Market access for U.S. and other multinational research based pharmaceutical firms has
deteriorated significantly over the past year. Despite the promise of some courageous
reform measures implemented in 1999 and 2000, consideration for patient well-being
including access to innovative pharmaceutical products are being sacrificed in an
emergency effort to shore up the health care funding deficit. Many measures are
formulated without consultation and good faith dialog with physicians, industry and other
Since 1995, Korea’s expenditures on healthcare have outpaced insurance fund
contributions. In early 2001, surpluses accumulated before 1995 were eroded and the cost
of reforms accentuated the situation resulting in a roughly 4 trillion won (US$3 billion)
deficit. The Minister of Health was dismissed and a health insurance fund stabilization
package was formulated and announced in late May. Some of the measures proposed
were appropriate but politically unpopular. Many others, such as reference pricing,
would seriously damage patient health while providing no net savings to the healthcare
As a general theme, the multinational pharmaceutical industry has been a target of
discriminatory cost containment measures. Ironically, per capita spending on
pharmaceuticals in Korea remains low compared to other industrialized countries. The
OECD average per capita spending on pharmaceutical products is approximately US$240
while Korea spends less than US$115. The total pharmaceutical market in Korea is
valued at approximately US$3.8. Multinational’s share of this market is only about 30%
where most countries lacking a research based domestic industry would average 50-70%.
Pharmaceutical spending thus may not be a fruitful area for resolving the funding crisis’
particularly innovative and higher quality multinational products that occupy the smallest
share. Attempts to greatly restrict the use of or adjust the price of innovative products
can be interpreted as an attempt to protect domestic producers from international
competition, lack of fortitude to address bigger issues of mismanagement and fraud or
The U.S. industry urges the Korean Government to consult frequently and thoroughly
with all stakeholders in the healthcare system in order to resolve problems and to
formulate a long-term, comprehensive plan for a better healthcare system. Virtually all
industrialized countries have faced healthcare funding deficits as bad or worse than the
one faced by Korea. Demand for quality healthcare will only continue to increase as
Koreans continue to become more affluent. Cost containment will never fully resolve the
issue. The Korean Government should address the need for increased healthcare funding
and foster the necessary political debate to decide whether supplements come from fee
increases in existing insurance, larger contributions from general tax revenues or optional
private health insurance.
1. ACCESS AND PRICING
1) Patient Access Restrictions
Despite gaining regulatory approval from the KFDA (Korean Food and Drug
Administration) for the use of a product in a specified disease state and limited to the
constraints as specified in the package insert, additional restrictions on the approval for
reimbursement are being unilaterally imposed by HIRA (Health Insurance Review
Agency). In almost all cases, a scientific rationale for the patient access restriction is
absent and the company is not consulted nor even notified of the review and final change
(e.g., COX II inhibitors). This situation greatly limits physicians’ freedom to prescribe
the most appropriate medicine and increases patient morbidity and mortality. Confusion
and concern results when one arm of the government approves the use of a product while
the other arm does not allow utilization of the product for the officially approved
This non-transparent form of cost containment must be addressed. It most often affects
innovative products marketed by US and other multinational companies and may infringe
on intellectual property rights and violate other trade agreements.
Guidelines for patient reimbursement access of products should be consistent with
the KFDA approved label;
Any change to patient reimbursement access due to label changes should be
subject to a transparent review process conducted by HIRA where all stakeholders
have a chance to be heard. The review process must also have an effective
2) Fair Reimbursement for Innovative Medicines
Based on a bilateral understanding with the US Government, prices for innovative drugs
are to be set at the ex-factory average price of the so-called A7 (Advanced) countries.
Detailed regulations exist to govern this process but recently examples have emerged
where price approvals for innovative, patented compounds have been frustrated despite
submission of appropriate documentation and good faith efforts by the companies
involved (e.g., Glivec). Dangerous precedents could be set if transparent, fair and
consistent implementation of A7 is not honored. International trade disputes and a drastic
curtailment in the introduction of advanced medicines to Korea are a possibility if current
trends are not corrected. Further opportunities for improved transparency include
definition in the regulation for ‘significantly improved new drug’, acceptance and prompt
processing of applications that meet all documentary and evidentiary requirements and
provisions to address foreign exchange devaluation.
Existing regulations should be revised in consultation with industry and the US
Government to clarify use of ex-factory information from A7 countries. The
regulation should accommodate special situations where standard in-country
margin structures do not apply and provide a means to systematically update
standard percentages applied to all other products;
If a product has been approved as a ‘new drug’ by the Commissioner of the
KFDA in accordance with Article 2, Paragraph 12 under the Pharmaceutical
Affairs Act, it should be entitled to price determined by the average of the ex-
factory prices of the A7 countries;
Provisions for foreign exchange fluctuations should be added to the regulation.
3) Evaluation of Appropriate Drug Use
As part of HIRA’s cost containment efforts, a new system was implemented to evaluate
the use of antibiotics, injectable and so-called ‘expensive’ drugs by provider class (e.g.,
clinics, general hospitals or medical centers). If a provider uses a higher amount of any
drug category than indicated for their class, their reimbursement claim will be rejected.
While HIRA’s definition of ‘expensive’ drugs is not fully clarified, our current
understanding is that the methodology simply looks at the per unit cost of capsule, tablet
or injection with no regard for duration of therapy or medical consequences (e.g., side
effects). In such a situation, a once a day therapy would be deemed expensive when
compared to generic therapy that might require multiple doses per day which might cost
more in total with greater risk of side effects and lower efficacy.
This system has a disproportionate effect on advanced new medicines by referring only to
cost without giving legitimate care about the safety, efficacy, and quality of drugs. We
are concerned that this may lead to undesirable trade friction, as it will function in a way
to unfairly discriminate against use of innovative drugs while incentivizing use of non-
bioequivalent cheaper local copy products.
The ‘Expensive Drug Cost Index ‘does not have any medical evidence or
scientific rationale. Therefore, for the benefit of Korean patients, HIRA should
withdraw the use of the so-called expensive drug cost index and amend the
evaluation system accordingly.
4) Strengthening Implementation of ATP (Actual Transaction Pricing)
Under the Korean Government’s system of ATP, the price for medical insurance
reimbursement should be the same as the ex-manufacturer price to medical institutions
and is regularly adjusted based on periodic price audits conducted by HIRA. This system
has worked to improve the healthcare system by eliminating inappropriate margins
earned in the prescribing and dispensing of drugs. However, to reap the full benefit of
ATP, the Korean Government should strengthen penalties for those corrupt institutions
that request non-transparent rebates and those that offer non-transparent margins to
promote their products.
The industry supports the recent proposed changes in ATP to exclude government and
public hospitals from ATP audits related to prices offered for competitive bidding. This
will hopefully promote healthy price competition without penalizing winning bids with a
nation-wide reimbursement cut to the new lower price. However, the U.S. industry is
concerned about the other measures and practices.
Offering profit incentives to hospitals in the form of price discounts and extra margins
only encourages excessive prescribing and dispensing of older, generic and often less
effective products in lieu of innovative, more cost-efficient drugs. Also, the methods by
which price reductions are determined by HIRA audits are neither consistent nor
transparent. In some cases, the price cuts are applied to non-audited brands that have the
same active ingredient.
This type of reference price reduction may unfairly penalize pharmaceuticals that do not
have given margins. Lastly, discounts given to wholesalers for normal and customary
commercial practices such as price volume or prompt payment should be exempted from
Administrative penalties for ATP violations should be replaced with criminal
penalties and HIRA audit resources should be added to wipeout continued corrupt
non-transparent rebates and margins;
HIRA audit procedures and documentation used to justify price cuts should be
made available to the company involved with a formal and transparent appeals
Any reference price style price cuts or special incentive margins for providers
should be stopped immediately;
ATP regulations should be amended to exempt normal and customer business
discounts to wholesalers;
Any attempt to revert to the old ‘listing price’ system should be strongly resisted.
5) RP (Reference Pricing)
As part of the health insurance stabilization proposal made by MHW in May, ‘German
style’ reference pricing was to be introduced in Korea. Based on recent public statements
from MHW, it appears that full-scale implementation will be indefinitely postponed.
However, a pilot program may be considered as a first step. Based on the failure of
reference pricing in many other countries, the industry fears RP would be used as a tool
to further discourage use of advanced medicines as there was no plan to exempt patented
Formally abandon all efforts related to RP;
Should MHW decide to conduct a pilot program for RP, the US industry insists
that prior consultation regarding the design of the program take place with all
stakeholders. It is crucial that the details of any pilot create valid comparisons to
outcomes of a control group. Other areas of consideration include definition of
therapeutic groups, methodology for computation of reference standard price,
duration of pilot and comprehensive evaluation methods beyond simple price-
related measures including health outcomes;
Patented products should be excluded from any RP pilot program.
6) Limitation on Private Health Insurance
Under current Korean Government regulations, citizens cannot obtain true private health
insurance that can cover the full cost of medical expenditures. Medical savings type
accounts with predetermined fixed payments should a specific illness occur, are marketed
for some disease states e.g., cancer. However, true insurance covering fee for service
expenditures regardless of illness or injury are not available. As mentioned in the
introduction to this chapter, optional private health insurance could be an important
means to access needed funding to maintain the quality of healthcare for Koreans who
chose to invest in such coverage.
Private health insurance coverage should be allowed in Korea to help keep up
with the continued increase in demand for quality healthcare.
1) Unnecessary Limitations on Clinical Studies
The KFDA’s current Safety and Efficacy Regulation does not provide for a Clinical
Study Authorization (CSA), which is common in most developed countries. As such,
conducting multinational clinical trials using a drug still in the developmental stage is
slow and difficult compared to other countries. KFDA states that an Investigational New
Drug (IND) approval is possible within 60 working days. To date, the U.S. industry has
experienced delays typically in the range of 4-5 months to get IND approval. In addition,
the IND submission requirements are excessive, and KFDA needs to clarify and simplify
approval for the importation of standardized comparators or placebos utilized in such
trials. The current requirements significantly reduce the ability of Koreans to participate
in multinational trials and slow the process effectively, creating a barrier for innovation.
The U.S. industry is also concerned about restrictions on patient access to
pharmaceuticals for clinical trials. The MHW classifies a drug for use in Phase I through
III clinical trials conducted during the developmental stage of a compound as being
exempt from the policy of separation of dispensing and prescribing of pharmaceuticals.
This exemption allows a hospital pharmacist to manage drug dispensing under the
supervision of the clinical investigator. However, in the case of a Phase IV trial typically
conducted after a compound has received Institutional Review Board (IRB) approval,
study subjects must purchase the study drug in an independent pharmacy. This
requirement makes it virtually impossible to conduct meaningful Phase IV trials in
Korea. Multinational Phase IV studies typically require the importation of standardized
comparators or placebos to ensure the validity of the trial results; KFDA’s current
regulations do not permit this practice.
Adopt CSA in order to accelerate and simplify IND authorizations. IND
requirement should be limited to the company’s global clinical investigator
brochure and protocol. Approval should take no longer than 60 days;
SDP regulations should be amended to allow for Phase IV trials.
2) Ethnic Clinical Data (ICH E-5)
International standards exist for evaluation of clinical trial information related to potential
differences in safety or efficacy of a drug due to ethnic differences. By this standard
(ICH-E5: International Conference on Harmonization Section E-5), drugs are considered
not ethnically sensitive unless a characteristic of a compound is such that a difference
would be expected and is evident in the prior clinical study results. It is a widely known
fact that variability in response to drugs varies more among subjects within a particular
ethnic group than between ethnic groups.
The KFDA interprets ICH-E5 differently, requiring Korean ethnic data to prove ethnic
insensitivity regardless of a compound’s characteristics or if it has been proven that
ethnic differences do not exist in other ethnic (e.g., Chinese or Japanese) groups. This
interpretation results in unnecessary additional clinical trials that add expense and delay
introduction of innovative medicines to patients.
KFDA regulations should be amended to be in full compliance with ICH E-5.
Specifically, non-Korean but Asian data should be accepted;
Expand exemption from submission of bridging data for compounds known to be
ethnically less sensitive;
KFDA should publish statistics on how many regulatory applications required
bridging data for approval and for which compounds.
3) Approval Standards for Generic Products
Korea’s regulatory system for approval of generic products, most of which are produced
by the local pharmaceutical industry, is weak. A manufacturer can present a generic drug
for review supported either by physical samples and data obtained under special
conditions (e.g., laboratory manufacture by highly qualified scientists using specially
purified chemicals) or by information available in the public domain (e.g., journal
publications relating to the originator’s brand). Furthermore, the samples submitted may
not bear any relation to the final product that the manufacturer will eventually
manufacture on a large scale. Therefore, the U.S. industry is concerned that
manufacturers of generics may obtain approvals from KFDA on the basis of
materials/data that may not be representative of the product that is ultimately
manufactured and distributed to the public. These regulatory practices do not generally
follow internationally accepted Good Manufacturing Practices (GMP) and may offer
local generic manufacturers the opportunity for unfair flexibility in pricing and
Upgrade KFDA regulations and standards for the approval of generic products to
internationally acceptable levels. Retest generic products currently marketed
based on approvals from the old standards;
Demonstrated bio-equivalency with the originator compound should be required
for all regulatory approvals.
4) Redundant Testing of Biological Products
Imported biologically based medicines are required to undergo re-testing of three lots for
KFDA registration purposes and subsequent to approval, each new commercial lot is
tested at the time of importation. These tests are not necessary, as each imported lot
receives a certificate of quality assurance from the country of manufacture in compliance
with GMP guidelines. The re-testing is time consuming, wastes costly resources to
produce medicines and is expensive. In the future, local capability to test some of the
more innovative products may not even exist, causing further delays for patients and
unnecessary investment in laboratory equipment.
The KFDA should accept the certificate of quality assurance and eliminate re-
testing. If for some reason this is not possible, an option to have the KFDA
validate the source site laboratory and manufacturing procedures for exemption
of redundant testing could be considered.
5) Unified Monographs for Vaccines and Biological Products
The CM&C (Chemistry, Manufacturing and Control) requirement for vaccines and other
biological medicines must comply with the KFDA’s unified monograph for the
family/category of the respective drug. While the finished product is certified equivalent,
manufacturers may use an alternate process or ingredients to produce the vaccine that
may not be in conformance with the KFDA’s unified monograph. There are still many
difficulties in amending such notification and furthermore the unified monographs
request additional test items to be included which are not performed by manufacturers
who ironically may be the original developer of the product.
KFDA should eliminate the unified monograph requirement and accept the
company’s valid specification and test method.
6) Updates to Label or Package Insert
From time to time, it is necessary to make updates to product labeling information.
Under current KFDA regulations, when a label change is made all products in the market
at every step of the supply change must be updated or sanctions and penalties will be
imposed by the KFDA. This is inconsistent with market practice in most industrialized
With proper use of physician and patient circulars, only products manufactured
after the label change is approved by the KFDA should be required to reflect the
7) Translucent Ophthalmic Containers
Under existing KFDA regulations, all ophthalmic products must be packaged in a
translucent container to facilitate visual inspection for impurities. With the exception of
Japan, Korea is the only country with such a regulation, as it is well known that
contaminants would be microscopic and unobservable to the naked eye. Many
ophthalmic compounds degrade faster in translucent containers and hence cause reduced
shelf life. The regulation increases manufacturing costs and reduces source flexibility.
KFDA should not restrict color of ophthalmic product packaging to translucent
8) Direct To Patient Information
Current regulations prohibit a manufacturer of ethical drugs from providing useful
information directly to patients about their products. Allowing direct information to
patients meets increasing consumer demand for medical information, in a well-controlled
and responsible way and promotes better communication between patients and doctors.
It informs consumers about new treatments and encourages patients to seek medical
attention for conditions or symptoms that might otherwise go untreated, including
asymptomatic diseases. It promotes patient compliance, and persistence, with
recommended treatments resulting in improved quality of life and, in many cases,
minimizing future costly complications associated with many chronic disease states. It
improves the overall efficiency of public health care spending. Since the implementation
of separation of dispensing from prescribing last year, concerns about abuse or misuse of
drugs by patients are no longer supportable. No patient can obtain an ethical drug
without a prescription from a registered physician. The industry, however, advocates
strict disclosure standards in any direct patient regulations to ensure patient safety and to
protect them from unjustified claims.
Ironically, advertising of over the counter drugs (OTC) is allowed and the standards
related to evidence of efficacy are very low. Advertising of broad and vague indications
is also allowed. This practice can lead to false information about the treatment of disease
through OTC drugs, thereby increasing public health risks.
Permit direct to patient information for ethical pharmaceuticals with
internationally recognized standards for disclosure;
Strengthen advertising standards for OTC products to minimize public health
1) Re-testing for Minor Manufacturing Related Amendments
The KFDA requires equivalence data (comparative dissolution data) for minor production
changes such as source, composition or manufacturing method. With a valid certificate
of quality assurance, there will be no significant difference in equivalence data by
definition. This testing is unnecessary, expensive and limits production flexibility.
Eliminate provision of equivalence data for minor production changes where
valid certificate of quality assurance is provided from a GMP source.
2) Product License Holder Manufacturing Limitations
Currently it is not possible for a company to register a product in its name and then have
it toll manufactured by another company. The registration must be in the name of the
manufacturer. This is unusual, compared to virtually all industrialized countries. Upon
conclusion of such toll-manufacturing arrangements, the product license can only be
returned to the original company if the toll-manufacturer voluntarily applies to the KFDA
for such transfer. As these situations mostly refer to foreign companies working with
local toll-manufacturers, this represents a potential trade issue.
KFDA should not require that the manufacturer hold the product license.
3) Importation of Nude Vials
Importation of nude (unlabeled) vials of sterile injectable products for local finishing has
been historically prohibited. Before equalization of reimbursement for both locally
manufactured and imported products in 1999, disallowing nude vial imports worked to
protect local producers. Now, maintaining this limitation unnecessarily restricts
manufacturing flexibility. Most industrialized countries do not restrict nude vial
importation. The KFDA already allows importation of bulk capsules and tablets for final
finishing, which is analogous to nude vial importation for final stage manufacturing.
Expected benefits of such a change include better compliance with label changes,
improved inventory management and reduction in manufacturing lead times.
Eliminate unnecessary prohibition on importation of nude vials for local
Intellectual Property Protection
1) Data Protection and TRIPS Compliance
In order to develop new products for marketing, the research-based industry invests
substantial resources of about U.S. $500-800 million on average, for each successfully
developed drug. The data generated in development are used by the KFDA for
regulatory review to determine the safety and efficacy of a drug and, hence, as a basis for
issuance of a product license.
Under Article 39.3 of the TRIPs protocol to the Uruguay World Trade Agreement,
signatory governments are obligated to provide pharmaceutical data submitted to the
government for approval with protection from unfair commercial use. Advanced
countries, such as the U.S. and the EU, provide a reasonable period of exclusivity to the
data generated in development of original medicines (the OECD norm is 5-10 years
minimum from initial product license). Where regulatory approval is delayed for any
reason and there is no patent property available, (e.g. second indications etc.), a period of
‘data protection’ following expiry of the relevant patent property is applied. As a
signatory to the WTO, Korea is obligated to provide data protection. In addition, in the
1993 Record of Understanding (ROU) with the European Commission related to the
‘Pipeline’ Agreement, Korea is obligated to apply an additional four to six years of
protection in respect of the sponsor’s effort to provide the data required by the Korean
Drug re-examination procedure. However, apart from the protection related to Drug Re-
examination, the Korean Government does not yet have any regulatory provisions that
honor the TRIPs protocol concerning pharmaceuticals.
In 1997, even the indirect protection provided via Re-Examination was rendered
ineffective by the elimination of the appropriate Enforcement Provision of the
Pharmaceutical Affairs Law. Furthermore, KFDA ignored this obligation in the recent
licensing of generic products related to certain patented medicines manufactured by
foreign pharmaceutical companies. Therefore, the U.S. industry is concerned that Korea
may be reneging on its treaty obligations in regard to intellectual property. KFDA’s
position is that effective data protection already exists through active enforcement of
other administrative regulations.
Although Re-examination now appears to have been reinstated, KFDA has no plan to
revoke licenses given to second entry generic products that should have been issued
based on violations of data protection, unless patent infringement itself is proven in the
Korean Court system. Proper data protection should have prevented the registration of
generic products based on the original manufacturer’s data. Often, the injured party is
reluctant to pursue legal action against KFDA since it may need to apply later to KFDA
for product licenses. Moreover, Korean courts have consistently failed to uphold
intellectual property protection in pharmaceutical cases, and the cases often linger in the
court system for several years. Another problem U.S. manufacturers face is KFDA’s
permitting generic competitors to use data from a published journal article to obtain
registration, even though the data in the studies cited were clearly the property of the
originator. KFDA claimed that TRIPs protection does not prohibit the use of publicly
disclosed data for ‘commercial purposes’.
KFDA amended the Pharmaceutical Affairs Law in January 2000, to stipulate the
security of data by government officials, other than in public interest. Under the
amendment, companies must request security for their data when they submit it to
KFDA. While U.S. pharmaceutical firms appreciate this effort to improve data
protection, the amendment does not ensure full and complete data protection.
Comply fully with the requirements for data protection under TRIPs article 39.3,
as applied to exclusivity of data generated in the development of pharmaceuticals;
Provide for immediate resolution of issues and enforcement of data protection.
Korea should comply with TRIPs Article 50, which obligates prompt and
effective provisional measures to prevent patent infringement and for immediate
resolution of issues and enforcement of data protection;
Further strengthen enforcement of KFDA’s obligations to ensure data protection
through a proactive program of enforcement and by the appointment of an
independent ‘ombudsman’ to receive confidential complaints and to conduct
2) Linkage of KFDA and KIPO
The absence of any direct linkage between KFDA and KIPO (Korean International Patent
Office) is another area of concern. KFDA, while assuming responsibility for safety and
efficacy review, apparently has abdicated any responsibility for patent protection and
there is no link between them and KIPO. U.S. and other international companies must
seek recourse retrospectively in the Korean Court system. Given past instances of failure
of companies to receive adequate protection by the Korean courts, our industry would
like to see a prospective system also introduced in Korea, such as that used in the U.S.,
Canada or other similar systems used in many developed countries where a registration
applicant must make a declaration of no infringement at initial filing of their application
with FDA. The Korean Government is in the process of discussing possible
establishment of such a linkage, but remains non-committal to near-term implementation
of such a system.
Implement a system for the administration and enforcement of patent protection
for pharmaceuticals that directly links KFDA’s product registration and KIPO’s
Note: Since many of the market access issues for pharmaceuticals and medical devices
closely correspond, the reader is advised to read this section in conjunction with the
‘Medical Devices’ section of this publication.
1 Pharmaceutical Policies in OECD Countries: Reconciling Social and Industrial Goals, S.Jacobzone, 18
April 2000, Q2 2001 MAT IMS data extrapolation with confirmatory information as published in the
OECD Health Data 2000 report.
2 Pharmacoeconomics 1998; 14 Suppl. 1:9-13, ‘Pharmaceutical Cost Containment and Quality Care:
Conflict or Compromise?’ Heinz Redwood.