Global pharmas cautiously welcome pricing reform

Faster listing and higher ICER…Expectations rise for improved access to new drugs

“We agree with the direction, but execution and predictability are key”

“Domestic firms are crying, multinational firms are smiling.” This is the prevailing assessment of Korea’s latest drug pricing reform.

With the reform centered on lowering prices of generic drugs now finalized, Korea’s drug pricing structure is approaching a turning point. While the government has proposed reallocating savings toward rewarding innovative drugs and improving patient access, the industry is also voicing cautious views that outcomes will depend on the system’s effectiveness and execution.

According to industry sources, the Ministry of Health and Welfare finalized the drug pricing reform plan on the 26th through the Health Insurance Policy Deliberation Committee (HIPDC). The reform focuses on lowering the pricing benchmark for generic and off-patent drugs from the current 53.55% to around 45%.

This reform is regarded as significant not simply as a price cut, but as a structural reorganization aimed at strengthening incentives for innovative drugs using the savings generated.

The key lies in resource reallocation. The strategy is to use the funds secured by adjusting the generic-centric pricing structure to lower barriers to reimbursement for new drugs through measures such as ▲faster reimbursement listing of treatments for rare and severe diseases, ▲introduction of flexible drug pricing contracts, and ▲raising the ICER (incremental cost-effectiveness ratio) threshold.

This is interpreted as a response to long-standing criticism that Korea’s pricing system has focused excessively on cost containment, limiting access to innovative therapies.

The Ministry of Health and Welfare also defined the reform as a structural transformation of the pricing system.

The Ministry stated, “By advancing the drug pricing system to the level of major countries, we can enhance public access to treatment and coverage while r reducing drug expenditure burdens. Establishing a compensation system for research and development and efforts to ensure the stable supply of essential medicines will serve as a momentum for the pharmaceutical and biotech industries to take the leap forward.”

Global pharmas express “cautious optimism”…System design is key

Global pharmaceutical companies are generally welcoming the reform. Given that patient access and reimbursement rates for new drugs in Korea have lagged behind major countries, there is an expectation that savings from generic price cuts could improve access to innovative therapies.

The Korea Research-based Pharmaceutical Industry Association (KRPIA), which is primarily composed of multinational pharmaceutical companies, also offered a positive assessment.

The association stated, “he policy reflects a commitment to reflecting the value of innovative new drugs and enhancing patient access. It is crucial whether the reform’s intent is actually realized through system design and implementation,” thereby emphasizing the importance of policy implementation.

This expectation is also supported by data. According to PhRMA’s ‘2023 Global Access to New Medicines Report,’ among the 460 new drugs covered by health insurance worldwide from 2012 to 2021, South Korea’s coverage rate was 22%, falling below the G20 (28%) and OECD (29%) averages.

For innovative cancer drugs, the rate was 23%, and for rare disease treatments, it was just 12%, both significantly lower than the G20 and OECD averages, respectively.

However, global pharmaceutical companies are also expressing conditional caution. While the entry environment may improve, there are concerns that requirements for demonstrating value during reimbursement listing have become more stringent.

An official from a global pharmaceutical company noted, “It is positive in terms of improving access to new drugs and strengthening clinical value-based evaluation. However, the strengthened post-listing price control raises concerns about predictability.”

Another official from a global pharmaceutical company agreed with the direction but raised questions about its implementation.

The official said, “The changes in government perception toward rare and severe diseases are significant. Even drugs under the pilot approval-evaluation-negotiation linkage program are facing reimbursement delays, so concrete execution plans are urgently needed.”

Regarding the increase in the ICER threshold, the official emphasized, “The magnitude of the increase is more important than the direction itself. If implementation is delayed under the pretext of policy research, it will just become another waiting period for patients.”

Institutional issues surrounding global pharmaceutical companies also remain unresolved. Industry feedback regarding the revision of certification criteria for innovative pharmaceutical companies was, “only the name has changed, with limited substantive improvement.”

Apart from the fact that bonus points are awarded for certain factors such as attracting foreign capital, joint research, and open innovation, the assessment is that the industry’s long-standing demand for the inclusion of achievements in attracting headquarter-level R&D investment has not been sufficiently reflected. Furthermore, the fact that indicators, such as the scale of pharmaceutical exports, which are difficult for multinational companies to meet, remain unchanged, poses disadvantages.

While some companies are already expanding cooperation with the government and joint research with domestic firms with certification in mind, the extent to which these efforts will be reflected in evaluations remains uncertain.

An industry official stated, “To foster the domestic biotech ecosystem, collaboration with global pharma is essential. Since the role of domestic branches is crucial in attracting headquarter-level R&D investment, these characteristics need to be reflected in the design of the system.”

Another industry official noted, “The new system is already affecting future pipeline processes. Multinational companies have been strengthening preparations to obtain the Innovative Pharmaceutical Company certification,” suggesting that this reform is bringing about changes in actual business strategies in practice.