‘Need to institutionalize reinvestment of funds into R&D'

Jeonghoon Ahn, Professor of Health Convergence at Ewha Womans University proposes linking drug price cuts and R&D investment in a KPBMA issue report

“Apply differentiated drug price cuts based on R&D investment scale... Need for a system to reinvest saved funds into R&D”

“Include tax credits for failed research... Improve post-marketing management system to increase predictability”

A recommendation was made for the implementation of a system that reinvests the savings from drug price reductions by pharmaceutical and biotech companies into R&D for new drugs and ensures a fixed price during the early stages of a new drug's market launch.

 

Professor Jeonghoon Ahn of the Department of Convergence Health Sciences at Ewha Womans University stated in an issue report published by the Korea Pharmaceutical and Bio-Pharma Manufacturers Association (KPBMA) on the 3rd, “Post-marketing price management and R&D support must be designed to achieve policy coherence,” and proposed, “A predictable environment must be established to build a virtuous cycle in the pharmaceutical and biotech industry.” “Reinvesting savings from drug price cuts into R&D…differentiated price cut rates should be applied based on investment scale” Professor Ahn emphasized the need to move away from the dichotomy of viewing drug price cuts as a simple cost-cutting measure.

 

He explained that a system should be established to encourage companies to reinvest the funds saved from drug price cuts into R&D.

 

Professor Ahn proposed the institutionalization of a “drug price cut reinvestment system” as an alternative.

 

He predicted that this system would enable efficient fiscal management without stifling industrial growth.

 

Specifically, he proposed ▲differentiating drug price reduction rates based on the scale of a company's R&D investment, ▲institutionalizing the reinvestment of funds saved through drug price reductions into R&D, and ▲establishing a new program where the government and private sector jointly support high-risk stages of research such as Phase III clinical trials and allow recover of a certain portion of their support through sales upon success.

 

Ahn also said that a system to guarantee the initial drug price of new drugs for a certain period of time is necessary.

 

Similar to Japan's “price maintenance premium” system, this system guarantees drug prices for a certain period of time after the launch of a new drug and limits excessive price reductions during the patent period.

 

Ahn also suggested that government-funded R&D should be reflected in drug pricing by allowing cost-based pricing for new drugs, and that a risk-sharing agreement should be established to enable companies to recover their investment.

 

“Failed research should also be granted tax credits...

 

Overall improvement of tax incentives is necessary” Along with improving the drug pricing system, Professor Ahn diagnosed that overall improvement of tax policies is necessary.

 

In particular, he emphasized that failed research should also be included in tax credits, considering the possibility of failure in new drug development.

 

In addition, he argued that tax support should be expanded for costs incurred during Phase III clinical trials, such as patient recruitment, CRO contracts, and data analysis.

 

Furthermore, he noted the need for flexibility across the board in the system, including: ▲recognition of costs for purchasing clinical trial drugs and animals as material expenses; ▲clarification of criteria for verifying overseas clinical trial costs; and ▲relaxation of registration requirements for research institutes engaged in commissioned or joint R&D.

 

Additionally, they suggested that the following issues should be reviewed: ▲reflecting the payment structure for each clinical stage in tax laws; ▲applying an exception to the minimum corporate tax rate based on the scale of R&D investment; ▲expanding the scope of tax credit carryover; ▲applying preferential tax rates on patent revenues earned through the introduction of a patent box system; and ▲shortening the depreciation period for research equipment.

 

Professor Ahn said, “Given the high level of uncertainty in the pharmaceutical and bio industry, there must be substantial tax incentives for companies to decide on bold investments from a long-term perspective,” adding, “Tax and drug price systems must be organically linked for a virtuous cycle of R&D reinvestment to function.” “Risks of new drug development must be mitigated through predictable systems…Post-marketing management system needs reform” Professor Ahn pointed out that the current post-marketing drug price management system causes uncertainty in companies' R&D decision-making.

 

Ahn criticized that the price-volume price linkage system and the actual transaction price reduction system are operated in a fragmented manner, resulting in repeated price reductions for certain items.

 

They also pointed out that the drug price calculation and reduction criteria are unclear, making it difficult for companies to predict.

 

To address these issues, he emphasized the need for structural improvements, including: ▲integrating the implementation timeline of the post-marketing drug price management system; ▲introducing an “R-zone” in the actual transaction price-based price reduction system; and ▲mitigating the concentration of price reductions on specific drug formulations.

 

Professor Ahn stated, “The drug price management system and tax support measures must be designed in a predictable form so that companies can confidently invest in new drug development.

 

This could lead to the enhancement of technological capabilities and global competitiveness in the domestic pharmaceutical and biotechnology industry.”