Korean Government to Strengthen Regulations on Generic Drug Development

As the government is planning to strengthen regulations on the development of generic drugs in the wake of last year's valsartan scandal, industry watchers are speculation whether this could trigger a restructuring of the pharmaceutical industry.

If the government introduces new regulations on the development of generic drugs, small and mid-sized pharmaceutical companies that cannot afford the costs could be eventually eliminated from the market.

Industry sources said on Jan. 7 that discussion is under way among the Ministry of Food and Drug Safety, the Ministry of Health and Welfare, the Korea Pharmaceutical and Bio-pharma Manufacturers Association, and pharmaceutical companies to improve the joint bioequivalence test system. The Ministry of Food and Drug Safety will announce changes in the bioequivalence test as early as this month together with a revised regulation on generic drug development.

In order to obtain a product approval for a generic drug, a drug company should undergo a bioequivalence test that is conducted on healthy adults to compare the absorption and efficacy of the new drug with the original one. A joint bioequivalence test is conducted by two or more pharmaceutical companies, and the number of participant companies is no longer restricted since the regulations were loosened in 2011. This indicates that dozens of pharmaceutical companies can develop identical generics. As a result, the number of generic drugs increased from 186 in 2001 to about 1,000 now.

Critics began to call for restrictions of the joint bioequivalence system after the discovery of carcinogens in valsartan, a raw material used in hypertension treatment. As more than 100 domestic generic drugs have been reported to have used valsartan as a raw material, more people started to support the restriction of a massive joint bioequivalence test. This figure is much higher than that of Canada (28 products), England (8 products), Hong Kong (2 products) and Japan (1 product). In particular, some pointed out that many of the generic drugs launched through the join bioequivalence system are allegedly dependent on drug makers' rebates and disturb the market order.

Small and mid-sized pharmaceutical companies are opposed to the proposed measures because most of them cannot conduct bioequivalence tests on their own due to insufficient R&D manpower and funds. An industry official said, "Some small and mid-sized pharmaceutical companies have no R&D manpower at all. Since the structure and efficacy of generic drugs are the same regardless of the maker, these companies consign the R&D portion to another company and maintain the market share by offering rebates to hospitals and doctors."

However, some of these companies do not even own a plant for production of their own drugs. They change the name and the package of drugs produced by another company and distribute them as different drugs in the market. This became a trigger for the government to consider the revision of the joint bioequivalence system.

In addition, the government also intends to increase the competitiveness of the Korean pharmaceutical industry by helping companies save the cost of rebates and invest the money in R&D instead. The government expects to enhance competitiveness of the pharmaceutical industry by having each company increase investment in R&D of its main drug.

However, small and mid-sized pharmaceutical companies are insisting that such arguments regarding adverse effect of joint bioequivalence on quality of generic drugs and market order are not true and that restriction of joint bioequivalence will only be helping big companies. In addition, they emphasized that when restrictions on joint bioequivalence are implemented, small and mid-sized pharmaceutical companies will have to spend more money on developing the same generic drug.

Won Hee-mok, chairman of Korean Pharmaceutical and Bio-pharma Manufacturers Association, suggested an "1+3 system" to limit the number of companies allowed to participate in a joint bioequivalence test to four. However, large and small pharmaceutical companies are at odds over the issue. It remains to be seen whether the government and organizations can come up with a solution that satisfies both sides.