[Desk View] Unsettling relief from pharma tariff agreement

Analysis suggests that the burden of tariffs on the pharmaceutical sector has been significantly alleviated following the settlement of the US-Korea tariff negotiations, which had dragged on for about five months.

 

According to the agreement, the Most Favored Nation (MFN) designation will be granted to synthetic new drugs and biological new drugs (biosimilars/biobetters) in the pharmaceutical sector.

 

Generic drugs and natural resources not produced in the United States will be subject to zero tariffs.

 

The pharmaceutical and biotech industries express clear relief.

 

Concerns over pharmaceutical tariffs emerged after President Donald Trump stated on his social media platform, Truth Social, in September that "100% tariff would be imposed on all branded drugs and patented drugs from companies not building manufacturing plants in the U.S.

 

starting the following month." The Korea Pharmaceutical and Bio-Pharma Manufacturers Association (KPBMA) welcomed the agreement, stating, "We greatly welcome the settlement of the Korea-U.S.

 

tariff negotiations." They added, "Securing MFN designation along with maintaining zero tariffs for generic drugs ensures trade conditions that are not unfavorable compared to other major countries.

 

We expect this to positively impact the strengthening of our pharmaceutical and bio-industry's global competitiveness." The KoreaBio Association also welcomed the agreement, stating, "With the tariff negotiation settlement, South Korea is not disadvantaged compared to competitors like Europe and Japan when exporting pharmaceuticals to the U.S., and we expect a significant reduction in trade uncertainties with the U.S." In fact, the expectation was that imposing tariffs would not have a significant impact on the overall domestic pharmaceutical industry, as the scale of Korean pharmaceutical and biotech companies' exports to the U.S.

 

is small.

 

Only a few companies, such as Celltrion, Samsung Biologics, Samsung Bioepis, SK Biopharmaceuticals, Daewoong Pharmaceutical, and Green Cross Corp, are actively pursuing entry into the U.S.

 

market.

 

The majority of domestic pharmaceutical and biotech companies have no experience entering the U.S.

 

market.

 

The fact is that the industry as a whole did not show strong interest because the pharmaceutical tariff risk was seen as 'someone else's problem' for most pharmaceutical and biotech companies.

 

According to the Ministry of Food and Drug Safety (MFDS), the U.S.

 

export value of domestically produced pharmaceuticals in Korea last year was $1.49117 billion (approximately KRW 2 trillion), accounting for only about 1% of the total U.S.

 

export value of $127.8 billion.

 

This is less than 5% of the $36.6 billion in automobile exports.

 

Pharmaceutical exports to the U.S.

 

are also dominated by Samsung Biologics and Celltrion.

 

Samsung Biologics recorded U.S.

 

export sales of KRW 1.1741 trillion last year through Contract Development and Manufacturing Organization (CDMO) services for biopharmaceuticals.

 

Celltrion's biopharmaceutical sales in the North American market last year amounted to KRW 1.0453 trillion.

 

Domestic pharmaceutical and biotech companies have released a total of 40 new drugs since SK Chemicals' Sunpla in 1999, up to Medytox's Nuviju in September this year.

 

However, products that have entered the U.S.

 

market are limited to LG Chem's Factive, Dong-A ST's Sivextro, Hanmi Pharmaceutical's Rolontis, and Yuhan Corporation's Leclaza.

 

Most domestically developed new drugs that enter the U.S.

 

do not have large export sales.

 

Leclaza is gradually increasing sales after recent U.S.

 

approval, but this does not count toward Korea's export performance, as the product is manufactured locally by its partner, Janssen, for sale in the U.S.

 

This is the background why the pharmaceutical industry welcomed the US-Korea tariff negotiation, but did not achieve consensus across the entire industry.

 

It is why they seem to be in vain.

 

The settled negotiation is welcome, but it offers little immediate tangible benefit.

 

In contrast to the vigorous success of domestic manufacturing, such as K-Beauty and K-Food, in the U.S.

 

market, the performance report for K-Bio in the U.S.

 

is still at a nascent stage.

 

The majority of domestic pharmaceutical companies are still largely dependent on the domestic market.

 

However, the recent increase in U.S.

 

exports is encouraging.

 

In 2014, the U.S.

 

export value of domestic pharmaceuticals was $120.57 million, accounting for only 5.0% of the total export value of $2.40349 billion.

 

Last year, the U.S.

 

share of total pharmaceutical exports was 16.1%, an increase of more than threefold from 10 years ago.

 

While the total pharmaceutical export volume last year increased by 3.9 times compared to 10 years ago, the U.S.

 

export value increased by 12.4 times during the same period.

 

The increase in U.S.

 

exports of finished pharmaceutical products is a positive development.

 

In 2014, API exports to the U.S.

 

were $88.53 million, more than double the finished pharmaceutical product exports of $32.04 million.

 

Last year, finished pharmaceutical products accounted for $1.29899 billion of U.S.

 

pharmaceutical exports, exceeding API exports of $192.19 million by more than five times.

 

In 2014, the U.S.

 

ranked 6th among destination countries for pharmaceutical exports, but it jumped to 1st place last year.

 

The U.S.

 

export value of finished pharmaceutical products last year expanded by 40.5 times compared to 10 years ago, which is in contrast to the 2.2-fold increase in API U.S.

 

export value over the past 10 years.

 

This shows that finished pharmaceutical products incorporating domestic companies' R&D technology are gradually accelerating their penetration into the U.S.

 

market, thus slowly but incrementally expanding their presence.

 

Recently, not only biosimilars but also domestically developed botulinum toxin products and blood products are actively pursuing entry into the U.S.

 

market.

 

The success of new drug out-licensing among biotech companies is spreading, and there are increasingly noticeable cases of global pharmaceutical companies launching new drugs using K-Bio technology.

 

We hope for a time when the R&D achievements of domestic pharmaceutical and biotech companies are used as wild cards on the global stage, leveraged in negotiations, and when successful tariff negotiations translate into tangible benefits.