"Labor, raw material, and logistics costs keep rising while drug prices are falling, so the burden on corporations is heavy." "It is uncertain whether this policy alone will spur the development of innovative new drugs."
The Ministry of Health and Welfare on the 26th finalized a drug pricing reform plan to cut the calculation rate for generics from the current 53.55% to 45%, complicating the math for Korea's pharmaceutical industry.
With this adjustment to the generic calculation rate, drug prices will drop by about 10%–15% in the second half. For example, the current price of the hypertension drug Norvasc tablets is 367 won, which will fall to 318 won under the change. Annual drug expenses would go from 133,955 won to 116,070 won. Of that, only 30% is borne by the patient. The specific items subject to the cut have not yet been announced.
As a result, spending from national health insurance benefits and patients' expense burdens are expected to decrease from current levels. The government moved to trim the pricing calculation rate to address the proliferation of small pharmaceutical companies that rely on generic sales rather than new drug development and to manage the pace of drug spending increases in order to secure the sustainability of health insurance finances.
However, the mood that corporations feel on the ground is different. Most corporations see it as a crisis. The impact will vary depending on each company's generic share and product mix, but with copy drugs forming a key pillar of revenue for most drugmakers, the industry consensus is that a "red light" has come on.
◇ "Tighten belts… retooling in jobs and industry"
Small and midsize drugmakers with a high share of generics even say it is a "direct hit to survival."
There are also signs that companies are considering measures to defend against worsening profitability by adjusting the scale of wage increases, selling and administrative expenses, and reducing headcount. This suggests responses such as narrowing openings for new hires could follow.
A representative at Company A, who requested anonymity, said, "Price cuts reduce profit more than sales," and noted, "Given the expense structure, labor costs will inevitably be affected."
Unions including the pharmaceuticals and cosmetics division of the Federation of Korean Chemical Workers' Unions under the Federation of Korean Trade Unions are on high alert and discussing additional responses.
Some also said the policy may have only a limited effect in encouraging innovative new drug development, contrary to the government's expectations.
An executive at Company B, a top-tier seller, said, "It is looser than the government's initial proposal, so we see it as reflecting the industry's views," but added, "However, it is uncertain whether this reform plan alone will spur new drug development."
The executive said, "Because the overall environment for the pharmaceutical industry is unfavorable at home and abroad, investment could actually contract."
There were also claims that corporations could instead turn to the non-reimbursable market—such as aesthetic-related drugs and medical devices and health supplements—as a profitability alternative. A representative at Company C, a top-tier seller, said, "It could instead spur a shift to the higher-margin, non-reimbursable market." The representative explained, "New drug development is not guaranteed to succeed and takes a long time, so the burden is heavy from a corporation's standpoint. Companies for which expanding research and development (R&D) is difficult and that face an existential crisis are also likely to choose non-reimbursable aesthetic and healthcare businesses as alternatives."
◇ "Shift to non-reimbursable care, more prescriptions… mixed responses from drugmakers"
Meanwhile, some say that, given the market structure where competition among same-ingredient drugs is fierce, top-tier corporations could actually increase their market share. The logic is that price cuts could make drugs from more recognizable companies more likely to be chosen.
A representative who offered this view said, "Simply put, when prices are both similar, there is a tendency to choose prescriptions from better-known companies," adding, "Price competitiveness from the cuts can be pitched to medical staff, and some items may see more prescriptions than now, so sales strategy will be important."
Among global (multinational) drugmakers operating in Korea, there is a welcoming mood toward the government's improvement of the drug pricing system. Unlike domestic firms that rely heavily on generics, global drugmakers are centered on new drugs, so their interests differ. The Korean units of big pharma also expressed hope that domestic drug pricing reforms will continue in a direction that better recognizes the value of new drugs.
The Korea Research-based Pharma Industry Association (KRPIA) called it "a meaningful step forward in reflecting the value of innovative new drugs and improving patient access." KRPIA said, "If measures such as expedited listing for treatments for rare and severe diseases, the introduction of flexible price agreements, and improvements to the incremental cost-effectiveness ratio (ICER) criteria are pursued, the pricing system will evolve to be more patient-centered," adding, "Because Korea's reimbursement rate for new drugs is lower than in major countries, reasonable pricing standards and public-private consultations are needed in the course of implementing the system."