The South Korean government will delay price cuts on already-listed generic drugs until April next year, a move aimed at closing an administrative gap between the designation of innovative pharmaceutical companies and the start of the price reductions, and at limiting the resulting confusion in the industry.
A working-level consultative body on drug pricing, which includes the Ministry of Health and Welfare and the Korea Pharmaceutical and Bio-Pharma Manufacturers Association, decided at a meeting the previous day to push back the start of price cuts on already-listed generics from the second half of this year to April next year, according to the ministry and industry officials on the 27th. Newly listed generics have been subject to the revised pricing system since this month.
From April next year, prices for already-listed generics will fall to about 51% of the original drug's price, from a current maximum of 53.55%. Prices will then be lowered in stages to 45%, while the second phase of cuts will proceed as originally planned, starting in 2030 and running through 2036.
The schedule for designating innovative pharmaceutical companies also factored into the postponement. The government plans to grant preferential treatment to innovative pharmaceutical companies — those with research and development investment and new drug development capabilities — by applying smaller price cuts than those imposed on other drugmakers. But new designations are due in December, while price cuts on already-listed generics had been set to take effect earlier, during the second half of this year.
That raised the possibility that some companies newly designated as innovative pharmaceutical companies would be subject to the lower prices before qualifying for the preferential treatment. Drugmakers had called for an adjustment to the timeline, arguing that the mismatch between the designation date and the date the new prices take effect could cause unnecessary losses at some companies.
With the price cuts pushed into next year, drugmakers gain about six months to prepare. Industry officials said the policy's impact on earnings had proved greater than expected, forcing some companies to overhaul their business plans for this year. The delay allows them to keep their existing plans in place this year while restructuring cost structures and product portfolios.
The financial burden is also expected to ease somewhat. Because existing prices will apply to already-listed generics for about six months longer, the revenue decline from the price cuts will be pushed back as well. "With the start delayed by about half a year, we can carry out business as originally planned this year, and because existing prices apply during that period, the burden of economic losses will also be reduced," one industry official said.
An emergency committee on drug pricing reform for the development of the pharmaceutical and bio industry, made up of five groups including the Korea Pharmaceutical and Bio-Pharma Manufacturers Association and the Korea Biomedicine Industry Association, had earlier estimated that annual damage to the pharmaceutical industry could reach as much as about 3.6 trillion won ($2.6 billion) if the government's generic price cut plan took effect as drafted.
