|
||||||||
|
|
||||||||
|
Overview
South Korea’s pharmaceutical market – roughly one-tenth the size of Japan’s, has outpaced its larger neighbor in market growth for the past several years. IMS data reveal South Korea’s pharmaceutical industry grew 12.7% in 2001, compared with Japan’s 4.4% increase. The 2002 IMS Market Prognosis Asia report details why South Korea is an increasingly attractive market for multinational pharmaceutical companies.
Reform of South Korea’s Prescription Dispensing System
The South Korean government’s reform effort truly began with the August 2000 Separation of Prescribing and Dispensing Act, or SPD. However, as the IMS report notes, implementing the policy has been a challenge for the government. Traditionally, Korean doctors derived a large proportion of their income from dispensing medicine and strongly resisted the key provision of the SPD legislation removing their dispensing rights. Indeed, though the plan’s main reform provisions include a requirement that outpatients receive their drugs from retail pharmacies -- instead of hospitals and GP clinics – South Korean physicians lobbied strongly for substantial increases in their office and consultation fees to offset this income loss.
The SPD program was not finalized until the South Korean government made concessions to doctors, including a 72% increase in consultation fees for outpatients and a five-fold increase in prescribing fees.
Recent Trends: Rising Drug Expenditures and a Worsening Health Care Deficit
The government’s expectation that SPD would contribute to lower costs by removing the profit motive from prescribing decisions has yet to be achieved, according to IMS’ analysis. At the same time, Ministry of Health and Welfare (MoHW) budget figures reveal that spending on reimbursed drugs rose approximately 25% to Won4,500 billion (approximately $3.7 billion) in 2001, while increased doctors’ fees and substantial dispensing fees for pharmacies (formerly included in the doctor’s margin) have resulted in a worsening of the ministry’s health insurance budget deficit.
On the other hand, recent data suggest that SPD’s impact on the operating environment for pharmaceutical companies has been dramatic. The IMS report reveals that retail pharmacies saw their market share nearly double from 31% in 1999 to approximately 66% in 2001. The bulk of pharmacy gains has come at the expense of clinics and hospital outpatient departments; more strikingly, IMS’ analysis shows that prescription sales through GP clinics have been virtually eliminated since implementation of SPD while the shift of outpatients from hospital departments to get their prescriptions filled at retail pharmacies has seen the hospital market share erode from almost 42% to less than 27%.
Prescribing practices have changed radically in the last two years, with a significant swing away from cheaper generics, which offered attractive margins to dispensing doctors, towards original brands. Not only are doctors prescribing the drug they consider the best available product, but patients are also more aware of the identity of the product being prescribed and doctors are keen to keep patients happy with multinational brands.
Reflecting this preference for foreign brands, seven of the top ten products sold in South Korea during 2001 were produced by global pharma companies, or local licensees, while just three of the top 10 were produced by local firms – Korea Green Cross, Dong A and Il Sung.
| Product (Company) | Sales in Won (billion) | % Market Share | % Change |
| Norvasc (Pfizer Korea) | 70.3 | 1.5% | +51.0% |
| Bacchus-F (Dong A) | 66.0 | 1.4% | +6.7% |
| Albumin KGC (Korea Green Cross) | 40.8 | 0.9% | +8.8% |
| Xenical (Roche Korea) | 160;25.9 | 0.6% | - |
| Taxol (Bristol-Myers Squibb) | 25.6 | 0.6% | +45.4% |
| Adalat Oros (Bayer Korea) | 23.8 | 0.5% | +55.5% |
| Zeffix (GlaxoSmithKline) | 160;22.2 | 0.5% | +20.0% |
| Sporanox (Janssen Korea) | 160;22.2 | 0.5% | -29.5% |
| Amaryl (Handok Aventis) | 160;21.4 | 0.5% | +150.0% |
| Augmentin (Il Sung) | 21.0 | 0.5% | +17.3% |
| Source: IMS |
The South Korea market remains very fragmented however; the top 10 products accounted for 7.5% of the country’s estimated $4 billion pharma market during 2001.
Additional Reimbursement Price Cuts by NHI
With drugs accounting for around 25% of NHI spending, cost-containment measures are likely, including further price controls. The introduction of actual transaction pricing (ATP) in 1999 had some, limited, success in reducing discounts and price levels in the hospital sector. By reimbursing hospitals at the actual price they paid for the drug, ATP removed the profit motive whereby hospitals retained the difference between the discounted price from suppliers and the official reimbursement list price. Reimbursement prices were cut by an average of 30.7% with ATP, and the MoHW has subsequently reduced prices according to discounting levels revealed in regular market surveys.
Price cuts have affected local companies more than multinationals, whose margins to wholesalers (which have a monopoly over the supply of hospitals with more than 100 beds), are kept in close check. ATP has, however, failed to halt discounting, which has been driven under the table, and the system does little to encourage price competition as hospitals have no incentive to choose lower prices.
New initiatives planned
Recognizing that ATP by itself cannot contain the rise in pharmaceutical costs, the MoHW is looking at new initiatives that will influence pricing across the board. A new competitive bidding system for hospital drug purchases, announced in December 2001, is intended to encourage hospitals to purchase cheaper drugs by providing incentives such as a share in the savings. Of greater significance to multinationals, however, is the emphasis being placed on more direct controls on pharmaceutical prices.
The IMS Market Prognosis Asia report also points out that other direct controls on original brand prices are under consideration, including:
Market Forecast
Despite the increasingly tough pricing environment for pharmaceuticals, the shift in market dynamics and prescribing preferences has paved the way for a more favorable operating environment for multinational pharmaceutical companies in South Korea. In 2001, the South Korea pharmaceutical market registered an increase of 12.7% in sales to Won 4,873 billion, or US$4 billion.
If you are interested in purchasing IMS’ Market Prognosis Asia report, contact IMS Marketing Manager, Cristina Cucinotta at Ccucinotta@uk.imshealth.com, or contact your local IMS account team.
