Drug price cuts without support disturb pharma independence

Concerns about the 'halt' of favorable R&D cycle amid repeated price cuts

Industry, "Predictability over speed"…previously listed drugs' scope and timing

Gov't "Subsequent launch will be reviewed"…has emphasized sequential implementation and communication

The Korean pharmaceutical industry has voiced strong concerns regarding the government's proposed drug price reform plan.

Dailypharm 55th New Year Special Future Forum

It is a warning that repeated drug price cuts are depleting the foundational R&D strength of the domestic pharmaceutical industry and could ultimately lead to a health security crisis, such as the discontinuation of essential medicine supplies.

On the 21st, DailyPharm hosted its 55th New Year Special Future Forum at the main auditorium of the The Catholic University of Korea Institute of Biomedical Industry under the title, "Our Attitude in Facing the Era of Great Transformation in Drug Pricing," to collect frontline opinions.

The forum was attended by key figures including Yeon-sook Kim, Head of the Division of Pharmaceutical Benefits at the Ministry of Health and Welfare (MOHW); Jun-seop Park, Board of Director at Jeil Pharmaceutical; Jaeho Jung, Head of Department at Novartis Korea; and members of the Healthcare Team from the law firm Lee & Ko. They shared various views on the contents, analysis, and response strategies related to the drug price reform plan.

​"KRW 63T in Cumulative Price Cuts… Unpredictability is the Greatest Risk"

Jun-seop Park, Board of Director at Jeil Pharmaceutical, who delivered a presentation representing the domestic pharmaceutical industry, emphasized that repeated drug price reduction policies are forcing the industry to face a crisis of an unpredictable investment environment.

According to Park, starting with the introduction of the actual transaction price reimbursement system in 1999, followed by the 2012 blanket price cuts and the 2020 differential requirement system, continuous reductions through 2023 are estimated to have resulted in a cumulative decrease of approximately KRW 63 trillion.

The industry's greatest concern regarding these continuous cuts is 'uncertainty.'

Park said, ​"This unpredictable policy environment makes it virtually impossible for pharmaceutical companies to establish long-term survival strategies."

However, it was also emphasized that despite the repeated price-cutting environment, the domestic pharmaceutical industry has continued to build achievements in new and incrementally modified drugs (IMDs).

Jun-seop Park, Board of Director at Jeil Pharmaceutical

According to growth indicators for 2024 compared to 2000 presented by Director Park: ▲ Industry scale: KRW 7.9 trillion → KRW 29.8 trillion (277% growth); ▲ Number of employees: 55,000 → 120,000 (118% growth).

In particular, R&D investment surged 18-fold (1727%) from KRW 0.197 trillion to KRW 3.6 trillion. Since the launch of the first domestically developed new drug in 1999, the industry has produced 41 new drugs and 142 IMDs, establishing advanced clinical and quality systems.

However, Park warned that this virtuous cycle of growth is coming to a halt.

As the basis, he cited the "essential medicine supply discontinuation" crisis. According to data from the Ministry of Food and Drug Safety (MFDS), the number of reported cases of drug supply discontinuation and shortages has nearly tripled over the five years since 2020.

"While prices have risen by 20%, the standards for low-priced medicines have been frozen for over 10 years, threatening the sustainability of manufacturing basic medicines," Park said. "In Europe, unsustainable pricing policies are also acting as one of the primary causes of drug shortages."

The issue of equity in government support was also brought to the fore. While the government's R&D investment ratio for all industries stands at 21–24%, the ratio for the pharmaceutical industry was a mere 5.5% as of 2023.

​"While companies cover 94.2% of pharmaceutical R&D with their own profits, slashing the profitability of generics and IMDs, which form that financial base, is like cutting off a runner's supply line during a marathon for new drug development," Park compared.

"Instead of short-term indicators like the R&D investment ratio of the past three years, we must comprehensively evaluate cumulative investment amounts, continuity, and substantial outcomes," Park suggested. "It is time to consider drug price preferences through the designation of 'Research-Oriented Pharmaceutical Companies' for those who continue substantial investment, in addition to the existing 'Innovative Pharmaceutical Companies' certification."

Park urged, "What the pharmaceutical industry needs right now is not drug price cuts, but the breathing room and support to prepare for the next 10 years. Instead of securing finances by cutting drug prices, we need policies that strengthen self-sustainability, allowing the industry to create jobs and reinvest in global competitiveness through appropriate drug pricing."

​"Cutting Generic Prices to Approximately 40%, Legal Rationality in Question"

​Following this, Attorney Jin-hwan Jeong from the law firm Lee & Ko presented a legal and industrial analysis of the drug price reform plan announced by the MOHW last November.

Member of the Healthcare Team from the law firm Lee & Ko

He also questioned the government's plan for drug price cuts related to the generic drug price estimation criteria.

"The government cites cases from Japan and France, but it is worth considering whether a horizontal comparison is possible given the industrial structures and the proportion of global new drugs in those countries," Jeong said. "We need to examine whether there is rationality in how a cut to the 40% range contributes to stimulating new drug development by domestic pharmaceutical firms."

Furthermore, he raised questions regarding the 'differentiation of the price addition system,' a core part of the reform. The government's plan grants high price additions only to the top 30% of Innovative Pharmaceutical Companies in terms of R&D ratios.

"It is difficult to see a substantial difference in R&D capabilities between a company at the 30th percentile and one at the 31st, and a structure where rankings change every year based on sales fluctuations hinders corporate predictability," Jeong said. "Evaluating companies primarily by ratios without considering comprehensive indicators, such as cumulative R&D investment or technology transfer achievements, may be irrational."

Jeong added, "There may be grounds for claims regarding the deviation or abuse of discretionary power under the Administrative Litigation Act. The collapse of an industry happens in an instant, but its revival takes a long time. We need a detailed institutional design where welfare and industry can coexist."

Predictability over Speed… Issues of Scope and Timing for Listed Drugs

In the subsequent Q&A session, questions focused on the 'speed' and 'predictability' of the policy.

Attendees expressed concern that, as the reform is being pushed forward rapidly, a 'big picture timeline' for when and to what extent the system will be applied must be presented first so companies can prepare.

There were also questions reflecting anxiety about the uncertainty of policy implementation, specifically about which of the currently listed medicines will be subject to price cuts and when.

(from left) Yeon-sook Kim, Head of the Division of Pharmaceutical Benefits at the Ministry of Health and Welfare (MOHW), ; Jaeho Jung, Head of Department at Novartis Korea, Jun-seop Park, Board of Director at Jeil Pharmaceutical

The standard view among the domestic pharmaceutical industry was that, since each company had already established mid- to long-term business plans, an accelerated implementation date could destabilize management, employment, and decisions on development and investment.

In response, Yeon-sook Kim, Head of the Division of Pharmaceutical Benefits at the MOHW, expressed a commitment to setting specific targets as soon as possible to increase industry predictability.

​"The government also fully recognizes that policy predictability is important," Director Kim explained. "We will quickly finalize and announce the targets for listed drug adjustments, and we are reviewing measures for a soft landing, considering the impact on the industry."

Kim emphasized that rather than a unilateral speed race, the government would ensure detailed adjustments through communication with the industry, stating, "We will not focus simply on cutting prices, but will sufficiently examine areas for supplementation by taking the voices of the industrial field into account."

In conclusion, Kim added, "We are considering a phased implementation, starting with a primary review of medicines listed before 2012. We plan to finalize the specific targets and scope through technical verification and close communication with associations to avoid confusion."