The Korean government is expected to reform the maximum reimbursement price (“Price”) system for biopharmaceuticals in order to bolster the international competitiveness of Korean biopharmaceuticals.

The Ministry of Health and Welfare of Korea announced the “Reform Plan for Reimbursement Prices of Biopharmaceuticals and Global Innovative Pharmaceuticals” at the Meeting Promoting Trade and Investment on July 7, 2016 (the “Reform Plan”). The Reform Plan intends to grant preferential price treatment to  the  biopharmaceutical  industry  to  promote  development  of  biopharmaceuticals. As such, according to the Reform Plan, the Price of a biosimilar version (the “Biosimilar”) of an original biopharmaceutical, which is already listed on the reimbursement  list  under  the  national health insurance system (the “Original”), is increased by 10%, from 70% to 80% of the Original’s Price, on the condition that the Biosimilar meets certain requirements (discussed below).

The Reform Plan is expected to be implemented this October after relevant regulations are amended. The major details of the Reform Plan are as follows.

1.  Price Increase of Biosimilar

According to the current “Criteria for Decision or Adjustment on Drugs” in Korea (the “Regulation”), in a case where the Biosimilar is launched after the patent for the Original  has  expired,  the Original’s Price shall be automatically reduced to 70% of its initial Price, whereas the Biosimilar’s Price shall be calculated at such reduced standard, i.e., as 70% of the Original’s Price. However, the Reform Plan  implements a  10%  increase to  the foregoing price formula whereby the Biosimilar’s Price is 80% of the Original’s initial Price and the Original’s Price is increased accordingly so that it is 80% of its initial Price.

Nevertheless, in order to receive preferential price treatment under the Reform Plan, the Biosimilar must satisfy certain requirements, including the development by  innovative  pharmaceutical companies or joint development by Korean and multinational pharmaceutical companies and the implementation of clinical trials in Korea. Moreover, the Reform Plan  will  not  be  retroactively applied, i.e., the Original whose Price had already been adjusted to 70% of its initial Price will be excluded from application of the Reform Plan.

2.  Establishment of Preferential Price Standard for Bio-beta

According to the Regulation, the Price of an incrementally modified drug of a chemical synthetic pharmaceutical shall be calculated as 90-110% of a target pharmaceutical for development. The Reform Plan will implement a novel standard whereby the Price of a Bio-beta (i.e., an incrementally modified biopharmaceutical) is increased by 10% from the price standard for a chemical synthetic pharmaceutical, i.e., to 100-120% of a target biopharmaceutical for development.Establishment of Preferential Price Standard for Bio-beta

3.  Preferential Price Treatment for High-Strength Biopharmaceuticals

According to the Regulation, in a case where a high-strength biopharmaceutical, i.e., a biopharmaceutical which has only  increased strength  from an  already listed biopharmaceutical,  is listed on the reimbursement list under the national health insurance system, the Price of such high- strength biopharmaceutical shall be calculated using the strength ratio of 1.75x. The Reform Plan will adjust such strength ratio to 1.9x.