Four drugmakers in South Korea have asked a court to halt the average 14% medicine price cuts which the government is set to impose this month.
The Ministry of Health and Welfare (MHLW) has announced that the price cuts will apply to 6,506 medicines, accounting for 47% of all products covered by the National Health Insurance (NHI) scheme. The four firms, which have applied in the Seoul Administrative Court to have the cuts annulled, say that the domestic generics industry is set to be particularly badly hit by the reductions, as they will bring the prices of patent-expired originator drugs down to the level of, or below, those of their generic versions.
In that case, doctors and patients will be more likely to choose the originator drug rather than the generic, The Korea Herald quotes a spokesperson for one of the firms as stating. The newspaper also reports a doctor as agreeing that clinicians generally prefer original products but prescribe generics in order to save money, so once the price becomes equal, they may switch to the original version.
Health and Welfare Minister Rim Chai-min has responded that the reforms are needed to reduce patients' spending on medicines, which has become "excessive," and to protect the NHI fund, which is "at risk of depletion." This eventuality would also endanger drugmakers, so the reform is essential for the industry, in the long run, he said.
However, the MHLW has also pledged incentives to 50 drugmakers - including tax deductions, price rises and other support - if they prioritise the development of innovative medicines, with the aim of creating 12 globally-competitive firms, according to IHS Global Insight.
In addition, the Ministry has also told the manufacturers that they would be able to mitigate the effects of the price cuts if they stopped offering illegal - but widespread - rebates to doctor and hospitals. In a recent decision, the Seoul High Court ruled that companies should have to pay taxes on such rebates and that they could not be classified as sales expenses.
Analysts at IHS Global Insight say they expect the planned price cuts to "adversely affect growth in drug sales and health spending going forward," a concern which is also expressed in a recent report from Business Monitor International (BMI).
"While South Korea's R&D environment may be attractive to investors, its pharmaceutical market environment is rather uncertain, given the dispute between pharmaceutical companies and the government over pharmaceutical price cuts," says BMI.
"We hold to our view that, if the government continues its price cuts, no amount of R&D rebates will be sufficient from the companies' perspective if they cannot receive a fair value for these newly-developed drugs due to the price reductions," it adds.
Nevertheless, BMI still regards South Korea as one of the most attractive pharmaceutical markets, both in the Asia Pacific region and globally, given its large size and the improvements to its regulatory regime required as part of the South Korea-US Free Trade Agreement (KORUS), which entered into effect on March 15.