We highlight that, despite challenging conditions, South Korea does offer some form of certainty given that the government has yet to initiate fresh rounds of extensive medicine price cuts, providing short-term stability to the pharmaceutical market. Stringent price containment goes against the country's aim to develop its pharmaceutical sector, and therefore in order to foster the sector's growth, potential changes must be made to drug pricing regulation, representing an upside risk to our outlook.
Headline Expenditure Projections
- Pharmaceuticals: KRW16,106.7bn (US$14.45bn) in 2013 to KRW16,543.74bn (US$15.04bn) in 2014; +2.7% in local currency terms and +4.1% in US dollar terms.
- Healthcare: KRW101,672bn (US$91.19bn) in 2013 to KRW108,555bn (US$98.69bn) in 2014; +6.8% in local currency terms and +8.2% in US dollar terms.
In Q2 2014, South Korea ranks fourth out of the 19 countries surveyed in the Asia Pacific region. South Korea's score for its Rewards variable is third to Japan, Taiwan and China, indicating the country's favourable longer-term standing in terms of its pharmaceutical market development. However, we note that risks - particularly in relation to pharmaceutical pricing and reimbursement - will remain present, especially as the population ages and requires more public sector resources.
Key Trends & Developments
- In January 2014, Allergan and Medytox closed the licence agreement that was previously announced on September 25 2013. Under the terms of the agreement, Allergan will pay Medytox an up-front cash payment of US$65mn within seven business days of closing. Medytox has granted Allergan exclusive rights, worldwide outside of Korea, to develop and, if approved, commercialise certain neurotoxin product candidates currently in development, including a potential liquid injectable product.
- In December 2014, the Ministry of Health and Welfare announced that it will implement its market-based actual transaction price (M-ATP) system, effective from February 2014. Following the announcement, six pharmaceutical industry interest groups, including the Korean Pharmaceutical Manufacturers Association, the Korean Pharmaceutical Wholesalers Association, and the Korean Research-based Pharmaceutical Industry Association, released a joint statement objecting to the proposal, stating that it will negatively affect the growth of the pharmaceutical industry.
- In November 2014, Hanmi Pharmaceutical announced that the first fixed dose combination (FDC) drug composed of ARB (angiotensin receptor blocker) hypertension drug and the Statin hyperlipidaemia drug has received marketing approval from the Korean Food and Drug Administration (KFDA) in Korea. The FDC drug, dubbed Rovelito, was jointly developed with Sanofi-Aventis Korea.
BMI Economic View: We see South Korean president Park Geun-hye's three-year economic revitalisation plan largely in a positive light. Of the three economic initiatives, we believe that public sector overhaul, specifically trimming public sector debt, remains the most pressing, but, at the same time, the most attainable, at least in the near term. Despite being in its nascent stages, we believe that successful public sector reforms may provide Park with the necessary political capital to carry out a similar overhaul in the private sector, targeted specifically at the chaebols, which would certainly be a large positive for the country's long-term economic growth trajectory.
BMI Political View: Going into 2014, we expect South Korea's possible entry into the Trans-Pacific Partnership (TPP) to dominate the country's political landscape. While we are yet to be able to ascertain the economic benefits of Korea joining the trade pact, we are of the view that it is likely to be a disadvantage if it chooses not to join the group, given that its regional competitors are seeking entry into the TPP. Meanwhile, nine months into her tenure, President Park Geun-hye's economic transformation efforts have yet to make any meaningful headway. With the political environment becoming increasingly fractious and with Park having already backpedalled on a number of her key campaign promises, she could start to lose the credibility that has, so far, buttressed her political capital.