The Korean pharmaceutical industry is at a critical juncture. The government plans to implement a drug price reduction system focused on generics starting in August, citing the sustainability of health insurance finances. The core of the policy is to lower drug prices through adjustments to the prices of identical active ingredient medications, aiming to reduce health insurance costs.
Managing health insurance finances and alleviating the burden of medical expenses on citizens are essential responsibilities for the government. However, policies are not evaluated solely on intent. The outcomes that consider public health and industrial competitiveness are crucial. If repeated price reductions undermine the research and development foundation of domestic pharmaceutical companies and weaken their commitment to new drug development, the potential social costs could far exceed the short-term financial savings.
Many pharmaceutical companies in South Korea have a history of around 100 years. These companies, which have grown by supplying essential medicines to the public since the Korean War, are now attempting to transform into global firms developing biopharmaceuticals and innovative new drugs. The domestic pharmaceutical industry is experiencing a new turning point, with a series of overseas technology exports of locally developed new drugs.
However, new drug development is a high-risk, long-term investment industry. Developing a new drug typically requires over a decade and costs billions of won. Many candidate substances fail during clinical trials, and the probability of success leading to final approval is extremely low. Nevertheless, companies continue their research and development because a successful new drug not only drives sales but also saves lives and serves as a new growth engine for the national economy.
In industries predicated on failure, government policies must create conditions that allow companies to take risks again. However, in a structure where drug prices are continuously lowered, the resources available for reinvestment in research and development will inevitably decrease. Although the government plans to offer price advantages to innovative and quasi-innovative pharmaceutical companies with high research and development ratios in this price reform, if sales decline immediately, mid-sized and small pharmaceutical companies are likely to be the first to cut their research and development budgets. Research and development should be viewed as an investment in the future, not merely a cost. If investment shrinks, new drug development will ultimately come to a halt.
The government should pursue a pricing policy that promotes innovation rather than a uniform price reduction. It should provide appropriate compensation for innovative new drugs, support clinical trials, expand tax incentives for research and development, establish AI-based new drug development infrastructure, enhance data utilization, and improve approval processes. The efficiency of health insurance finances and the competitiveness of the pharmaceutical industry are not mutually exclusive values but rather national tasks that should be pursued together.
Above all, policies must be consistent. It is ironic that while the government is preparing to implement a drug price reform citing the burden on health insurance finances, it is simultaneously proposing to use limited health insurance funds for hair loss treatments. The National Assembly Budget Office has analyzed that applying health insurance to hair loss treatment could result in an additional annual expenditure of up to 160 billion won, depending on the co-payment rate.
The government should not view pharmaceutical companies merely as targets for price reductions. Pharmaceutical companies are on the front lines of public health. Whether in the event of an infectious disease outbreak or when patients with rare diseases seek their last hope, the answer ultimately lies in new treatments and innovative new drugs. New drug development is not just an investment for companies; it is an investment in the lives of citizens and the future of the nation. Creating an environment where companies can boldly challenge research and development without fear of failure is the most certain investment in protecting public health. It is time for the government to shift its policies from a regulatory focus to an innovation-centered approach, enabling domestic pharmaceutical companies with a century of history to grow into leading innovative firms in the global market over the next century.
* This article has been translated by AI.
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