Dong-A ST, Daewon Pharmaceutical, Boryung and other major domestic drugmakers lost a series of lawsuits challenging the government's drug price cuts.
The reasons varied, including penalties for illegal rebates and price adjustments following the launch of generics, but the courts uniformly sided with the government.
There is also criticism of the pharmaceutical industry's "delay tactic," in which companies drag cases through three trials to postpone price cuts and preserve revenue.
◇ Supreme Court: "Dong-A ST's drug price cuts over illegal rebates are justified"
Dong-A ST received a final guilty verdict on illegal rebate charges, and the Ministry of Health and Welfare moved to cut prices for 122 drugs. The rationale was that economic sanctions were necessary because the company disrupted the pharmaceutical distribution order. Dong-A ST filed an administrative suit in protest, but the Supreme Court finalized its loss in Nov. last year.
Dong-A ST and its employees were found guilty by the Supreme Court in Dec. 2016 for violating the Pharmaceutical Affairs Act by providing 4.4 billion won in rebates to hospital directors and doctors nationwide from 2009 to 2012. Including this, Dong-A ST was indicted three times on illegal rebate charges and received guilty verdicts.
In 2022, the ministry announced that Dong-A ST must cut prices for 122 items by an average of 9.63%. Dong-A ST filed an administrative suit in Apr. that year to cancel the adjustment of the maximum drug amount, but lost in both the first and second trials. The Supreme Court's Special Division 2 also dismissed the appeal without a hearing in Nov. last year. A dismissal without a hearing means the court determined the case was not subject to appeal and rejected it without separate review.
Dong-A ST argued that the scope of drugs subject to price cuts was too broad. The first trial court said, "Medical staff know drugs well, so consumers in effect cannot exercise a choice of drugs," adding, "If the rebate practice sways the medical staff's choice of drugs, the expense is passed on and can burden the health insurance finances." The second and third trials also agreed with the lower court's judgment.
A Dong-A ST official said, "While proceeding with the main suit, we separately applied for an injunction to stay the execution of the price cut disposition," adding, "The injunction was dismissed in the first trial, and we lowered the prices for the related items in Aug. 2024."
◇ Price cuts after generic launches… respond with lawsuits?
The government issues an administrative disposition to lower the price of a new drug that loses its exclusive status after the launch of generics. In such cases, drugmakers that developed the original often defend themselves with lawsuits. Daewon Pharmaceutical and Boryung are representative cases. Daewon Pharmaceutical recently received a final loss at the Supreme Court. Boryung lost at first instance but appealed.
Daewon Pharmaceutical obtained approval from the Ministery of Food and Drug Safety in 2007 for Pelubi, an anti-inflammatory analgesic, as a domestically developed new drug. In 2021, ahead of the launch of Pelubi generics, the ministry ordered a price cut, and Daewon Pharmaceutical protested and filed an administrative suit in Aug. that year. Daewon Pharmaceutical lost in the first and second trials. The Supreme Court's Special Division 1 dismissed the appeal without a hearing in Apr.
Boryung Pharmaceutical is also pursuing a second-instance suit against the ministry to cancel the price cut for the hypertension drug Kanarb. In June last year, ahead of generic launches, the ministry announced that the Kanarb price must be cut from 439 won to 307 won based on 30 mg. Boryung filed a lawsuit in protest and lost at first instance in Feb. this year; the second trial is now underway.
◇ Filing for stays of execution to delay the timing of price cuts
What Pelubi and Kanarb have in common is that they are strong sellers. In the first quarter of this year, Daewon Pharmaceutical recorded 11,352 million won in sales for antipyretic anti-inflammatory analgesics including Pelubi. That is 7% of total sales, the second highest after expectorant antitussives (10%). In the first quarter of this year, Boryung's Kanarb product family posted 33,266 million won in sales, accounting for 13% of total sales.
Some say drugmakers delay price cuts through lawsuits. Under the ministry's notice, Daewon Pharmaceutical should have lowered the price of Pelubi tablets starting in Sept. 2021. Daewon Pharmaceutical proceeded with litigation and, after the three trials ended, cut the price of Pelubi tablets from 180 won to 95 won in early this month. The timing of the price cut was delayed by years.
Some drugmakers also file separate applications for injunctions to stay execution in addition to the main lawsuits protesting price cuts. If the court accepts them, they do not have to lower prices until the trial ends. A pharmaceutical industry official said, "Even if a loss becomes final, at least until the outcome comes out, it means they can maintain profitability."