The South Korean government plans to implement generic drug price cuts in July while offering incentives such as preferential rate reductions to innovative pharmaceutical companies with high research and development investment ratios.
According to the pharmaceutical and biotech industry on the 13th, the Ministry of Health and Welfare decided at a Health Insurance Policy Deliberation Committee subcommittee meeting on the 11th to differentiate between innovative and general pharmaceutical companies when cutting prices of already-listed generic drugs.
A plan to apply lower reduction rates to companies certified as innovative pharmaceutical firms and those meeting similar standards is under serious consideration. Sources say differentiated rates were discussed: innovative pharmaceutical companies would see prices set at approximately 48% of original drug prices, companies meeting similar standards at 45%, and general pharmaceutical companies at 43%. Proposals to grant innovative firms and those meeting similar standards a 3-5% preferential reduction rate or a grace period on price cuts compared to general companies were also on the table. The grace period discussed could extend up to five years. However, these preferential measures would likely be temporary, with identical reduction rates applied to both innovative and general companies after a certain period.
The innovative pharmaceutical company certification recognizes pharmaceutical and biotech companies with high R&D investment ratios relative to sales, new drug development achievements, and overseas expansion capabilities. Operating under the Special Act on Fostering the Pharmaceutical Industry enacted in 2012, certified innovative pharmaceutical companies receive benefits including bonus points for government R&D support programs, preferential drug pricing, and tax incentives.
The preferential treatment for innovative pharmaceutical companies was reportedly proposed by the Korea Pharmaceutical and Bio-Pharma Manufacturers Association to health authorities. Currently, 48 pharmaceutical and biotech companies hold innovative pharmaceutical company certification. Only 36 of the association's 296 member companies are certified. This raises concerns that the remaining 260-plus pharmaceutical companies could face relatively greater burdens if preferential price reduction treatment becomes reality. An official from the Korea Pharmaceutical and Bio-Pharma Manufacturers Association drew the line, stating, "This proposal came after sufficient internal consultation. We're not concerned about industry backlash because there's consensus that companies should pursue R&D investment and innovation rather than settling for generics."
Another variable is that the innovative pharmaceutical company certification system faces major reform after more than a decade since its introduction. The delayed release of system improvement plans, originally expected last year, is keeping the pharmaceutical industry on edge. Companies are increasingly alert as certification criteria reforms—including relaxed rebate penalty regulations and adjusted evaluation methods—may be pursued in conjunction with drug pricing policy. The subcommittee reportedly also discussed establishing a separate category for companies meeting standards similar to innovative pharmaceutical firms. However, specific criteria for "quasi-innovative companies," including differentiated reduction rates and grace periods, will be discussed at the full Health Insurance Policy Deliberation Committee meeting later this month.
The Ministry of Health and Welfare announced drug pricing system reforms last November, citing the need for price restructuring to ensure health insurance financial sustainability. The core measure involves lowering generic drug prices from 53.55% to the 40% range of original drug prices. The industry is strongly opposing the reform, arguing it will cause structural changes throughout the industrial ecosystem. The Emergency Committee for Drug Pricing System Reform for Industrial Development stated at a press conference on the 10th that "price cuts exceeding 10% are unbearable for the industry," presenting 48.2% of original drug prices as their bottom line.
The government maintains that generic price cuts are measures to reduce consumer burden, stabilize health insurance finances, and simultaneously drive structural improvement in the pharmaceutical industry. According to the ministry, Korea's generic drug prices are 2.17 times the OECD average, while domestic listed pharmaceutical companies' R&D investment ratio to sales stands at just 8.4%—less than half the average of 21.4% for Pharmaceutical Research and Manufacturers of America member companies.
A Ministry of Health and Welfare official said, "If profits generated from long-maintained generic prices had been invested in R&D, we believe more tangible results should have emerged by now," adding, "We will listen sufficiently to industry opinions and coordinate accordingly."