The government is wielding excessive power to lower drug prices without recognizing the values of innovative medicines, an expert said.
Kim Sung-ju, an expert advisor for Lee & Ko’s Healthcare Practice Group, published an article in the Korea Pharmaceutical and Bio-Pharma Manufacturers Association’s (KPBMA) policy report on Friday.
Kim pointed out that the government’s drug pricing, which tends to underrate the value of new drugs, will make drugmakers more focused on generic or incrementally modified drugs (IMDs) rather than R&D investment in new drug development. He called for a new system to overcome this problem.
According to a survey of 56 officials handling reimbursement registration at pharmaceutical and biotech firms, conducted by Chung-Ang University College of Pharmacy in April, respondents gave only 1.6 points out of 5 to the government’s new drug value recognition level.
The respondents said that the government repeatedly evaluates health insurance financing for new drugs and tries to lower the drug price gradually.
Some respondents even said that the government’s evaluation aimed to control drug prices only, not to improve the drug cost structure.
“The pharmaceutical industry has repeatedly raised the issue, saying the government controls drug prices excessively,” Kim said.
He said that if Korea wants to become a pharmaceutical powerhouse, the government must improve the insured drug pricing system so that heavy R&D could yield meaningful results.
For the Yoon Suk-yeol government to make the pharmaceutical and biotech industry a main pillar of the Korean economy just like the semiconductor sector did, they need to “analyze the characteristics of the local industry and listen to their voices,” he said.
Kim also noted that the government’s too much intervention in drug pricing would generate an unprofitable market and make conglomerates withdraw from the pharmaceutical industry.
Too many companies left the new drug development market early because it was uncertain to win reimbursement, and the government was forcefully reducing drug prices.
Considering that the industry remains unhappy about drug pricing policies despite repeated revisions, Kim said the industry, not the government, should lead a policy revision.
“In the past, conglomerates invested in pharmaceuticals for future growth but gave up later because of the government’s drug price lowering policy,” he said.
“Not to repeat this problem and to produce a globally competitive pharmaceutical company, the government and the industry should work closely together.”
Government spends only 14.6% of R&D in pharma sector
The KPBMA’s policy report also noted that the government allocated only 14.6 percent of the R&D budget to the pharmaceutical and biotech sector.
According to the KPMBA’s analysis of the 2020 R&D budget at the Ministry of Science and ICT, the Ministry of Health and Welfare, and the Ministry of Trade, Industry and Energy, their R&D budget went to universities the most, with 1.7 trillion won ($1.28 billion) allocated there. On the other hand, research institutes received 640.6 billion won, and companies got 338.1 billion won.
In contrast, semiconductor companies received 47 percent of the R&D budget, followed by research institutes with 24 percent, universities with 20 percent, and others with 9 percent.
For the past decade, the nation’s R&D in healthcare has increased. However, the proportion of healthcare R&D going to applied research decreased from 22.5 percent in 2010 to 15.4 percent in 2019.
“The government and the private sector put a low priority on applied research or translational research, compared to basic research and development research,” the KPMBA said.
Translational research aims to confirm basic research results' clinical usefulness and market value. However, the association said that the R&D failure rate is high and takes time and cost.
“This makes the private sector to be reluctant about aggressive investment. Thus, the government needs to support the sector actively,” it said.
Only 10.7 percent of the projects with initial government support continue follow-up studies. Usually, pharmaceutical R&D goes through basic, applied, and development research. However, after basic research, nine out of 10 projects cannot receive government support.
The KPBMA argued that the government should more than double the proportion of the R&D budget in the pharmaceutical sector from 14.6 percent to over 30 percent.
Also, R&D support should be industry-centered and continuous to help companies develop new medicines successfully.