The Ministry of Health and Welfare has overhauled the certification criteria for innovative pharmaceutical companies for the first time in 14 years, accepting new applications since August 18. The evaluation system has been revised, changing from relative to absolute assessments and reducing the number of evaluation criteria from 25 to 17. Key metrics such as research and development (R&D) investment, clinical trial counts, and export volumes have been converted into quantitative indicators to clarify evaluation standards. The minimum passing score for certification has been set at 65 points, and companies that fail will receive written notification of the reasons for their non-certification, enhancing predictability in evaluation outcomes.
However, the issue lies in the increased R&D investment ratio criteria, which have been raised uniformly without considering the financial capacity of the industry. According to the revised guidelines, companies with an average pharmaceutical sales revenue of less than 100 billion won over the past three years must increase their R&D investment ratio from 7% to 9%, while those with sales above 100 billion won must raise it from 5% to 7%. The minimum R&D expenditure requirement has also been increased from 5 billion won to 7 billion won. The intention is to encourage new drug development by providing price preferences to companies that increase their R&D investments.
Coinciding with a reduction in generic drug prices, the industry views the innovative certification as a crucial survival tool. However, there are concerns that this very metric paradoxically reflects a company's R&D efforts in reverse. Although a three-year grace period has been provided, the fundamental burden of R&D increases disproportionately for smaller companies.
If sales grow faster than R&D investment, companies may find themselves spending more on research and development while their investment ratio decreases. For instance, Hanmi Pharmaceutical reported an increase in R&D investment in the first half of the year, but its sales surged from 571.4 billion won to 692.2 billion won, a 21.1% increase, resulting in a lower investment ratio.
The problem is that companies may appear to be neglecting R&D despite actually investing more. Ironically, faster-growing companies face greater challenges in meeting the price preference criteria.
A representative from a pharmaceutical company stated, "Applying price increases based on R&D investment ratios creates a structure where lower sales are more advantageous. It is unreasonable to intentionally reduce sales to receive price preferences, yet the uniform price increase system is influencing corporate management strategies."
The revision raises the R&D ratio requirement to 9% for small and medium-sized pharmaceutical companies with sales below 100 billion won, and it also evaluates the quality of clinical progress and technology transfer. This dual burden forces smaller companies, which often lack capital, to prove both the scale of their investments and the quality of their outcomes. Coupled with the loophole that reduces the ratio with even slight sales increases, growing companies may find themselves at a disadvantage when seeking certification.
The Korean Pharmaceutical and Bio Association's proposal to subdivide the sales category below 100 billion won and adjust scores based on R&D investment size is a welcome measure. However, merely adjusting the scoring does not lower the fundamental threshold. The basic requirements remain unchanged, with only the scoring steps being more finely divided.
The pharmaceutical industry requires diverse players of various sizes to foster innovation in the long race of new drug development. Sticking to a uniform standard centered on large pharmaceutical companies risks stifling the R&D momentum of small and medium-sized firms that could be the seeds of the next blockbuster drug.
The success of this reform will not be determined by whether a few large companies maintain their certifications, but rather by how many small and medium-sized enterprises can continue to climb the ladder of innovation.
However, the issue lies in the increased R&D investment ratio criteria, which have been raised uniformly without considering the financial capacity of the industry. According to the revised guidelines, companies with an average pharmaceutical sales revenue of less than 100 billion won over the past three years must increase their R&D investment ratio from 7% to 9%, while those with sales above 100 billion won must raise it from 5% to 7%. The minimum R&D expenditure requirement has also been increased from 5 billion won to 7 billion won. The intention is to encourage new drug development by providing price preferences to companies that increase their R&D investments.
Coinciding with a reduction in generic drug prices, the industry views the innovative certification as a crucial survival tool. However, there are concerns that this very metric paradoxically reflects a company's R&D efforts in reverse. Although a three-year grace period has been provided, the fundamental burden of R&D increases disproportionately for smaller companies.
If sales grow faster than R&D investment, companies may find themselves spending more on research and development while their investment ratio decreases. For instance, Hanmi Pharmaceutical reported an increase in R&D investment in the first half of the year, but its sales surged from 571.4 billion won to 692.2 billion won, a 21.1% increase, resulting in a lower investment ratio.
The problem is that companies may appear to be neglecting R&D despite actually investing more. Ironically, faster-growing companies face greater challenges in meeting the price preference criteria.
A representative from a pharmaceutical company stated, "Applying price increases based on R&D investment ratios creates a structure where lower sales are more advantageous. It is unreasonable to intentionally reduce sales to receive price preferences, yet the uniform price increase system is influencing corporate management strategies."
The revision raises the R&D ratio requirement to 9% for small and medium-sized pharmaceutical companies with sales below 100 billion won, and it also evaluates the quality of clinical progress and technology transfer. This dual burden forces smaller companies, which often lack capital, to prove both the scale of their investments and the quality of their outcomes. Coupled with the loophole that reduces the ratio with even slight sales increases, growing companies may find themselves at a disadvantage when seeking certification.
The Korean Pharmaceutical and Bio Association's proposal to subdivide the sales category below 100 billion won and adjust scores based on R&D investment size is a welcome measure. However, merely adjusting the scoring does not lower the fundamental threshold. The basic requirements remain unchanged, with only the scoring steps being more finely divided.
The pharmaceutical industry requires diverse players of various sizes to foster innovation in the long race of new drug development. Sticking to a uniform standard centered on large pharmaceutical companies risks stifling the R&D momentum of small and medium-sized firms that could be the seeds of the next blockbuster drug.
The success of this reform will not be determined by whether a few large companies maintain their certifications, but rather by how many small and medium-sized enterprises can continue to climb the ladder of innovation.
* This article has been translated by AI.
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