Korean Pharmaceutical Industry: Now Fighting a Battle for Its Own Life

Korean pharmaceutical companies are jittery at best these days, if not in panic.  It is the consensus of the people in the business that recent Free Trade Agreement with U.S. will push most small and medium sized Korean pharmaceutical companies over the cliff. Even big domestic ones will no longer enjoy current hefty profits nor are safe.

Almost all Korean pharmaceutical companies have grown by producing generic drugs. There are only 14 new drugs, including IMD (Incrementally Modified Drug) over more than sixty years of Korean pharmaceutical history.  Considering the astronomical R&D costs and over 15 years of new drug development time, 14 of new drugs don’t seem that bad. However, if the two governments sign on the FTA , developing of new drugs may well be the only way to stay alive.

Two Intellectual property articles in the Agreement will impact the business most seriously.

One is that without consent of the patent owner of the product, its safety or efficacy information submitted in support of the marketing approval and evidence of the marketing approval of the patent product will not be accessible to others at least for five years. The other is that in the approval process of generic drug, if the patent owner raises a suit against generic producers of the patent infringement, the approval process will put on hold until the matter resolves. The hold-out would last at least 6 months to much longer as legal suits are generally time consuming process. This means that it will become harder and longer to put generic drugs out in the market, which in turn will substantially shrink revenues.

There are debates over the estimation of Korean pharmaceutical industry’s loss by the FTA between the government, pro-FTA, and the pharmaceutical industry.  It ranges from annually 90.4 ~168.8 million USD by the government and 2 billion USD by the industry. As a survival tactic in this harsh environment of future generic drug market, Korean pharmaceutical companies share the view that eventually producing new drugs is the way to head even if the short-term positioning may vary among the players.

Globalization is unavoidable for survival of countries. Depending on the circumstances of a country, some industries get hurt more than others along the way.  For Korea, pharmaceutical industry may be that unfortunates.  Yet we have seen from time to time that unavoidable changes have transformed a moderate into an exceptional. Could that be the case for Korean pharmaceutical companies?