While we continue to forecast steady expansion in terms of South Korea's pharmaceutical market values, we note that operating conditions for innovative drugmakers will remain challenging. Indeed, in its 2013 submission to the United States Trade Representative (USTR), the US trade association - Pharmaceutical Research and Manufacturers of America (PhRMA) recommended that South Korea be added to its 'watch list' of countries in 2013. PhRMA's main areas of concern include the lack of effective patent enforcement, vague data protection regulations and the lack of reward for innovation in government pharmaceutical pricing and reimbursement policies. We also maintain that the pharmaceutical industry is in a state of uncertainty due to incessant price cuts, although the new administration has created short-term stability for pharmaceutical firms as it has not actioned a fresh round of mass price reduction.
Headline Expenditure Projections
- Pharmaceuticals: KRW17,534bn (US$15.57bn) in 2012 to KRW18,687bn (US$16.25bn) in 2013; +6.6% in local currency terms and +4.4% in US dollar terms. Local currency forecast broadly unchanged in relation to the previous quarter's projection.
- Healthcare: KRW96,009bn (US$85.25bn) in 2012 to KRW103,207bn (US$89.75bn) in 2013; +7.5% in local currency terms and +5.3% in US dollar terms. Local currency forecast lowered in relation to the previous quarter's projection, on account of macroeconomic factors.
Risk/Reward Ratings: In our Q413 regional ranking tool, South Korea remains placed second out of the 18 countries surveyed in the Asia Pacific region. Its Rewards variable - in terms of both the Country and Industry components - is the best in the region. The country also benefits from a largely transparent operating environment, although some issues remain regarding illegal rebates paid by pharmaceutical firms to healthcare professionals in a bid to boost sales of their products.
Key Trends & Developments
- Novartis Korea recently ended discounts for Glivec (imatinib) in light of the availability of generic drugs in South Korea. The decision to discontinue the Glivec discount programme was made in anticipation of more than 20 pharmaceutical companies planning to introduce generic versions of the drug in June 2013, the official added. The official also mentioned that this decision was driven by a reduction in price due to generic availability.
- The South Korean Public Health and Welfare Committee in Congress was planning to propose a bill delisting drugs related to illegal rebates from the national drug formulary, according to statements made by Congresswoman Nam Yun In-soon in June 2013. As part of the proposal, the government could still cover these drugs in the formulary if their delisting causes public health hazards. Other proposals include launching public pharmacists, packaging controlled substances with controlled substance labels and covering nursing services.
- Around the same time, South Korea's Ministry of Food and Drug Safety (MOFDS) began talks on the combined process of marketing approval, pricing and listing, according to a ministry official. A new drug currently receives marketing approval within 90 days of application submission, after which discussions are conducted over the listing price of the drug. This is expected to reduce the time allocated to the entire process by one month. The MOFDS intends to formulate regulations before end-2013 and initiate the new approval system in 2014, according to the MOFDS official.
BMI Economic View: President Park Geun-hye's reform drive appears to be gaining traction, with a series of changes to corporate investment regulations made in the five short months she has been in office. We believe the measures announced by Seoul on July 12 to boost investment are a structural positive that will provide some measure of economic support in the face of weakening external demand conditions. However, we remain less sanguine towards the government's endeavours for a chaebol shakeup as the tenuous state of the economy and the conglomerates' strong political ties to the administration will make pushing reforms a considerable challenge.
BMI Political View: South Korea is likely to see a renewed push for constitutional change in order to address imbalances in the political system that lead to periodic instability. In addition, owing to the singleterm restriction on the presidency, most presidents typically become 'lame ducks' well before departing office, leaving the country in a state of drift. On the external front, over the coming decade, the possibility that the North Korea will collapse remains the biggest political and economic challenge facing the South, but Seoul has for many years possessed contingency plans to maintain the North as a separate state for some years after any putative collapse so that it can rebuild and reform the North in preparation for eventual reunification.