Generic pharma companies weigh options to avoid price cuts

MOHW schedules first round of price cuts for listed generics for next April

Drugmakers have eight months to consider whether to conduct bioequivalence studies to preserve prices of approved generics

Surge in bioequivalence studies seen during 2020 drug price reevaluations could recur

Pharmaceutical companies are considering whether to conduct bioequivalence studies to avoid price cuts for their already approved generics. The health authorities’ reimbursement price adjustment schedule has given them time to defend existing prices. This has raised concerns that companies may once again conduct bioequivalence studies on products that are already selling without problems solely to preserve their prices, resulting in a wasteful testing race.

MOHW to begin first price adjustment for listed generics next April…Companies may attempt to avoid price cuts using bioequivalence studies

According to the Ministry of Food and Drug Safety on the 31st, 138 bioequivalence study protocols were approved between January and August this year, averaging 17.3 per month. This represents a slight increase from the monthly averages of 16.4 in 2024 and 16.6 last year.

Monthly bioequivalenc testing in Korea (AI-generated image)

Industry observers expect bioequivalence study activity involving previously approved generics to accelerate once the government’s generic price reassessment gets fully underway.

The Ministry of Health and Welfare recently finalized the price adjustment schedule under the reassessment of listed generics. Price cuts under the first phase will take effect in April next year. Second-phase cuts will begin in October 2030 and be completed in October 2036.

The reassessment is intended to apply the drug pricing system reform, which took effect this month, to generics already listed for reimbursement. Under the revised system, the maximum reimbursement price for both off-patent drugs and generics will be lowered from 53.55% to 45% of the original drug’s pre-patent-expiry price.

The ministry plans to divide existing products into those listed before and after 2012 and gradually adjust their prices to the revised 45% rate. Both generics and off-patent original drugs with listed generics will be subject to the cuts.

The reassessment will adjust prices not only to reflect the lower maximum price but also when products fail to meet premium-price requirements, such as the requirement to conduct a bioequivalence study.

Under the revised pricing system, the discount applied for failure to meet premium-price requirements will increase from 15% to 20%. Since July 2020, a generic has had to satisfy both requirements—conducting its own bioequivalence study and using a registered active pharmaceutical ingredient—to qualify for the maximum price of 53.55%. The maximum price is reduced by 15% for each unmet requirement. A product that meets neither requirement is therefore subject to a 27.75% reduction. Applying the 15% discount lowers the 53.55% maximum to 45.52% when one requirement is unmet and to 38.69% when both are unmet.

Under the new 45% pricing benchmark and 20% discount, the maximum price will fall to 36% when one requirement is unmet and to 28.8% when neither requirement is met. This translates into a 20.9% cut from the current price for a generic failing one requirement and a 25.6% cut for one failing both.

From the company’s standpoint, therefore, they must face a 20.9% price cut for generics that have not undergone bioequivalence testing.

The ministry plans to announce the generic price reassessment schedule this month. Products subject to the first adjustment phase will consequently have 8 months until their prices are reduced next April.

Companies have begun reviewing the profitability of generics in their portfolios that face substantial cuts because bioequivalence studies were not conducted. For example, if accepting a price cut for failure to satisfy a requirement would significantly damage a product’s profitability, a company may consider conducting a bioequivalence study to avoid the reduction.

Thousands of price cuts made after 2020 reassessment…Confusion over bioequivalence studies for listed generics may recur

Industry observers warn that the confusion seen when the prices of approximately 8,000 generics were reduced in two rounds in September 2023 and March 2024 could recur.

On Sept. 5, 2023, prices were cut by up to 28.6% for 7,355 generic products. This was the result of the first generic price reassessment initiated in 2020. In June 2020, the Ministry of Health and Welfare announced a plan to reassess maximum reimbursement prices. Under the plan, generics that did not meet the premium-price requirements could preserve their existing prices by submitting documentation showing completion of a bioequivalence study and use of a registered active pharmaceutical ingredient by the end of February 2023. This was a follow-up measure designed to apply the new pricing system, introduced in July 2020, to previously listed generics.

At the time, most of the 7,355 products were subject to a 15% cut. Numerous products had their prices reduced by 15% because they had not undergone bioequivalence testing. The reduction exceeded 20% for 145 products, including 125 products that received cuts of more than 27%. These products met neither of the two reassessment requirements and therefore had to accept price cuts approaching 30%.

In March 2024, reimbursement prices for another 948 products were reduced by up to 27.9% in the second round of the generic price reassessment. Additional cuts were applied to products newly brought under bioequivalence testing requirements, including sterile formulations such as injectable drugs.

At the time, prices were reduced by up to 27.4% for 125 products containing Artemisia asiatica ethanol extract, with an average cut of 14.5%. The extract is the active ingredient in a botanical drug developed from mugwort. The originator product, Stillen, is used to improve gastric mucosal lesions, bleeding, redness, and edema associated with acute and chronic gastritis.

Price cuts were applied to 94 Stillen generics and 31 high-dose Stillen 2X generics. Stillen and Stillen 2X products had been approved on the basis of comparative dissolution and disintegration testing rather than bioequivalence studies. Because they failed to meet the bioequivalence testing requirement, one of the conditions for receiving the maximum generic price, all of the generic products were subject to cuts. Of the 125 affected products, 108 received a 15% reduction for failing to meet the bioequivalence study requirement.

At the time, the pharmaceutical companies had little choice but to accept the cuts, as it was difficult to establish equivalence for botanical products with a bioequivalence test comparing blood concentrations of their active ingredients.

There are now concerns that the revised pricing system, which further lowers generic prices, could trigger another wave of bioequivalence testing intended to preserve reimbursement prices.

During the previous reassessment, companies generally declined to conduct bioequivalence studies for low-selling generics and accepted the 15% reduction. However, with the maximum generic price falling sharply and the price cut for products without bioequivalence data steep, critics say the vicious cycle of unnecessary spending to preserve prices could return.

In fact, during the previous reassessment, pharmaceutical companies initiated bioequivalence studies specifically to maintain prices, creating unnecessary social costs.

The number of approved bioequivalence study protocols rose 81.4% from 178 in 2018 to 323 in 2020. It increased further to 505 in 2021, nearly triple the 2018 figure.

This produced the unusual phenomenon of companies initiating bioequivalence studies even for generics that had already been approved, solely to avoid price cuts. The strategy involved developing a generic version, conducting a bioequivalence study and obtaining equivalent results, then using a post-approval authorization process to avoid the price reduction. In some cases, companies switched from outsourced production to in-house manufacturing and changed their approvals to satisfy the bioequivalence testing requirement. This was why approved bioequivalence study protocols surged in 2020 and 2021.

After the generic price reassessment ended, the number of approved bioequivalence studies declined to 296 in 2022 and 229 in 2023, returning to more typical levels with 197 in 2024 and 199 last year.

The number of products recognized as bioequivalent on the basis of studies conducted directly by the applicant also more than doubled, from 81 in 2019 to 168 in 2020. This increase is believed to reflect the growing number of companies that conducted bioequivalence studies on previously approved generics in preparation for the price reassessment.

Monthly directly conducted bioequivalence tests (AI-generated image)

Pharmaceutical companies complained that conducting such studies on approved generics amounted to an “unnecessary waste of money.”

Their argument was that it was wasteful to spend substantial sums on repeat bioequivalence studies solely to preserve reimbursement prices when the products had already been recognized as safe and effective by the government and were being marketed without any issue. A single bioequivalence study is reported to cost as much as KRW 500 million or more. Some companies therefore have and may well spend tens of billions of won on bioequivalence studies for previously approved generics.

Some observers, however, expect that the number of bioequivalence study attempts will not surge because companies have only 8 months between the government’s reassessment notice and implementation of the price cuts. The 2020 reassessment took more than 3 years from the announcement to the cuts. By contrast, companies are considered more likely to conduct studies for products whose price reductions are scheduled for 2030.

Companies must also prepare for the risks they would face if a bioequivalence study of an approved generic failed to demonstrate equivalence.

In July 2020, the Ministry of Food and Drug Safety formally announced that products found non-bioequivalent in studies conducted to preserve their prices would be prohibited from sale and recalled. The ministry established a principle of taking measures, including recalls, based on the Class III risk criteria for products that fail to demonstrate bioequivalence.

Also, other outsourced products manufactured at the same facility as a non-bioequivalent generic would also be highly likely to face recalls. For example, if one contract manufacturer supplies the same generic to 10 companies and one product produces a non-equivalent result, the other nine outsourced generics may also be suspected of failing to meet standards.

Many pharmaceutical companies therefore opted to accept price cuts because of the substantial risks associated with unsuccessful bioequivalence studies.

An industry official said, “Among the products whose prices were reduced during the previous generic price reassessment because bioequivalence studies had not been conducted, companies will be calculating the reduction rates and sales volumes to determine whether studies would be worthwhile. We are contemplating ways to minimize losses resulting from the price cuts.”