As the government finalized a reform plan to lower the pricing rate for generics to as low as 45% of original drugs, the restructuring of the revenue model in Korea's pharmaceutical industry is expected to accelerate.
Small and midsize drugmakers with a high share of generic sales now face unavoidable pressure on profitability, while companies investing in research and development (R&D) gained a new price protection mechanism for up to four years. Industry watchers said the move could mark a turning point that widens performance gaps among corporations.
◇ Tougher rules such as "automatic price adjustment when more than 13 products with the same ingredient are listed"
The Ministry of Health and Welfare on the 26th approved a drug pricing reform plan at the Health Insurance Policy Deliberation Committee to gradually cut the pricing rate for generics from the current 53.55% to 45%. The goal is to implement it within the year. The government said the reform is intended to shift the industry structure from a generic-centered model to one focused on new drug development.
Accordingly, for general drugmakers, the pricing rate for generics will be reduced to 51% starting in the second half of this year. It will then be adjusted to 49%→47%→45% by 2029.
Protection will be stronger for "innovative drug companies" with a high ratio of R&D investment. They will see 51% applied in the second half of this year and 49% next year, followed by a special rate of 49% maintained for up to five years, after which it will be gradually adjusted to 45%.
The adjustments will cover not only generics listed before 2012 but also new generics. However, drugs to prevent market exit, orphan drugs, sole-listed items, drugs whose prices were raised due to supply instability in the past five years, basic infusion solutions, radiopharmaceuticals, and essential supply items such as oxygen and nitrous oxide are excluded.
The criteria for price reductions will also be revised.
The step-down reduction rule, which currently applies from the 20th product of the same-ingredient generic, will apply from the 13th product. If more than 13 same-ingredient generics are listed, the price of newly listed products will be automatically adjusted to 85% of the previous lowest price one year after listing. Generics added thereafter will have their prices set based on that adjusted price.
If a company fails to submit its own bioequivalence study data or to meet the requirement to use an active pharmaceutical ingredient registered with the Ministery of Food and Drug Safety, the recognized price level will be lowered from the current 85% to 80%.
However, price add-ons will be maintained for products where supply stability is critical, such as drugs using directly manufactured active ingredients, nationally essential medicines using domestic ingredients, injectable antibiotics, and pediatric drugs. The plan is also to grant add-ons for a certain period to off-patent original drugs to prevent supply instability.
◇ New "semi-innovative drug company" system… "Goal is to expand preferred pricing eligibility"
To ensure a soft landing for the reform, the government plans to strengthen price protection for innovative drug companies. Officials said the current system sets prices based on the value of each drug and failed to fully reflect the domestic industry's specific characteristics, where R&D is funded by generic sales.
When an innovative drug company launches a new generic, a 60% pricing rate will apply for a basic one year. If the drug is manufactured in Korea, the period will be extended by an additional three years, for up to four years in total. Previously, extensions were allowed only when there were three or fewer suppliers of the same ingredient, but going forward, the protection period will be determined by whether production is domestic.
In the price-cut system tied to increased usage, the reduction relief for drugs from innovative companies will be expanded from 30% to 50%. For example, even if the reduction rate is set at 4%, the actual cut would be around 2%.
Temporary special measures will also apply to innovative drug companies during the process of adjusting prices for previously listed generics. Off-patent original drugs whose prices are adjusted due to generic listings will receive the same level of preferential pricing if produced by an innovative drug company.
The government will also newly introduce a "semi-innovative drug company" system that provides a level of benefits comparable to innovative companies.
If designated as a semi-innovative drug company, previously listed generics will be priced at 51% in the second half of this year, 49% next year, and 47% in 2028, followed by a special rate of 47% maintained for up to four years, after which it will shift to 45%.
A 50% pricing rate for new generics can be applied for up to four years. Through the semi-innovative system, the government plans to expand the number of preferred-pricing recipients from the current 48 to around 60.
Corporations with sales of 100 billion won or more will qualify if their R&D investment is at least 5% of drug sales, and those with less than 100 billion won in sales will qualify at 7% or more. Corporations that received administrative sanctions related to rebates in the past five years are excluded.
◇ "Periodic price reappraisals" to start in 2030… Incentives for "low-price purchasing" put on hold
Ex post price management will also be revamped. Officials said this reflects industry calls to ease uncertainty over the possibility of repeated price cuts.
The timing for implementing price reductions tied to increased usage will be standardized at twice a year. At least one month of preparation time will be provided before implementation.
The reappraisal of reimbursement appropriateness will shift from a blanket annual review to a system conducted only when grounds for reappraisal arise. The way results are applied will also be simplified to either delisting from reimbursement or applying selective benefits.
The government will also introduce a system to reappraise prices every three to five years, reflecting the number of products per ingredient, market structure, and price levels in major countries. After collecting industry feedback, the system is slated to start in 2030.
A plan to expand incentives for low-price purchasing, intended to shift to a system that promotes appropriate pricing linked to market competition, was reviewed but the current system will be maintained in light of the need to proceed alongside policies to improve distribution structures. Accordingly, the actual transaction price survey and ex officio price reduction system will remain as is.
◇ "Domestic generic prices are 80% higher than the OECD average"
The government cited distortions in Korea's generic pricing structure as the backdrop for the reform.
According to the National Health Insurance Service, generics account for 53% of use in Korea, similar to the Organization for Economic Cooperation and Development (OECD) average of 54%, but their share of reimbursement stands at 45%, higher than the OECD average of 25%. Based on the ratio of reimbursement to usage, domestic generic prices are analyzed to be more than 80% higher than the OECD average.
The structure of the domestic pharmaceutical industry also factored into the reform. The government believes that high generic prices have led to an increase in small, low-capital drugmakers that neglect investment in development and production.
According to the ministry, among finished drug manufacturers in Korea, the share of companies with production volumes under 1 billion won rose from 18.9% in 2012 to 30.3% in 2024. Among all pharmaceutical companies, including API makers, the share of corporations with fewer than 10 employees increased from 26.9% to 42.3% over the same period.