Generic drug mkt dominated by "CDMO·multi-product entries"

An issue has been identified in the research commissioned by the Ministry of Health and Welfare (MOHW) before the drug pricing reform

Increased percentage of low-revenue products and products under contract manufacturing…despite differential drug pricing, pharmaceutical expenditure increased

Ki-Hyun Bae, an administrative officer, stated, "Reducing the calculated amount is the first step toward improvement."

Academic conference hosted by the Korean Academy of Social and Administrative Pharmacy.

A research project commissioned by the Ministry of Health and Welfare (MOHW) before the recent drug pricing system reform identified 'long-listed, multi-product pharmaceuticals' as a primary cause of overall inflation in pharmaceutical expenditures in South Korea.

Increased contract manufacturing has led to an abundance of low-revenue, marginalized products. The average annual reimbursement per individual items posted less than KRW 1 billion, even for active pharmaceutical ingredients (APIs) with substantial claim amount.

On June 12, key findings from the MOHW-commissioned research were presented at the Korean Academy of Social and Administrative Pharmacy's academic conference.

According to the study, national expenditures on generics surged by 60% between 2017 and 2024, increasing from KRW 7.7661 trillion to KRW 12.4409 trillion, a net increase of KRW 4.7 trillion. This represents a 46.2% share of total pharmaceutical spending.  

Eun Mi Bae, a professor at the Korea University College of Pharmacy, explained that an analysis of the top 20 active ingredients by generic expenditure revealed an average of 83.4 individual products per ingredient. Professor Bae noted that medications that have been listed for an extended period predominated, with an average listing duration of 16.7 years.

Within the top 10 therapeutic categories by National Health Insurance spending, dyslipidemia treatments consistently ranked number one from 2017 through 2024. Furthermore, the category expenditure expanded 2.2-fold relative to 2017 levels, reaching KRW 2.78 trillion in 2024.

The researcher also emphasized the critical need for closer regulatory oversight as fixed-dose combination (FDC) therapies increasingly become mainstream.

Professor Bae said, "Combination therapies are actively prescribed for chronic conditions. Within the statin market segment, sales of combination therapy products officially eclipsed those of monotherapy agents in 2023."

The report further evaluated past regulatory interventions, specifically the differential generic pricing policy based on criteria requirements and the primary re-evaluation scheme, concluding that they yielded no statistically significant impact on reducing overall pharmaceutical expenditures.  

Professor Bae said, "The pharmaceutical expenditure share of the group satisfying both the in-house bioequivalence and DMF registration criteria skyrocketed from 15.4% to 32.4%. While the policies successfully induced market restructuring, neither the differential pricing model nor the re-evaluation measures delivered a meaningful downward impact on overall drug expenditures."

Contract manufacturing explodes from 44% to 63% over 7 years…Proliferation of low-revenue products under KRW 1B 

The generic pharmaceutical market remains dominated by larger corporations with annual revenues exceeding KRW 80 billion. This segment commands nearly 80% of total insurance reimbursement claims, and its market share is expanding steadily.  

The generic claim amount percentage for pharmaceutical companies with revenues exceeding KRW 80 billion increased from 71.9% in 2017 to 83.6% in 2024. In contrast, the market share for firms generating less than KRW 80 billion contracted from 24.3% to 12.4% over the same period.

Furthermore, the proportion of generic drugs in total insurance billing for designated "Innovative Pharmaceutical Companies" decreased from 49% to 37% during this period.

Professor Eunah Han said, "Generics constitute up to 78% of the products sold by companies with revenues exceeding KRW 80 billion. However, individual items with annual billing under KRW 1 billion make up the largest proportion of their portfolios. Furthermore, since contract-manufactured items account for 57.7% of the portfolios of these larger corporations, even big corporates lack clear strategic differentiation."  

The report clearly documented a dramatic upward trend in sub-consigned production. The proportion of contract-manufactured items escalated sharply from 44% in 2017 to 63% in 2024. Although the absolute number of registered products increased, their share of total reimbursement billing grew marginally, moving from 30% to only 35%.

This data indicates that low-revenue, marginalized products heavily drove market expansion. In therapeutic categories characterized by intense multi-product entry, an average of 54 distinct brands competed head-to-head for market share.

The high reliance on contract manufacturing means operational disruptions at a single manufacturing facility can instantly trigger widespread supply vulnerabilities across the entire market.

Eunah Han, a professor at the Yonsei University College of Pharmacy, pointed out, "Competitive multi-product market segments represent a small slice (about 15%) of the overall generic therapeutic landscape. Yet, they absorb 60% of total reimbursement claims and contain 60% of all registered products."

The study concludes that slashing generic prices specifically in these competitive, multi-product segments would yield the greatest savings for the national insurance fund while minimizing broader shocks to drug supply and demand.  

"Generic pricing cuts are the starting point…considering follow-up measures, including CSO·Essential medicines"

During the panel discussion at the venue, officials from the MOHW, the National Health Insurance Service (NHIS), and the Health Insurance Review and Assessment Service (HIRA), who spearheaded the pricing reform, met consensus on these structural vulnerabilities.

Jong-hwan Lee, Department head of the Pharmaceutical Reimbursement Evaluation Committee at HIRA, stated, "While foreign regulatory systems continually depress generic prices over time, South Korea links reductions to the Price-Volume Agreement (PVA) mechanism, which results in price drops only when specific sales volumes are cleared. This creates a regulatory blind spot for smaller, low-volume generic medications."

Lee mentioned that "Because the current system links pricing to maximum price rates, if a single product evades post-marketing price controls and sustains its peak price tier, late-entering generics automatically receive high pricing benchmark." Lee emphasized the pressing need to refine post-marketing price controls and initial price calculation metrics.

The NHIS announced it would systematically manage expenditure structures and volume utilization patterns to build a concrete, data-driven foundation for structural improvements.

Hyung-min Kim, Department head of the Department of Drug Management at NHIS, stated, "A significant portion of listed medications are neither actively manufactured nor supplied, which stalls healthy market competition and artificially keeps drug prices high." Kim stated that the NHIS will tighten its monitoring of unmanufactured and unbilled line items.

Ki-Hyun Bae, an administrative officer in the Division of Health Insurance Benefits at the MOHW

Kim added, "While drug pricing drive expenditure growth, volume expansion exert a far greater influence, prompting the agency to continuously track the volume footprints of newly listed generics."

The MOHW stressed that lowering the generic pricing baseline via the recent drug pricing reform is merely the initial phase of system reform. The MOHW revealed it is currently deciding follow-up interventions targeting CSO fees and optimized incentive system for essential medicines.  

Ki-Hyun Bae, an administrative officer in the Division of Health Insurance Benefits at the MOHW, stated, "Adjusting the generic ceiling price down to 45% through the drug pricing reform represents the absolute baseline before executing broader structural improvements. It establishes the groundwork to eliminate redundant expenditures and move forward."

Bae added, "Media reports suggest average CSO commission fees amount to around 37%. Given the findings that individual generic items average under KRW 1 billion in annual billing, it is questionable whether this structure will last," and concluded, "The current situation where no voluntary suppliers step forward for essential medicines while a flood of products clusters exclusively in stable, low-risk market segments remains a critical challenge that the government must continuously resolve."