Cost vs. Price
Pharmaceutical companies are complaining that the government’s policy for lower drug prices is making it difficult for them to recover their significant development costs.
One of their examples is Boryung Pharmaceutical’s Kanarb, the first hypertension drug developed by a Korean company. Although it is available at 670 won (US$0.59) per 60 mg, the prices of similar drugs were between 700 and 900 won four years ago, when the price of Kanarb was determined. The company went through six rounds of negotiations with the National Health Insurance Corporation during the price determination, but the price was set at a level lower than those of 10-year-old drugs.
A lower price in Korea inevitably results in a lower price abroad, because the price of an exported drug is based on the domestic price. Boryung Pharmaceutical signed a US$45.8 million agreement with a Turkish company for the exclusive supply of Kanarb in late 2011, but the agreement failed to end in a contract due to matters related to its price.
A new drug price is determined based on, for example, the weighted average price of the medicine expected to be replaced with a new one. But the new drug price reflects 90 percent of the weighted average price, unless it is completely new. The Korean pharmaceutical industry revolves mainly around foreign companies’ original new drugs and Korean companies’ generic drugs. The prices of medicine developed abroad and imported by Korea are minimized by the current drug price determination scheme, whereas relatively generous prices have been guaranteed for generic drugs, so that Korean companies can have an opportunity. As a result, the average new drug price in Korea is now 44.4 percent of the OECD average, and the prices of 74 percent of new drugs are lower in Korea than in any other OECD member country.
“The current system has failed to reflect clinical utility and innovativeness in the drug price,” said Sungkyunkwan University professor Lee Jae-jyun, adding, “The government needs to talk this issue over with the industry so that the system can become more rational.”