Tensions are rising between the government and the pharmaceutical-bio industry over how to calculate the prices of generics—copycat drugs developed with the same ingredients and dosages as new drugs whose patents have expired.
The Emergency Committee for Reforming the Drug Pricing System to Advance the Pharmaceutical-Bio Industry, made up of five groups—the Korea Pharmaceutical and Bio-Pharma Manufacturers Association (KPBMA), the Korea Biomedicine Industry Association, the Korea Pharmaceutical Traders Association, the Korea Drug Research Association, and the Korea Pharmaceutical Cooperative—held an urgent news conference on the 22nd and, calling the government's drug price reform plan "a declaration of giving up on the future of the domestic pharmaceutical industry," urged a full reconsideration and a delay in implementation.
On the 28th, the Ministry of Health and Welfare announced a "plan to improve the drug pricing system" that would lower the calculation rate for generic prices from 53.55% of the original drug's price to the 40% range.
The "drug price" referred to here is not the retail price paid by ordinary consumers at pharmacies, but the upper limit amount (reimbursed price) that national health insurance pays to hospitals and pharmacies. For example, if the reimbursed price of an original drug is 10,000 won, the generic price was previously recognized at roughly 5,300 won, but going forward the upper limit will be set in the 4,000 won range.
The government's view is that high generic prices have led domestic drugmakers to rely on selling generics over developing new drugs. Of the 240 new drugs listed in national health insurance over the past five years, only 13 (5.4%) were developed domestically.
The industry, however, warned that "if the reform plan is pushed through, annual revenue losses will reach 3.6 trillion won and mass layoffs will be inevitable."
◇ "3.6 trillion won in annual revenue hit…concerns over layoffs and loss of R&D momentum"
The committee estimated that, due to the plan lowering the generic price calculation ratio from the current 53.55% to 40%, industry losses could reach up to 3.6 trillion won per year. It said this is a quantitative figure calculated by applying the reduction rate (25.3%) to the generic share (53%) of this year's total drug spending (26.8 trillion won).
The committee said, "With the operating margin of the top 100 pharmaceutical companies at only 4.8%, revenue losses on the trillion-won scale will accelerate the industry's collapse," adding, "Given that R&D activity falls 1.5% when corporations' revenue drops 1%, the growth momentum built on domestic new drug development and technology exports is at risk of being completely lost."
There were also claims that the government's drug price reform could weaken employment. The committee projected that if the 3.6 trillion won revenue decline is applied to the pharmaceutical industry's employment inducement coefficient (4.11 persons per 1 billion won), about 14,800 job losses would occur.
The committee warned, "Staff cuts at 653 production facilities and some 200 research facilities across 17 cities and provinces nationwide will also deliver a serious blow to local economies." The domestic pharmaceutical industry currently has a regular employee ratio of 94.7%, far exceeding the all-industry average of 61.8%.
◇ "Korea's drug prices already among the lowest…concerns over shortages of essential drugs"
The committee also argued that Korea's drug prices are already significantly lower than those in other countries. Citing an analysis using the Laspeyres price index, it said that when Korea's antibiotic price is set at 1, the United States is 3.34 times higher, Germany 1.81 times, and Switzerland 1.64 times, indicating substantially lower prices compared with advanced economies.
The committee said, "Since 1999, more than 10 rounds of price cuts have been repeated, and the global competitiveness index is moving in reverse," adding, "The global market share fell from 11th (1.7%) in 2011 to 13th (1.3%) in 2024 due to the side effects of overlapping and repetitive drug price cuts."
The committee said, "Of the 275 products that experienced supply suspensions or shortages from January to November this year, 106 products, or 38.6%, were due to insufficient profitability."
It added, "Shortages of essential medicines such as antibiotics, labor inducers, and treatments for neonatal respiratory distress will become more frequent," and analyzed that "the self-sufficiency rate for active pharmaceutical ingredients, only 31.4% as of 2024, will worsen as reliance on low-cost overseas ingredients increases."
The committee called on the government to provide: ▲ a grace period for implementing the plan and a joint impact analysis with industry, ▲ a redesign of policy that considers real-world impacts at industrial sites, and ▲ the establishment of a formal decision-making governance structure to gather industry input in future drug pricing system design.
The committee urged, "Rather than unilateral implementation, the government should pursue a balance between public health, industrial growth, and the health insurance budget, premised on sufficient consultations with industry."