SHOULD FOREIGN PHARMA START INCORPORATION?
Should Foreign Pharma Start the Incorporation Process?
Michael K. Lee, Partner, Dilinh Legal
9 November 2017
Employment of Medical Representatives by Representative Offices
Under previous laws, foreign pharma representative offices (“ROs”) were allowed to employ medical representatives. Presently, Article 76.6(b) of the Law Pharmacy No. 105/2016/QH13 (“2016 Pharma Law”) disallows ROs from employing medical representatives and unless the government reverses the situation, this rule will to stand.
While it is likely the government will provide ROs a grace period to comply, we believe a reversal of the law is unlikely because the 2016 Pharma Law and Decree 54/2017/ND-CP allows foreign invested enterprises (“FIEs”) to engage in the import of pharmaceuticals, hire medical representatives, hold marketing authorizations, and conduct all of the other pharma related activities that ROs were and are allowed to do. Under previous laws, operating as a FIEs was not viable. Hence, foreign pharma companies had no choice but to operate as a RO. Now these barriers appear to have been removed.
Given the foregoing and the fact that, according to a recent EuroCham Pharma Group survey, many foreign investors believe it would take at least 2 years to establish a pharma FIE, foreign investors need to consider when is the appropriate time to start the incorporation process and the challenges they might face if they do. We outline the factors to consider below.
The Incorporation Process and Challenges
Investment activities of foreign investors are framed by Vietnam’s WTO Commitments, the Law on Enterprises No. 68/2015/QH13 (“LOE”), the Law on Investment No. 67/2014/QH13 (“LOI”), laws subordinate to LOE and LOI, and laws specific to an industry, in our case, the 2016 Pharma Law and its subordinate laws.
For the establishment of foreign direct investment projects, foreign investors must first obtain foreign investment approval through an Investment Registration Certificate (“IRC”) and then obtain the Enterprise Registration Certificate (“ERC”) which serves as an incorporation document. After obtaining the IRC and ERC, the pharma FIE would need to obtain a Certificate of Eligibility for Pharmacy Business (“CEPB”).
Investors must wait for a Circular to outline the exact requirements for a CEPB. Presently, there is great concern about the language contained in Article 32.2(b) of Decree 54/2017/ND-CP because it may be interpreted to require pharma FIEs to directly operate a GSP warehouse without an option to outsource. This requirement would be commercially burdensome to many foreign pharma companies.
The first set of steps, obtaining the IRC and ERC should not take two years. Incorporation of FIEs in sensitive or politized sectors take a bit more time than other sectors but, even still, we believe incorporation of a pharma FIE can be done in five to seven months from start to finish. That said, there is a slight risk that the uncertainties presently surrounding the CEPB might creep into licensing process for the IRC because the authorities have wide discretion. We believe the chances of this occurring is low because authorities have allowed for the incorporation of two pharma import entities, GSK and MSD, despite the fact that when they were incorporated, obtaining what was then equivalent to the CEPB was impossible.
How long it would take to obtain the CEPB is more difficult to assess and there would have to be a Circular addressing the CEPB before investors can even apply. Thus, there is a risk of undue delay is the issuance of such Circular. Furthermore, investors might want to know the detailed requirements for a CEPB prior to deciding on whether the establishment of a pharma FIE is commercially feasible or desirable in the first place.
For more information on the incorporation of pharma FIEs, please contact Michael Lee at michael.lee@dilinh.com.
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