Report from South Korea - Pharmaceutical Technology

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Report from South Korea
The bio-pharmaceutical business outlook in South Korea remains positive.


Pharmaceutical Technology
Volume 37, Issue 8, pp. 36-37

Key regulatory considerations
The MFDS has established a number of specific goals for the pharmaceutical industry in South Korea. First, as part of President Park's goal to "open a new era of safe society and happiness for all people," the Minister of the MFDS, Chung Seung, has stated that his goal is "to become a globally recognised nation for food and drug safety" (4). Strategies for his work include promoting consumer participation in safety efforts.

There have also been changes to Korean pricing for drugs that have had the effect of slowing pharmaceutical market growth in recent years. In the past, Korean pharmaceutical companies had primarily focused on generics, with name-brand drugs produced by international companies. In January 2012, in response to rapidly rising healthcare costs, the government announced its plan to cut the price of drugs dramatically once patents expire. Previously, drug prices had been capped at 80% of original prices once the patent expired for original drugs, with generics capped at 68%. The new pricing scheme lowered those caps to a range of 59.5% to 70% for innovator drugs for the first year, and additional cuts after that (5). The stated goals of these cuts were twofold: to reduce the percent of government spending for drugs and to encourage Korean companies to pursue more innovative research. The Ministry of Health and Welfare also pledged financial incentives to companies that make innovative drug development a priority.

The MFDS has also worked in recent years to expand the manufacture of biosimilars. In 2009, the Ministry introduced regulatory guidelines and funding to promote biosimilar development. The stated goal of the government is for South Korea to achieve 22% global market share by 2020. The government's funding has been supplemented with private funding, with investments from companies such as Samsung Electronics ($389 million over five years) (6).

Other regulatory changes include the Korea-US Free Trade Agreement, which went into effect in March 2013. This agreement reduced tariffs between the two countries, and creates additional protection for patented drugs from generics-drug competition by increasing the testing requirements (and associated expenses) for generics and specifies additional data protection requirements.

Implications for successful market entry and in-region partnering
South Korea, with its pharmaceutical market ranked in the global top 10 with sales of approximately $16.5 billion in 2011, clearly offers significant business opportunity. Trade has become significantly easier with the recent signing of the South Korea-EU Free Trade Agreement (FTA) in July 2011 and South Korea-United States (KORUS FTA) in March 2012. KORUS is widely seen as the most significant free-trade agreement ratified by the US since the North American Free Trade Agreement (NAFTA). For the US, KORUS-FTA opens up Korea's $1 trillion economy to "America's workers and businesses, while also strengthening our economic partnership with a key Asia-Pacific ally," said US Trade Representative (USTR) Ron Kirk (7). Along with KORUS-FTA, there has also been a significant commitment to strengthening to intellectual property rights and enforcement provisions.

For the biopharmaceutical market, KORUS is important because it not only focuses on intellectual property rights but also establishes discipline in the Korean Government's approach to drug reimbursement and pricing. As a single-payer system, gaining access to the Korean national healthcare system is a crucial element for success in this market.

On a cautionary note, Pharmaceutical Research and Manufacturers of America (PhRMA) CEO John Castellani is on the record as stating that, "while this FTA represents a 21st-century standard that should be a model for other agreements including the Trans Pacific Partnership (TPP), we [PhRMA] are highly concerned that the Korean government has not implemented certain provisions requiring transparency and due process in the manner that Korea prices and reimburses biopharmaceutical products" (8).

Also on the horizon is reform of the pharmaceutical reimbursement process. Recently the national health system announced reimbursement reform aimed at increasing "rational resource use in drug spending" (9). Following policies similar to those set in many EU economies, South Korea's national health system aims to take cost-effectiveness and budget impact of new drugs into consideration in payment decisions. If these policies are implemented, South Korea will be the first Asian country to officially use economic evaluation in healthcare.


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