Korean Pro-Innovation Pricing Steps Draw Mixed Responses

Amid pharma industry’s repeated calls to improve the drug pricing system and properly reflect R&D cost of novel drugs, South Korea released steps that include hiking prices of “global innovative novel drugs” and biomedicines. Response is mixed, with foreign pharmas complaining the steps focus mainly on domestically developed drugs.

SEOUL - South Korea will raise the prices of “global innovative novel drugs” and biomedicines, and shorten the period before national health insurance listing, to provide incentives for R&D spending and the development of local origin drugs aimed at global markets.

In another part of new measures to improve the country’s medicine pricing system, the Ministry of Health and Welfare has lengthened the interval between regular drug price cuts based on market surveys of actual transaction prices (ATPs).

The announcements come amid the pharma industry's repeated demands to properly reflect the value of South Korea-originated novel drugs to encourage innovation and original R&D and appear to reflect some of the key requests made by manufacturers, including raising the starting reimbursement prices of biosimilars relative to their reference drugs.

The industry has long been complaining that South Korea’s drug pricing system – which focuses on improving the national health insurance scheme’s financial standing and budget – is an obstacle to domestic pharmas’ entry into global markets.

Following Hanmi Pharmaceutical Co. Ltd.’s series of major out-licensing deals, which showcased the country’s potential for innovation, and the government’s policy to nurture the biopharma industry as a new growth engine, the ministry has been drawing up the new measures since January.

Discussions were held by a consultative body comprising industry and other experts with the aim of accelerating South Korea originated global drugs and beefing up the international competitiveness of the domestic pharma industry. The latest steps will be implemented in October after revisions to the relevant regulations.

Pricing Revisions

Under the new measures, prices of designated "global innovative novel drugs" will be set 10% higher than the current ceiling reimbursement price of alternative drugs, or existing drugs or treatments used for the same indications.

The definition refers to products that have improved clinical utility and highly contribute to the national health and medical system by way of clinical trials and R&D investment in South Korea.

Oncology or orphan drugs that have received the world's first approval in South Korea but for which there is no relevant evidential data will be exempted from economic evaluation during the reimbursement review. Such evaluation is usually conducted to assess the product's cost versus improved clinical usability.

For defined global innovative novel drugs, the government will also shorten the Health Insurance Review Assessment Service’s evaluation period of reimbursement appropriateness to 100 days from 120 days currently, and the drug price negotiation period to 30 days from 60 days, both to speed up the reimbursement process.

Also for designated drugs, the government will postpone lowering their prices (through the normal regular price reduction system) until their patent expiry.

Biosimilars, Designations

The government has also improved the reimbursement pricing system for biosimilars and biobetters to provide new incentives for development.

Under the measures, the prices of biosimilars that contribute to the national health and medical system will be raised to 80% of the reference original drug’s price, from 70% currently. Prices of biobetters will be set at 100%-120% of reference drug prices, higher than the 90-110% now for incrementally modified drugs.

The government will change the interval of regular drug price cuts based on actual transaction prices in the market to two years, from one year at present.

The government has also designated six additional innovative pharmas that will receive incentives such as preferential drug prices and tax benefits.

The six companies are Dong-A ST Co. Ltd., Dong Wha Pharm. Co. Ltd., Yungjin Pharmaceutical Co. Ltd., PharmaResearch Products Co. Ltd., Pharmicell Co. Ltd. and Corestem Inc.

The new designation has boosted the total number of firms considered to be innovative to 46, including 37 pharma companies, seven bioventures and two foreign firms (Sanofi-Aventis Korea and Korea Otsuka Pharmaceutical Co. Ltd.).

Through these steps, the government expects the number of South Korea-originated global drugs that will receive approvals in the US or EU to rise to 12 by 2018 from just two last year, two South Korean pharmas to be ranked in the top 50 global pharmas by 2018, and eight biosimilars to be developed by 2018 from five as of 2015.

The health ministry said it would continue to pursue policies to improve the drug pricing system taking into consideration strengthening of reimbursement coverage and the global competitiveness of the pharma industry. It will also continue to expand support for innovative pharma firms given that they are playing the leading role in new drug development and entry into global markets.

Device Steps

The new measures also include several steps to speed up the commercialization of selected medical devices.

The government will shorten the period to determine national health insurance reimbursement listing for designated devices to 100 days from 150 days currently, and will allow new devices to be used at certain medical institutions for three years, without NHI coverage, if they lack clinical data for technology evaluation.

For medical activities using cell therapies, the government is aiming to shorten the market entry period to nine months from 13 by conducting approval and evaluation processes at the same time.

The government will also set up a one-stop support body for all cycles - development, approval, evaluation, listing and exports.

Through the measures, it aims to increase the market entry rate of promising medical devices, while raising the number of companies with an annual production value of KRW100bn ($87.2m) or above to five in 2018 from just three last year.

Foreign Concerns

The latest measures drew a mixed response from domestic and foreign pharma firms in South Korea.

The Korea Pharmaceutical Manufacturers Association (KPMA) welcomed the government moves, saying the changes are "reasonable" and will help the industry "expand investments in R&D and speed up entry into global markets."

The KPMA also called for the government to support and nurture the industry via measures that can properly value novel drugs, expand R&D-related tax incentives and give pharma companies freedom to decide on export prices.

However, Korean Research-based Pharmaceutical Industry Association (KRPIA), which represents foreign firms operating in South Korea, raised concerns over the measures, saying they focus mainly on domestically developed novel drugs and raised doubts over their effectiveness and fairness.

“We positively evaluate the government’s will to nurture the pharma industry and welcome the steps to improve biomedicine drug prices and ATP-based price cuts,” said the KRPIA. “But we regret that the measures on global innovative novel drug prices are leading to discrimination of innovative novel drugs.”

The announced steps will be solely applied to domestically developed drugs, while less than half of the new medicines developed by foreign firms are expected to meet the other qualifications which are set irrelevant to innovation, it noted.

From the editors of PharmAsia News.