What to do with the loss of drug price cuts?

Pharmaceutical companies in a hurry

Up to 27.75% drug price cut for 7,677 drugs next month due to re-evaluation of generic drug prices

297.8 billion in annual operating profit evaporated"... Companies are busy preparing measures to make up for losses

Pharmaceutical companies are in deep trouble ahead of the end of generic drug price re-evaluation.

 

As each pharmaceutical company announces drug price cuts for as many as 100 or more products, the atmosphere is concentrating on figuring out the size of the loss.

 

Dissatisfaction with the government's indiscriminate re-evaluation of drug prices is also growing.

 

According to the industry on the 21st, from September 5th, the insurance upper limit of 7,677 generic drugs will be cut by up to 27.75%.

 

The drug price of 7677 items will be reduced by 15% and 256 items will be cut by 27.75%.

 

As the generic drug price re-evaluation, which has been pursued for the past three years, has ended, drug price cuts are imminent.

 

In June 2020, the Ministry of Health and Welfare announced a plan to re-evaluate the upper limit on pharmaceuticals, stating that generics that do not meet the highest price requirement will maintain the previous drug price if they submit data on 'biological equivalence test' and 'registered raw material use' by the end of February this year.

 

The generic drug price re-evaluation is a policy to apply the new drug price system, which came into effect in July 2020, to already-listed generics.

 

In the reformed drug pricing system, generic products can receive the highest price only when they meet both the requirements for direct bioequivalence testing and the use of registered drug substances.

 

Each time one condition is not met, the cap is reduced by 15%.

 

If both requirements are not met, the price is reduced by 27.75%.

 

The submission of generic drug price re-evaluation data was divided into two parts.

 

Among the targets for re-evaluation of generic drug prices, drugs newly included in the equivalence test, such as sterile preparations such as injections, submitted data by the end of July.

 

Initially, a total of 23,630 items were subject to drug price re-evaluation.

 

Among them, about 20,000 products were designated for evaluation, excluding thousands of drugs subject to exclusion from drug price re-evaluation, such as reference drugs, drugs to prevent withdrawal, low-cost drugs, biological drugs, and first-listed products.

 

Among them, as a result of reviewing 16,723 items for which data was submitted by February as they were classified as targets for the first evaluation, 7,677 generic items to be reduced starting next month were decided.

 

This means that one out of two data submission targets has been classified as a drug price reduction target.

 

Pharmaceutical companies are on the verge of losing money due to drug price cuts.

 

As many as 100 or more companies are included in the target of drug price cuts, significant losses are unavoidable.

 

Monthly number of BA test plan approvals (Unit: cases, Data: Ministry of Food and Drug Safety)

Pharmaceutical companies calculated the amount of loss that would occur if drug price cuts were applied, and began to come up with countermeasures.

 

It is expected that there will be no fatal loss because drug availability has been carried out through BA testing for flagship generic drugs with large sales in the pharmaceutical industry as a whole.

 

After the announcement of the re-evaluation of generic drug prices, pharmaceutical companies simultaneously jumped into bioequivalence tests on licensed products.

 

It is a strategy to avoid drug price cuts by creating generics through pharmaceutical research, conducting bioequivalence tests, and obtaining equivalent results by obtaining permission for changes.

 

At this time, if the license is changed while consignment manufacturing is converted to in-house manufacturing, it is a strategy to meet the requirement of ‘conducting BA test’.

 

The health authorities expected an effect of reducing health insurance by 297.8 billion won a year with the drug price cut in September.

 

This means a loss of about 40 million won per item per year.

 

From the perspective of the pharmaceutical industry, the annual operating profit of 297.8 billion won is tantamount to evaporation, so performance deterioration due to drug price cuts is inevitable.

 

It is expected that medium-sized and small-sized pharmaceutical companies that have a lot of consignment-type generics will have many products with reduced prices.

 

In other words, the losses experienced by pharmaceutical companies are bound to be even greater.

 

Moreover, pharmaceutical companies are willing to accept price cuts for many of their products by abandoning bioequivalence testing of consigned generics.

 

Pharmaceutical companies have already predicted huge losses as they inevitably accept drug price cuts when it is difficult to change manufacturers of consigned generics to their own.

 

Expenditures have also increased significantly as bioequivalence tests are conducted at a considerable cost to maintain drug prices.

 

The number of BA test plan approvals increased by 24.7% from 259 in 2019 to 323 in 2020.

 

In 2021, it soared to 505 cases.

 

In order to make up for the losses caused by drug price cuts, the sales field is already fiercely competing.

 

An official from a pharmaceutical company said, “The only way to make up for the loss from drug price cuts is to increase sales.

 

We are in a position where we need to encourage the strengthening of our sales force at the company level.” As a result of the generic drug price re-evaluation, products with 27.75% cuts appeared one after another because they did not meet both standard requirements and pharmaceutical companies are clearly in a panic.

 

It has been reported that despite the efforts of pharmaceutical companies to keep up with the price of generic drugs, products that are classified as targets for drug price cuts have appeared one after another.

 

For example, it is known that there have been quite a few products that have been notified of drug price cuts for not submitting a change permit even though they have completed the BA test and completed their conversion.

 

Some products were classified as subject to price cuts because they could not complete the change approval due to a delay even though BA tests were carried out at a cost of hundreds of millions of won.

 

It is known that some products are classified as subject to price reduction due to a lack of documentation even though the requirements for using registered raw materials have been proven.

 

The use of registered raw materials is a requirement that can be easily met, but the fact that hundreds of products do not meet the price is also a variable that pharmaceutical companies did not expect.

 

An official from a pharmaceutical company said, "We have already incurred a huge investment in BA testing of licensed generics, and if the drug price of products that have not undergone BA testing is lowered, a significant loss will become a reality." “In a situation where profitability is deteriorating due to recent raw material price cuts, if drug prices drop by 20%, products that are contemplating withdrawal from the market are expected to appear one after another,” he said.