En masse designation of quasi-innovative pharmas?

Government reviewing preferential pricing for firms with 5–7% R&D ratios

More than 30 companies may qualify…risk of mass designation

Structure merely reduces cuts rather than offering incentives…criticized as “token gesture”

The government is reviewing a pricing incentive scheme for companies deemed equivalent to innovative pharmaceutical firms (“quasi-innovative” companies). Although more than 30 companies are expected to meet the criteria, the actual level of preferential treatment granted to the companies appears limited, leading to criticism that the policy is merely a publicity stunt.

According to industry sources on the 19th, the government is considering establishing a new preferential pricing track for “companies equivalent to innovative pharmaceutical firms (quasi-innovative firms).”

The government’s policy is to review price preferences to enable solid pharmaceutical companies with potential to advance to the level of innovative pharmaceutical firms at an early stage. These details were revealed during the Health Insurance Policy Deliberation Committee subcommittee meeting on the 11th.

The government has proposed R&D investment ratios relative to revenue as the key criterion. Companies with revenue above KRW 100 billion must have an R&D ratio of at least 5%, and companies below KRW 100 billion must have at least 7%. Companies that have received administrative sanctions within the past 5 years under the Pharmaceutical Affairs Act, Fair Trade Act, or Pharmaceutical Industry Act due to rebate-related issues will be excluded.

Companies that meet these requirements will receive preferential drug pricing. Preferential pricing will be applied to newly listed generics, and the duration of this preferential treatment is currently under review to be similar to that for innovative pharmaceutical companies. The government also plans to grant temporary special exemptions when adjusting the prices of already listed drugs.

This plan is interpreted as a response to the pharmaceutical industry’s backlash against the drug pricing system reform draft released last November. At that time, the government proposed applying price discounts of 68%, 60%, and 55% to innovative pharmaceutical companies based on their R&D ratios. However, criticism arose that the benefits would be concentrated among a select few top companies, while most companies would find it difficult to avoid price reductions.

Applying the new criteria would significantly increase the number of companies eligible for preferential pricing.

An analysis of 98 listed pharmaceutical companies classified as pharmaceutical firms on the KOSPI and KOSDAQ that will be affected by price cuts found that 32 companies would newly qualify. This excludes holding companies, R&D-focused biotech ventures, and medical device firms that are not affected by price cuts.

Conversely, 45 companies failed to meet the criteria. The remaining 21 are companies that had previously been designated as innovative pharmaceutical companies.

Among companies with revenue above KRW 100 billion, those meeting the ≥5% R&D ratio include firms such as ▲CMG Pharmaceutical, J▲W Pharmaceutical, ▲SK Bioscience, ▲SK Biopharmaceuticals, ▲Kyungdong Pharm, ▲Kyungbo Pharm, ▲Daehan New Pharm, ▲Dong-A ST, ▲Myung-In Pharm, ▲Samjin Pharm, ▲Sam Chung Dang Pharm, ▲Ahn-Gook Pharmaceutical, ▲Withus Pharmaceutical, ▲Korea United Pharm, ▲Il-Yang Pharm, ▲Jeil Pharmaceuticval, ▲Chong Kun Dang, ▲Kolon Life Science, ▲Hana Pharm, ▲ Hanall Biopharma, ▲Whanin Pharm, ▲Humedix, and ▲Huons. These companies will likely be included as quasi-innovative pharmaceutical companies.

On the other hand, companies such as ▲HLB Pharma, ▲Kwang Dong Pharmaceutical, ▲Kukjeon Pharmaceutical, ▲Kukje Pharm, ▲Dai Han Pharm, ▲Dongkook Life Science, ▲Myungmoon Pharm, ▲Binex, ▲Samsung Biologics,  ▲Samil Pharm, ▲Celltrion Pharm, ▲Sinsin Pharmaceutical, ▲CTC Bio, ▲Arlico Pharm, ▲RP Bio, ▲Yungjin Pharm, ▲Yuyu Pharma, ▲Reyon Pharmacuetical, ▲ Jinyang Pharm, ▲Kips Pharma, ▲Theragen Etex, ▲Pharmgen Science, ▲Hawil Pharm, ▲Hugel have R&D rations belos 5% as of the end of last year or Q3 last year, and fail to meet the threshold. It will be unlikely for these companies to receive preferential treatment during price cuts.

Among companies with revenue below KRW 100 billion, relatively few meet the ≥7% R&D threshold, with only a handful such as ▲Samsung Pharmaceutical, ▲Sam-A Pharmaceutical, ▲Samyang Biopharm, ▲Cellbion, ▲Onconic Therapeutics, ▲ENCell, ▲GL PharmTech, and ▲Prestige Biologics.

In fact, within the same revenue bracket, many companies do not meet the criteria for quasi-innovative pharmaceutical firms. These include ▲JW Shinyak, ▲Kyungnam Pharm, ▲Korean Drug Pharm, ▲Dongsung Pharmaceutical, ▲DuChemBio, ▲Vaskan Bio Pharm, ▲Vivozon Pharmaceutical, ▲Samik Pharmaceutical, ▲Seoul Pharma, ▲Sinil Pharmacuetical, ▲Icure, ▲Aprogen Biologics, ▲L&C Bio, ▲Optus Pharmacuetical, ▲Ilsung IS, ▲Cho-A Pharm, ▲Telcon TF Pharmaceutical, ▲TDS Pharm, ▲BNC Korea, ▲ Union Korea Pharm, ▲ Korea Pharma, among others, which have R&D ratios below 7%, making it highly likely they will not receive preferential treatment in the event of drug price reductions.

Industry observers emphasize that the actual level of pricing incentives matters more than the number of eligible companies. Even if many firms qualify, limited incentives could render the policy merely symbolic.

In the revised reform plan, the government proposed a 60% pricing premium for innovative pharmaceutical companies when listing new generics, with the preferential period extended to up to 4 years. For quasi-innovative companies, a lower level of benefit is expected.

It is reported that the government is considering a preferential level of around 50% for quasi-innovative companies. Given that generic prices are currently set at around 58.55%, this implies that price reductions would still be unavoidable even with preferential treatment. The relatively short preferential period of 1+3 years is also criticized as insufficient to provide meaningful incentives.

An industry official commented, “The introduction of criteria for quasi-innovative pharmaceutical companies and pricing incentives is positive in itself. However, in reality, it is more of a structure that reduces the extent of price cuts and is far from being a true incentive. It is a scheme designed to include a large number of companies for the sake of appearances, while in reality, it forces them to lower drug prices.”