The government's recent establishment of a "research and development (R&D) investment-linked drug pricing reimbursement system" to foster the pharmaceutical and biotech industries has drawn mixed reactions within the sector. While larger companies with substantial R&D investments may see limited impact, smaller firms are raising concerns about potential cash flow constraints.

The Ministry of Health and Welfare finalized the “Improvement Plan for the National Health Insurance Drug Pricing System” at the sixth Health Insurance Policy Review Committee meeting on March 26. The plan aims to strengthen compensation for innovation, particularly in R&D, to support a more robust new drug development ecosystem.

The pricing calculation for generic and off-patent drugs will be adjusted from 53.55% to 45%, reflecting domestic drug expenditure structures and international benchmarks. Quality control measures will also be tightened, with pricing adjustment ratios for non-compliance with self-manufacturing and the use of registered active pharmaceutical ingredients reduced from 85% to 80%.

This approach marks a shift away from blanket drug-pricing reduction policies, introducing clearer incentives for companies investing in innovative drug development to foster a virtuous industry cycle.

To enhance rewards for companies contributing to the innovative ecosystem, the government will adjust drug prices for innovative and quasi-innovative pharmaceutical firms to special rates of 49% and 47%, respectively, with special periods of three to four years.

The government anticipates that this pricing reform will enhance public health protection and accelerate innovation in the pharmaceutical industry, thereby creating a virtuous ecosystem that promotes progress.

Companies have shown mixed reactions, with growing calls for government countermeasures.

Larger firms generally view the policy as a potential catalyst for innovation and industry growth, suggesting that reinvesting profits from generic drug sales into R&D could strengthen new drug development capabilities and create a virtuous cycle.

However, smaller companies have expressed concern, noting that the high costs and long timelines associated with new drug development increase uncertainty under the new system.

An employee at a smaller firm expressed concern that the policy could stifle industry-wide growth, warning that declining profitability could push some companies toward bankruptcy and potentially undermine the domestic pharmaceutical ecosystem.

Another industry insider said that despite shrinking profit margins, pharmaceutical companies have continued working to strengthen their technological capabilities without cutting R&D investment, adding that lower drug prices could slow innovation and contribute to a growing sense of crisis across the industry.

Multinational pharmaceutical firms generally support the government's direction on drug pricing reform. They hope the introduction of a dual drug pricing system will alleviate long-standing concerns about being sidelined in the industry.

The Ministry plans to rationally increase the ICER threshold starting next year and to initiate a rapid registration and post-evaluation adjustment track by 2028 to better assess the value of innovative drugs. However, multinational companies stress the need for concrete implementation plans.

A representative from a multinational firm said applying the higher ICER threshold to drugs currently under review, even before related policy research is completed, would be important for patients awaiting coverage decisions.

Proposed changes to the certification system for innovative pharmaceutical companies, including discussion of a separate track for multinational firms, have drawn mixed reactions.

Another foreign company representative said the overall policy direction is positive, noting that global firms are more focused on pricing flexibility and incentives for innovation than on generic drug price reductions. However, the representative added that criteria tied to headquarters-level R&D investment were not reflected and that export volume requirements remain difficult for multinational companies to meet.

Despite these concerns, they hope contributions by foreign pharmaceutical companies, such as government agreements and domestic partnerships, will be taken into account in future evaluations.

The government's recent establishment of a "research and development (R&D) investment-link …

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