‘No intention to manufacture APIs despite incentives’

Fifty-nine companies surveyed by the Drug Pricing Reform Emergency Countermeasure Committee

Low willingness to engage in in-house API production or use domestic APIs

Concerns raised over profitability due to market-linked actual transaction pricing

The pharmaceutical industry has assessed that the “supply-stability incentive” system, which is included in the government’s drug pricing reform plan, lacks sufficient appeal to drive actual production expansion.

Seven out of ten CEOs of pharmaceutical and biotech companies responded that even if the premium is applied, they have no intention of engaging in active pharmaceutical ingredient (API) production or the manufacture of nationally essential medicines. Industry leaders pointed out that the incentive level is insufficient to offset rising costs and risks, becoming a temporary measure rather than a structural solution.

7 in 10 CEOs: “Supply-stability incentive ineffective; no intention to expand production”

On the 7th, the ‘Emergency Countermeasure Committee for Pharmaceutical Price System Reform to Promote the Development of the Pharmaceutical and Bio Industry’ (Emergency Committee) released the results of an urgent survey conducted among CEOs of pharmaceutical and biotech companies. Fifty-nine pharmaceutical and biotech companies participated in this survey.

When asked if they were willing to produce APIs themselves to receive the ‘supply stability incentive,’ 69.5% (41 companies) responded ‘”no.”

Similarly, a majority of respondents expressed reluctance to manufacture national essential medicines using domestically produced APIs, with 59.3% (35 companies) answering “no,” while only 35.6% (21 companies) said “yes.”

Negative views also dominated assessments of the eligibility criteria and incentive rates associated with the supply-stability surcharge. 52.5% (31 companies) said the current framework was “not reasonable.”

Key reasons cited included: ▲Surcharge levels insufficient to cover costs ▲Need for structural stability measures like permanent price cap increases rather than temporary surcharges ▲ Need to consider expanding incentives even for non-essential medicines when using domestic APIs.

The Emergency Committee views that if the supply stability surcharge fails to function as a production incentive, it may also limit the policy goal of securing supply stability. The pharmaceutical industry consistently points out that the uncertainty is too high to justify additional investment solely to meet the incentive eligibility requirements.

“Market-linked actual transaction pricing system may intensify non-voluntary price competition”

Concerns were also raised regarding the market-linked actual transaction price system.

When asked about the potential impact on corporate competition and distribution strategies if the market-linked actual transaction price system is introduced and the incentive payment rate is expanded from the current 20% to 50% (multiple responses allowed), 91.5% of respondents (54 companies) answered that “profitability will deteriorate due to intensified involuntary price competition.”

Additionally, many responded that changes in sales and distribution strategies would be inevitable, such as ▲the strengthening of healthcare institutions' unilateral bargaining power due to the expanded incentive payments and ▲the increased use of CSOs.

Regarding “Innovation incentives”… “Innovation incentives will decrease in practice” concerns arise

Regarding whether the innovation incentive would provide a meaningful preferential benefit, the most common response was ‘preferential treatment will actually decline’ at 49.2% (29 companies).

Companies giving this response cited reasons including: ▲ Not qualifying for innovation criteria, ▲ Benefits dropping to the 40% range after the incentive period ends, resulting in minimal benefit, ▲ Narrowing of eligibility from the previous 68% incentive group to only the top 30% of companies by R&D spending ratio, ▲ Incentives being temporary, with benefits immediately reduced if R&D investment levels change.

Regarding the validity of the ‘classification criteria and validity of the innovation preferential rate,’ 72.9% (43 companies) answered “not valid.’

Reasons cited included: ▲unreasonable differential application of incentives ▲need to judge innovation criteria based not only on R&D spending ratio but also on the quality of overall research outcomes (e.g., new drug pipelines).

As for improvements needed in the current Innovative Pharmaceutical Company designation criteria, respondents suggested including facility investment, venture investment, number of clinical trials, technology transfers, and patent registrations in the calculation of R&D expenditures.

Additionally, regarding the appropriate bonus period, 32.2% (19 companies) responded ‘3+3 years’.

Policy improvements: flexibility in innovation criteria, funds, and tax support

In response to an open-ended question on additional government support measures needed beyond the current drug pricing reform to promote R&D investment and innovation across the pharmaceutical and biotech ecosystem, the most frequently cited proposal was greater flexibility in the criteria for designating innovative pharmaceutical companies (25 companies).

Additionally, many companies highlighted the need for: ▲Expanding funds and R&D tax credits ▲Supporting investments in manufacturing facilities and quality control ▲Providing preferential treatment for suppliers of essential medicines and exit-prevention drugs, along with support for companies addressing supply instability.

Finally, 50 companies opposed the inclusion of generic drugs in the price-volume agreement negotiations.

Reasons cited included: ▲Generics already have sufficiently low prices, making further reductions double regulation ▲Expanding generic use already contributes to health insurance cost savings ▲Inconsistency with systems in major overseas countries that only apply such measures to new drugs.