Incrementally modified drugs unaffected by price reform

Insurance premiums for Incrementally modified drug combinations also remain largely unchanged… only minor changes to preferential period made

Gap expected to be widened between generics and incrementally modified drugs due to lowered calculation rate

Under the government’s drug pricing system reform, the insurance pricing premium rates for incrementally modified drugs and their combination products are expected to remain unchanged. Only some conditions related to the duration of the premium are likely to be adjusted.

As the pricing calculation rate for generics is set to drop to 45%, domestic companies are expected to show greater interest in developing incrementally modified drugs.

According to industry sources on the 6th, during working-level discussions between the government and the pharmaceutical industry, a consensus was reached not to lower the premium for incrementally modified new drugs.

Although maintaining the current premium was discussed at the Health Insurance Policy Deliberation Committee (HIPDC) in November last year, the point was excluded from the reform plan approved by the HIPDC in March this year.

This led to concerns within the industry that the premium might also be reduced along with the lower pricing calculation rate. There were concerns that lowering the premium could eliminate incentives for R&D investment.

Under the current pricing system, incrementally modified drugs receive a premium on a base pricing rate of 53.55%, resulting in a final price of 70%. For new dosage or administration forms, a 58.9% premium is applied, resulting in a price of 77%.

For incrementally modified combination drugs, pricing is calculated as the sum of pre-patent-expiry prices of each component. Innovative pharmaceutical companies receive 68% of that sum, while general pharmaceutical companies receive 59.5%.

The government is not expected to significantly adjust these premium rates. Instead, it is reported that the preferential premium rate for combination drugs by general pharmaceutical companies—currently a 59.5% sum—will be slightly adjusted to a 60% sum.

As the generic pricing rate is reduced from 53.55% to 45% while the incrementally modified drug premium remains unchanged, the price gap between generics and modified drugs is expected to widen further.

The conditions for the premium duration are expected to be simplified. Previously, a one-year premium could be extended in two-year increments through conditional approvals and reviews.

Going forward, a basic one-year premium will be granted, with an additional three-year extension if domestic manufacturing criteria are met. If no follow-on generics are listed thereafter, the premium may continue.

Modified drugs and their combination products that are domestically produced and face no market competition will be able to maintain their premium drug prices for a long time.