Domestic DMFs lose ground despite pricing incentives

Only 22 ‘fully domestic’ DMFs registered in the first half…below the five-year half-year average

Industry remains unconvinced despite reimbursement premiums of up to 10 years…“Cost gap is impossible to overcome”

China and India sourced DMFs account for 88% share… other countries, including North America, Europe, and Japan falls to 7%

Despite the government's efforts to encourage the use of domestically produced active pharmaceutical ingredients (APIs) through pricing incentives, the pharmaceutical industry remains largely unconvinced.

The number of domestic Drug Master File (DMF) registrations in the first half of this year remained at a level similar to last year and fell below the half-year average recorded over the past 5 years, prompting criticism that more practical and effective policies are needed to promote API localization.

According to the Ministry of Food and Drug Safety (MFDS) on June 22, a total of 434 new DMFs had been registered as of June 19 this year. Of those, only 22 were registered by companies located in South Korea. The figure includes only fully domestic APIs, for which the entire manufacturing process, from starting materials and intermediates to the final API, was carried out within Korea.

This is similar to the 22 registrations recorded in the first half of last year and the 21 registrations in the second half of last year. However, compared with the average of 28.3 registrations per half-year over the past 5 years since the first half of 2021, the number has actually declined by 6 cases. Compared with 41 registrations recorded in each half of 2021, when the COVID-19 pandemic fueled calls for greater self-reliance of APIs, the current level is nearly half.

The downward trend remains evident even when the scope is broadened to include partially domestic DMFs, in which at least one stage, from material, intermediate, to final API, is manufactured in Korea. The number of partially domestic DMFs in the first half of this year was 29, down 5 cases from 34 during the same period last year and about 6 below the 5-year half-year average of 36.6.

When considering how the Ministry of Health and Welfare announced a pricing premium ‘up to 10 years’ under its pharmaceutical pricing reform for drugs using domestic APIs,  this decline has drawn criticism that the system has little practical effect.

The government had pledged substantial pricing incentives for products considered strategically important for strengthening domestic API self-sufficiency. While generic drug pricing rates are set to fall from 53.55% to 45% of the original drug’s price, premiums equivalent to 68% will be granted to ▲ supply-stabilization medicines produced using self-manufactured APIs, ▲national essential medicines using domestic APIs, and ▲ self-manufactured injectable antibiotics and pediatric medicines.

Previously, such incentives applied only to newly listed products, but the revised policy will also apply retroactively to already listed products. For both essential medicines produced using domestic raw materials and those that utilize locally sourced API, the basic 10-year preferential pricing period will continue if additional requirements are met and the supply remains limited to three or fewer companies.

Despite the prospect of reimbursement incentives lasting more than a decade, industry response has been lukewarm. Industry observers note that the government's pricing premium is insufficient to offset the overwhelming manufacturing cost gap compared with when using Chinese and Indian APIs.

In fact, registrations of Chinese and Indian APIs surged to the second-highest level on record during the first half of this year.

Of the 434 DMFs registered during the period, 381 originated from China or India, accounting for approximately 88% of the total. This is the second highest over the past 5 years, following a 90% share in the first half of last year. Chinese and Indian DMFs accounted for roughly 60% of registrations until 2022, exceeded 70% in 2023, and surpassed 80% in the first half of last year.

Meanwhile, API supply diversification has deteriorated significantly. The share of APIs sourced from regions outside Korea, China, and India, such as North America, Europe, and Japan, had exceeded 30% as recently as the first half of 2022. However, the figure has steadily declined and now stands at just 7% in the first half of this year.

An industry official criticized, “Considering labor costs, raw material procurement expenses, and environmental compliance costs, the production cost of domestic APIs is uncompetitive compared to those from China and India. The modest premium proposed by the government is nowhere near enough to provide pharmaceutical companies with an economic incentive to shift away from their existing China- and India-based API supply chains.”

The official added, “The pricing reform still lacks clear subordinate regulations or guidelines regarding how the origin of starting materials and intermediates will be recognized. As a result, there is considerable confusion in the industry over exactly how much localization is required in order to qualify for preferential pricing.”