Health ministry ups ante in Zuellig monopoly accusation
Zuellig Pharma will only be allowed to distribute imported medicines to September 5 only when its three-year old license expires according to an announcement last month by the medicine department under the Ministry of Health. The health ministry asks why Zuelling Pharma, similar to other medicine companies in Vietnam, has become the only company entitled to direct distribution, which has led to market control by its monopoly.
At the present, Zuelling Pharma is acting as the sole distributing agent in Vietnam for 27 foreign medicine producers including Bayer, Glaxo SmithKline, MSD, Novartis, Ajinomoto and so on. Of the 4,400 names of imported medicines denominating 900 active elements registered for use in Vietnam, Zuellig distributes 180 active elements, out of which 97 elements have one registration number, 65 elements have from two to five registration numbers, 18 elements have more than five registration numbers. Most of the medicines supplied by Zuellig Pharma are protected commercial trademarks. Reports made by inspection authorities and by Zuellig, showed that medicines imported by Zuellig increased from 2–12%, some from 30% to 60% in price every year. Zuellig has its own distribution network in 54 out of 64 provinces and cities in Vietnam. Authorisation of direct medicine distribution to a foreign company leads to monopoly not only in distribution, but also in purchase and price determination of most of the medicines even before they reach Vietnam.
“We have been cheated”, an official from the Ministry of Health said bitterly in an interview with Tuoi Tre calling it the “Zuellig event”. The official confided that medicine prices did fluctuate before, but never jumped as much as in 2003. At that time foreign medicine representative offices were not allowed to produce or directly sell medicines but only to act as an intermediaries between their parent companies abroad and local companies that imported and distributed medicines.
That completely changed when Zuellig was allowed direct distribution of imported medicines made by 27 foreign producers. Zuellig turnover increased unceasingly and to 2004 it has gained a considerable market share in Vietnam’s medicine market. The medicines Zuellig distributes are hardly replaceable as they are the specialised for specific treatments.
Back in 1995–1996, when Zuellig had proposed a joint venture with a Vietnamese medicine corporation for medicine distribution. But at that time the Law on Foreign Investment allowed only the form of 100% owned foreign investments or joint venture for production of medicines, but not for distribution which had to be in the form of a contractual business. Zuellig’s proposal was turned down.
All of a sudden, the management board for Hanoi Industrial Parks and EPZs granted a license for Zuellig to invest in distribution of medicines. The same official from the Ministry of Health judged that “that license was completely contrary to the law”, and the Ministry of Health was caught by surprise. It was only that the Hanoi IP/EPZ board and Zuellig had made a spectacular dodge of laws, the health ministry official claimed. As the investment was under US$5 million (Zuellig’s was US$2.5 million) the board had the right to grant the licences at its own discretion. This investment for medicine distribution was, however, the kind of “sensitive” project, and the board and Zuellig should have consulted with the Ministry of Health for it.
Since then, the name of Zuellig Pharma has often been associated with newspaper articles about medicine price increases. In a report to deputy prime minister Pham Gia Khiem, out of the 500 medicines that have increased in price, 157 products were distributed by Zuellig; from 2001 to March 2003, 69% of Zuellig’s medicines increased in price. As assessed by the Ministry of Health, besides the increases of foreign exchange rate and import duties, Zuellig’s monopoly contributed in medicine price increases.
Not only the increase in prices, Zuellig has been accused by the health ministry of distributing its medicines to unauthorised traders. The transactions were done by means of contracts signed by state-owned Central Medicine Co No 2 and the traders. For the traders, all prices were set by Zuellig and the Central Medicine Co just issued commercial invoices and gained the balance. Leaders from the Ministry of Health could not deal with those transactions because it was the Central Medicine Company No 2, not Zuellig, that sold the medicine. The health ministry claims once again Zuellig was able to find gaps in Vietnam laws to dodge a ban on distribution and a great number of hospitals bought the expensive medicines from Zuellig.
As a remedial measure, the Office of the Government issued a letter to communicate the instructions by the prime minister that “Direct distribution of medicines in Vietnam by Zuellig is allowed only for three years starting from September 2001. Methods of importing and distributing medicines by Zuellig cannot be taken as a precedent in this industry”.
This year is the third year of Zuellig’s medicine distribution business in Vietnam. Vietnam laws have not allowed foreign investors to import and distribute medicines. In fact direct distribution is still outside foreign the scope of investors. The health ministry has recently submitted to Pham Gia Khiem an official letter stating “not to allow foreign investments in distribution of medicines because they may break the whole local existing system of medicine distribution, may wind up controlling the market for profit but not to serve the interests of the health care of the public”.
[Intellasia legal news]
Category: Legal
