Korea-EU FTA to put Seoul at public health crossroads

Pharmaceuticals might not have been the most discussed sector before the Korea-European Union Free Trade Agreement came into effect from July 1.

However, it is forecast to have a huge influence on public health since the deal is deeply connected to drug pricing of original drugs and will eventually affect national health insurance finance.

“It will be a great opportunity for both sides,” said Friedrich-Wilhelm Gause, CEO of Bayer Korea and chairman of the European Union Chamber of Commerce in Korea’s pharmaceuticals committee.

In his interview with The Korea Herald, Gause said Korea may host more clinical research from global drug makers.

“Korea has shown remarkable improvements in conducting clinical tests from multinational firms ― it is already among the top five in the world. It is a global trend that many companies upgrade their clinical and regulatory affairs departments in Korea. With the deal, there will be more opportunities,” he said.

It seems evident that the EU, with powerhouses such as Bayer, GlaxoSmithKline, Roche, Lilly and more, sees the agreement as a great business opportunity, which makes a sharp contrast with the gloomy view of domestic pharmaceutical firms.

The abolishment of the current 8 percent-tariff benefit many European firms armed with the cutting-edge original drugs while Korean firms, which hold their strength in generics, will be hit hard. According to the Ministry of Health and Welfare, the deregulated trade deal is expected to inflict 27.4 billion won losses a year to Korean firms, of which 90 percent of revenue comes from generics production.

But the real anxiety lies on whether the request for stronger protection on intellectual rights such as patents, may hinder the development of domestic firms.

Gause was stern and eager to protect the intellectual property once the market widely opens for his members. Last Friday, his committee, alongside 19 other industrial sectors at the EUCCK, called for the Korean government to ensure three principles: transparency, consultation and non-discrimination.

It said, “There still appears to be residual policies and tactical decisions employed to favor Korean companies and local manufacturers.” The committee urged the government to put significant price difference between patented-protected originals and their respective generics; give accessible and transparent information about the reimbursement guidelines for new or innovative drugs as well as marketed drugs.

The committee, represented by Gause, claimed that patent and data protected drugs should be exempted from price adjustment of the market oriented average transaction pricing system, under which the government gives incentives to hospitals that purchases drugs lower than net price. “Moreover, pharmaceutical companies should have access to the evidence to base the proposed price cuts and appeals procedures should be possible,” Gause said.

The chairman explained that pharmaceuticals was one of the most high-risk business areas. “You invest now and you might collect some revenue in the next 11 to 13 years ― that is, if your project makes all the way into the actually manufacturing and winning approvals from drug authorities,” he said.

“We manage to release less than one new or innovative drug a year. And there are always chances of domestic generic industry’s premature patent challenge,” he added.

Gause said there was the possibility that the firms would launch new drugs but would not apply for the endorsement of the national health insurance system if their demands are not fulfilled. This could even hit the nation more since only those who can afford the drugs could get them because they are not covered by the state insurance scheme.

“It is time for the Korean government to choose. Are they willing to guarantee more new and innovative drugs to the public by increasing the healthcare expenditure from the current 6.5 percent of GDP? Or will more people have to buy private insurance premium?” he said.

“But it is a good thing that a relevant discussion has initiated. Now there is no way to escape,” he said.

By Bae Ji-sook (baejisook@heraldcorp.com)