South Korea’s push to cut drug prices to reduce national health insurance spending is sharpening anxiety across the pharmaceutical industry. Companies say a government-driven cut could weaken incentives to invest in research and development for new medicines, and leave smaller firms weighing survival options. With the government and industry still far apart on how deep the cuts should be, attention is turning to upcoming talks at the Health Insurance Policy Deliberation Committee, known as Geonjeongsim.
Industry officials said Monday the government plans to submit a drug-pricing system overhaul to a Geonjeongsim subcommittee meeting Wednesday. The session is expected to reveal the basic framework, including revised pricing formulas for generics and off-patent medicines.
The government previously said it would lower the pricing benchmark for generics from 53.55% of the original drug’s price to the “40% range,” aiming to implement the change in July. But after strong industry opposition, Geonjeongsim in February held off on formally taking up the agenda. With both sides now locked in a tug-of-war over what “40% range” means, the subcommittee discussion is expected to shape a more detailed outline for a Geonjeongsim plenary meeting later this month.
Drugmakers warn that if the rate is set in the low 40% range, it could upend domestic profit structures and reshape investment in new drug development. An industry group, the Emergency Countermeasures Committee on the Drug Price Reform Plan, estimates that applying such a cut to all domestically made prescription drugs last year would result in annual industry losses of up to 3.6 trillion won. One pharmaceutical executive said that if the government pushes through cuts without social consensus, small and mid-sized companies could be left with few options beyond restructuring or mergers and acquisitions.
Some in the industry also fear the gap with global drugmakers will widen. According to the Korea Health Industry Development Institute, the 10 largest global pharmaceutical companies spent a combined $127 billion on R&D in 2023. U.S. drugmaker Merck alone invested $31 billion, accounting for more than half of its annual sales.
By contrast, South Korean sales leaders Yuhan Corp. and GC 녹십자 each invested about 190 billion won in R&D in 2023, roughly 10% of their sales. Compared with Merck’s spending, that is about a 230-fold difference. An industry official said further price cuts would make it “inevitable” that the new-drug development market would collapse.
The market is focused on the size of the cut as the biggest variable. The government is targeting the low 40% range, while many drugmakers are pressing for a softer approach in the high 40% range. An industry official said even a difference of a few percentage points could significantly shake companies’ profit structures, adding that unilateral cuts would make R&D investment impossible.
The Korea Pharmaceutical and Bio-Pharma Manufacturers Association plans an emergency briefing Tuesday to present the industry’s position. The briefing will be led by association Chairman Noh Yeon-hong and board Chairman Kwon Ki-beom, who is also chairman of Dongkook Pharmaceutical.
Some observers say the issue is less the direction of policy than the pace. Jeong Yun-taek, head of the Pharmaceutical Industry Strategy Research Institute, said it is necessary to closely watch the fallout from the Middle East war, and advised adjusting the timeline — including a one-year delay — given instability such as potential disruptions in medicine supplies.
* This article has been translated by AI.
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