the Minister of Health, to wholesale distributors[8].

It is evident that the amendments in Clause 1, Article 44, and the addition of Article 53a to the Law on Pharmacy, as stipulated in the revised Law on Pharmacy, have expanded the distribution rights of foreign-invested pharmaceutical enterprises (FIEs). These changes adjust the distribution rights of FIEs, ensuring they are aligned with current market practices. Direct distribution of products helps reduce intermediary costs, improves market accessibility, and enhances business efficiency. However, this also comes with higher compliance requirements, particularly in areas related to quality control and product standards. Moreover, domestic enterprises may face challenges competing with FIEs in terms of financial capacity, technology, and distribution capabilities for medicines and pharmaceutical ingredients. Despite these challenges, attracting FIEs to invest in Vietnam also increases opportunities for collaboration between local businesses and foreign investors, which, in turn, helps strengthen the production capacity of domestic enterprises.

Second, encouraging the production, technology transfer, and foreign investment in the production of pharmaceutical ingredients, new drugs, original brand-name drugs, specialized medicines, biologics, traditional medicine products with national brands, and pharmaceutical raw materials. To develop original brand-name drugs, domestic pharmaceutical enterprises need to make substantial investments in research and development (R&D), which presents significant challenges due to the high costs and time requirements involved. Therefore, collaboration with foreign-invested pharmaceutical enterprises (FIEs) through technology transfer or contract manufacturing is a feasible solution. However, the current incentives are not sufficiently attractive to foster such collaboration, as FIEs cannot own the finished products manufactured in Vietnam, nor do they have enough motivation to transfer technology or patent rights. As a result, there is a need to improve legal regulations to encourage greater collaboration and technology transfer from FIEs, which would help drive the development of the domestic pharmaceutical industry.

These incentives play a crucial role in motivating foreign-invested pharmaceutical enterprises (FIEs) to implement long-term projects in Vietnam, not only in the manufacturing sector but also in R&D activities. The participation of FIEs in strategic sectors helps improve domestic production capacity, promotes technology transfer, and fosters innovation within the pharmaceutical industry. However, the dual nature of this incentive mechanism will significantly increase competitive pressure on domestic enterprises. Therefore, a robust monitoring system is essential to ensure that these benefits are distributed fairly between domestic pharmaceutical companies and FIEs, safeguarding the interests of both parties.

Overall, the amended Law on Pharmacy reflects alignment with the demands of integration and development, particularly in terms of promoting foreign investment and enhancing competitiveness. The legalization of the scope of business activities for foreign-invested pharmaceutical enterprises (FIEs) in the Vietnamese market marks a significant step forward, creating a more transparent and stable environment. However, some limitations remain, such as the fact that the distribution rights of FIE pharmaceutical enterprises have not been fully expanded, administrative procedures are still complex, and there is a lack of supportive policies for domestic enterprises to compete fairly with FIEs. The amended Law on Pharmacy is an important step toward enhancing transparency, promoting investment, and improving the production capacity of the Vietnamese pharmaceutical industry. However, to achieve long-term goals, further improvement of legal regulations is necessary, including streamlining administrative procedures and developing mechanisms to support domestic enterprises without undermining the rights of FIEs. At the same time, it is essential to strengthen collaboration between domestic companies and FIEs to optimize the benefits of foreign investment, contributing to the development of a modern, sustainable, and competitive pharmaceutical industry in Vietnam, capable of competing in the international market.