The Promise of South Korea

In recent years, the Asian pharmaceutical market has assumed considerable importance for global pharma companies. Its improving economic conditions coupled with a large and growing population offer opportunities for pharmaceutical companies in terms of product sales and R&D.

Japan is the most established Asian pharmaceutical market,¹ but cost containment measures implemented by the government to slow health care spending have proved unpopular with the international pharmaceutical industry, and many companies have begun to look to additional national markets in the region. China has received the most interest in the media, largely due to the fact that its economy is growing at a tremendous rate and foreign firms in a variety of sectors, including pharmaceuticals, have invested heavily there. According to The Economist, since 1978 the Chinese economy has grown at an average annual rate of 9.4%.²

South Korea is another Asian country that has attracted the attention of pharmaceutical companies, and the increasing popularity of the country for foreign businesses has largely gone unreported by the media. With a population of nearly 50 million and a GDP per head of around US$14,000, it represents an important Asian consumer base.³ To some extent, the media's enthusiasm for South Korea was dampened by the 1997 financial crisis, which severely dented the country's economic prospects and led to many foreign investors selling their assets.^3,4 According to The Economist Intelligence Unit, although South Korea's economic recovery may be uncertain, the country's foreign-exchange reserves of around US$200 billion make the likelihood of another financial crisis unlikely.³ South Korea's foreign-exchange reserves have been described as the second highest after Japan, among the 30 international member countries that make up the Organisation for Economic Co-operation and Development (OECD).³ From a pharmaceutical company perspective, the South Korean government's renewed focus on health care and demand from the population for new medicines is providing a long-term incentive for pharmaceutical companies to invest in the country.

The growing interest in South Korea is highlighted by the decision to hold the 2006 International Conference on Pharmaceutical Medicine (ICPM: www.icpm2006.org) in the capital Seoul. Representatives from a number of major pharmaceutical companies are on the organizing committee, and the conference is also being backed by the Korean Society for Pharmaceutical Medicine (KSPM: www.kspm.org/) and the Korean Society for Clinical Trials (KSCT: www.ksct.org/). The event will feature three plenary sessions, 11 symposia, and various training courses that will examine pharmaceutical medicine from global, technical, and functional standpoints.

Health care reform and demand

Following the 1997 economic crisis, the South Korean government attempted to repair the damage that the financial uncertainties had caused to the health care system and its funding structures. The National Health Insurance Act, brought in during 1999, aimed to integrate multiple insurance societies into a single insurer system and enhance the equity of financing for health care.⁵ Backed by temporary measures through the 2002 Special Act for Financial Stabilization of National Health Insurance, the government attempted to once again provide comprehensive health care services to the public.⁵

The Health Insurance System of Korea is mandatory for Koreans living in the country except for some Medical Aid beneficiaries. In October 2003, it was estimated that the National Health Insurance (NHI) Program covered 97% of the population⁵ (see Figure 1). The Medical Aid Program, a Korean social assistance program, covered the remaining 3%, mainly belonging to low-income groups. The Ministry of Health & Welfare (MOHW) oversees the operation of the NHI program.⁵

Figure 1. Employees in the public and private sectors covered by the South Korean health insurance program and their dependents.

In a 1999 survey carried out by CMR International, respondents from major pharmaceutical companies predicted that although China would become the Asian region of greatest commercial importance by 2005, South Korea would be the second most important Asian emerging market and that it would retain this market ranking in the long term.⁶ Furthermore, the respondent companies were carrying out an increasing number of clinical trials in these countries in order to satisfy the local regulatory authorities.⁶ Other reasons cited for carrying out clinical trials in South Korea included providing local physicians with experience of the product and generating additional data from postmarketing surveillance work.⁶ Interestingly, some of the respondent companies expressed the view that the requirement for them to carry out additional local clinical trials at the presubmission stage acted as a major barrier to the rapid registration of their product in South Korea.⁶ However, as these perceived barriers were also a feature of other Asian markets such as China, India, and Malaysia,⁶ these factors were not deterring companies from making further investments in South Korea.

A major attraction for pharmaceutical companies has been the separation of medical prescribing and dispensing, which represented a key part of South Korea's health care reforms and began in July 2000.^7-9 This process, whereby there was a shift from dispensing doctor to a retail pharmacy market was strongly resisted by physicians, who had traditionally derived a large proportion of their income from pharmaceuticals.^3,7 According to a 2003 report by the U.S. & Foreign Commercial Service and U.S. Department of State, these measures appear to have benefited multinational pharmaceutical companies. Since the prescribing changes were finally introduced, multinationals have expanded their share of the total South Korean pharmaceutical market from 23% in 2000 to 26% in 2001, and to 29% in 2002.⁸ The report predicted that by the end of 2003, multinationals would achieve a 31% pharmaceutical market share,⁸ and a more recent assessment has suggested a market share of 70% by 2005.³

There have been frequent complaints by foreign pharmaceutical companies about inadequate data protection measures, excessive requirements in the area of clinical trials for their products, and the lack of transparency of the South Korean pharmaceutical pricing system, as they believe that current procedures favor domestic companies.^3,10,11 Both the Pharmaceutical Research and Manufacturers of America (PhRMA), which represents U.S. companies, and The European Federation of Pharmaceutical Industries and Associations (EFPIA), which represents European companies, have lodged official complaints against South Korea's discriminatory trade practices and market access barriers to foreign companies.^10,11 Nevertheless, there remain considerable opportunities for foreign companies due to the strong demand from the population for new medicines.^3,9 According to OECD estimates, pharmaceuticals account for around 30% of health care spending in South Korea, which is considerably higher than the OECD average of 16%.³

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