"This is not something to force through. We need to first correct our understanding of industrial realities, then have the government and industry fully discuss measures to address side effects, maintain domestic manufacturing competitiveness, build an effective innovation ecosystem, and achieve fiscal savings, and then redefine an acceptable scope."
Kim Young-joo, head of Chong Kun Dang pharmaceutical, said this at a policy debate titled "Is the drug pricing system reform fine as it is" held at the National Assembly in Yeouido on the 26th. Kim serves as policy planning chair of the "emergency committee on drug pricing system reform for industrial development," formed by 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.
Representatives of domestic drugmakers at the debate voiced concern in unison that the government's plan to cut prices of generics could shake the sustainability of the entire industry. The Ministry of Health and Welfare in Nov. last year reported to the Health Insurance Policy Deliberation Committee a plan to lower the pricing rate for generics and off-patent drugs from the current 53.55% to the 40% range. The reform plan is set to be approved by the committee in Feb. and take effect in Jul.
Yoon Jae-choon, vice chairman of Daewoong Pharmaceutical, warned that "this reform plan could eat away at the innovation momentum of Korea's pharmaceutical industry." Yoon said, "In pharmaceuticals, failure is the default, and you have to invest with a horizon of more than 10 years before results even begin to appear," adding, "Without ensured predictability, no company can make long-term investments."
He said, "Lowering drug prices from the 53% range to the 40% range feels like roughly a 20% cut," adding, "No industry can withstand such a shock all at once." Given that the average operating margin in the domestic industry falls short of 5%, a blanket 20%–25% cut in product prices would make new drug development virtually impossible, he argued.
Yoon also said, "In Korea, there are still almost no companies capable of bearing global clinical trials and marketing with their own novel drugs," adding, "We are only now catching our breath and trying to move into the global market, but if we cut off the buds of growth at this point, the domestic industry will inevitably become dependent on foreign pharmaceutical companies."
He added, "The government should provide more backing until corporations can conduct global trials and sales on their own and generate revenue overseas," and "The drug pricing system reform should also be pursued in stages and decided from a long-term perspective, in a direction that raises national competitiveness and industrial competitiveness at the same time."
Kim argued that the government's view that the domestic industry is "centered on generics" is wrong from the start. He said, "The domestic ecosystem already has 3,233 research and development pipelines, the No. 3 level in the world, and last year achieved about 20 trillion won in technology export deals," adding, "With conglomerates entering biopharmaceuticals, many corporations are increasing research and development and facility investment and are devoted to innovation."
Kim also said that a generic price-cut policy like in the past is highly likely to repeat side effects such as abandoning domestic production, job instability, and delays in research and development. He said, "Domestic drugmakers have a structure in which generics account for more than half of sales," adding, "Price cuts can immediately lead to a sharp drop in sales, worsening profitability, reduced research and development, and threats to survival."
He also said, "Major advanced countries that led generic price cuts now rely mostly on overseas production and imports for generics and face a reality of frequent stockouts and quality problems, and supply instability since the pandemic."
Kim also pointed out that while manufacturing costs keep rising due to a stronger exchange rate, higher active pharmaceutical ingredient prices, increased labor and energy costs, tighter GMP standards, and expanded regulation, product prices are falling because of repeated, government-led price cuts. He said, "In a situation where a 'cost increase–price decrease' structure has become entrenched, additional cuts can effectively amount to pressure to give up domestic manufacturing."
He further argued that the current reform plan concentrates damage on top sales corporations — namely, those leading research and development and open innovation. Kim said, "Top-tier companies that hold many generics will be hit the hardest," adding, "The government's supplementary measures for innovative pharmaceutical companies are far too inadequate compared with the size of the losses and are not equitable."
He warned, "Such a policy could drive the industry not to advancement but to leveling down."