[Desk’s View] On exempting innovative pharmas from price cuts

Fostering the pharmaceutical and biotech industry while ensuring the soundness of the national health insurance budget is no easy task.

The two are intertwined like a double-edged sword. Cutting drug prices indiscriminately to save money risks stifling the industry, yet allowing skyrocketing drug prices to go unchecked in the name of industry growth will quickly drain the health insurance coffers.

That is why the government’s push to cut generic drug prices is undoubtedly a card played as the health insurance coffers are running dry. Yet, it is equally impossible to neglect the pharmaceutical and biotech industry, which is only now beginning to gain stature.

The ‘Korea Innovative Pharmaceutical Company’ certification system emerged after long deliberation between fostering industry and maintaining fiscal soundness. The government aimed to identify and nurture the so-called ‘pharmaceutical companies capable of developing new drugs’ through this certification.

However, 15 years have passed since the system's establishment in 2011, and one can't help but wonder if it has effectively achieved its original goal of fostering companies. The number of certified innovative pharmaceutical companies has now risen to 49, yet very few have developed drugs capable of competing on the global stage.

The pharmaceutical industry claims the current certification doesn't offer ‘significant enough benefits to push promising companies forward.’ Rather, it's seen as merely ‘enough to keep them afloat within their group.’

The most significant benefit pharmaceutical companies perceive from the Innovative Pharmaceutical Company certification is preferential drug pricing. Holding this title grants preferential treatment in pricing calculations for first generics or incrementally modified new drugs. For instance, while a standard company's first generic listing is priced at 59.5% of the highest price, an Innovative Pharmaceutical Company can set its price at 68%. Considering that drug prices directly translate to sales revenue, this means that certified companies can earn 7.5% more than non-innovative companies.

However, this pricing preference is only a temporary benefit. After one year, the premium disappears, and “non-innovative” pharmaceutical companies end up with the same drug prices as the certified innovative ones.

Even so, starting from the same line with even a slightly higher price is undeniably advantageous. This is why many pharmaceutical companies celebrate or despair over the results of the innovative pharmaceutical company review, which takes place every two years.

If the innovative pharmaceutical company certification system is to better fulfill its purpose of ‘screening and fostering’ firms, the direction should be to tighten the review standards while expanding the benefits.

In other words, the government should identify companies that truly have the capability to develop new global drugs while providing full support until they actually develop them.

Some argue that innovative pharmaceutical companies should be exempt from unilateral price cuts made for listed drugs. From the perspective of fostering domestic pharmaceutical companies, this isn't entirely wrong. But would any company spend tens or hundreds of billions of won on new drug R&D while facing the risk of declining sales just to be saved from price cuts on existing drugs? Just for the title of being a certified innovative pharmaceutical company?

However, even such benefits, if granted only to the 49 certified innovative pharmaceutical companies, would trigger backlash from non-innovative companies. There is already distrust in the field regarding the standards used to certify innovative pharmaceutical companies.

But still, current discussions on drug price cuts for already-listed products and on reforming the innovative pharmaceutical company system need to be somewhat aligned. Rather than pushing through generic drug price cuts in a hasty manner despite strong opposition from the industry, perhaps it would be better to take a little more time and discuss them along with substantive benefits for innovative pharmaceutical companies. At the same time, the criteria for selecting innovative pharmaceutical companies should be reorganized so that they are truly centered on companies that genuinely engage in R&D.

From a cautious standpoint, that may be the only way to both foster the industry and maintain health insurance sustainability.