Complete revision to the "Innovative Pharma Company" certification

R&D expenditure ratio to rise by 2%p·separate track for foreign multinational firms…encouraging open innovativeness

Excluding long-dated violations instead of a "points-based scoring system" for rebate cases

"Strengthening predictability for pharmas…evaluation items 25→17, considering simplication and transparency"

The Ministry of Health and Welfare (MOHW) will make administrative move to encourage drug investment by raising the R&D expenditure requirement for "Innovative Pharmaceutical Company" certification.

The MOHW will improve administrative fairness by revising the disqualification criteria related to illegal rebates. Specifically, "rebate violations that concluded more than five years before the point of certification or renewal evaluation" will now be excluded from the review process. The new policy aims to address the irrationality of revoking certifications based on violations that occurred in the distant past. However, the proposed "points-based scoring system" for rebate-related cancellations will not be introduced.

Additionally, the certification track for foreign pharmaceutical companies will be newly established and revised. To encourage foreign firms to host research and production facilities in Korea, attract overseas capital, and engage in joint research and open innovation, the score weightings for these categories will be increased.

Transparency in the certification process will also be enhanced. The minimum passing score for certification (65 points) will be explicitly stated in the official notice, and companies that fail to gain certification will be formally notified of the specific reasons for their disqualification.

The Ministry of Health and Welfare (MOHW) revises the "Innovative Pharmaceutical Company" certification. 1. R&D expenditure ratio will be raised 2. "Rebate violations that concluded more than five years before the point of certification or renewal evaluation" will be excluded from review 3. Foreign company track for Innovative Pharmaceutical Company certification

On the 26th, the MOHW issued a legislative and administrative notice regarding amendments to the Enforcement Decree, Enforcement Rules, and related notices of the "Special Act on Promotion and Support of Pharmaceutical Industry" (the Pharmaceutical Industry Act). The public opinion engagement remain open until May 6.

R&D Expenditure Ratio to Rise by 2%p

First, the R&D expenditure ratios required for the certification and renewal of Innovative Pharmaceutical Companies will be increased. While the ratio relative to pharmaceutical sales will rise by 2 percentage points across the board, the application of this new standard will be 'deferred for three years from the date of enforcement' to allow companies sufficient time to prepare.

Through this administrative move, the MOHW aims to encourage a continuous expansion of R&D investment among certified firms.

Furthermore, the system will now categorize firms into "Innovative Pharmaceutical Companies" and "Foreign Innovative Pharmaceutical Companies" to provide a regulatory system that accounts for the unique characteristics of multinational corporations. The track for foreign firms will be implemented immediately upon announcement.

For companies holding cGMP (current Good Manufacturing Practice) or EU GMP certification seeking renewal under the relaxed "R&D expenditure-to-sales" ratio, they must now submit evidentiary materials prepared within 3 years of the certification's expiration date. 

This administrative move resolves the current lack of a specific timeframe for GMP-related documentation.

The amendments to Enforcement Rules will take effect on the date of announcement and are expected to apply to renewal applications starting in the second half of this year.

Revising 'Rebate Checking Policies' and 'Detailed Evaluation Criteria'

Regarding illegal rebates, the MOHW has decided to exclude violations that occurred more than 5 years before the certification or renewal review.

In cases where administrative appeals or lawsuits are filed, certification can be revoked within one year of the date of dismissal of the appeal or a final ruling against the company.

By maintaining the current revocation structure rather than switching to a points-based system, and excluding violations older than five years, the MOHW aims to eliminate the irrationality of penalizing firms for old actions. This addresses repeated parliamentary criticism that legal stability and predictability for pharmaceutical companies were undermined when certifications were revoked for ancient violations.

The current standards state that administrative actions for rebates under the Pharmaceutical Affairs Act or the Fair Trade Act that occurred five years before the certification review are excluded. However, if a lawsuit is filed challenging the administrative action, the date the judgment becomes final is treated as the date of the administrative action.

Consequently, cases have occurred in which "Innovative Pharmaceutical Company" certifications were revoked due to rebate violations that occurred a long time ago. Criticisms rose from the National Assembly that the predictability and legal stability for pharmaceutical companies are being undermined.

Furthermore, the detailed evaluation criteria for certification will also be improved and will be noted in the appendix. 

The total score will be adjusted from 120 to 100 points, and the number of evaluation items will be reduced from 25 to 17.

Objectivity in certification standards will be enhanced by converting evaluation items, such as R&D investment, the number of clinical trials, and export volume, into quantitative indicators (4 out of 17 items).

Notably, a new category will be established to recognize excellence in social responsibility activities, such as the production and supply of medicines that help stabilize the supply chain.

For the Domestic Innovative Pharmaceutical Company certification standards, the score weightings for items such as partnership·collaboration activities, non-clinical·clinical trials, candidate development, and transparency in corporate management will be increased. Conversely, items such as research personnel, research/production facilities, and R&D strategies will be adjusted downward.

Establishment of Certification Standards for Foreign Innovative Pharmaceutical Companies

Furthermore, based on the types of Innovative Pharmaceutical Companies classified under the Enforcement Decree of the Pharmaceutical Industry Act, detailed certification review criteria for Domestic Innovative Pharmaceutical Companies and Foreign Innovative Pharmaceutical Companies will be separately regulated.

Foreign pharmaceutical companies will be permitted to choose and apply under either the Domestic Innovative Pharmaceutical Company certification standards or the Foreign Innovative Pharmaceutical Company certification standards.

The certification standards for Foreign Innovative Pharmaceutical Companies will have increased weightings for specific items to encourage foreign pharmaceutical firms to establish domestic research and production facilities, as well as to attract foreign capital, facilitate joint research, and promote open innovation.

Given the characteristics of foreign pharmaceutical companies, in which the global headquarters typically holds the technology and patents, the score weightings for items related to the development of non-clinical and clinical trial candidates and to pharmaceutical patent technology transfer performance will be reduced.

Finally, the MOHW will state the minimum passing score of 65 points and mandate that the reasons for failure be specified in notifications to companies. 

These changes will be reflected starting with new and renewal applications in the second half of this year.

Meanwhile, the MOHW plans to systematically analyze the types and capabilities of Korean pharmaceutical and biotech companies and establish a "Strategy for Fostering National Pharmaceutical & Biotech-Industry" within this year.