South Korea Pharmaceuticals & Healthcare

Summary

South Korea boasts a well-developed pharmaceuticals market. In particular, the over-the-counter (OTC) segment holds a considerable growth potential and is likely to expand to more than 22% of the total by 2010, up from 17% in 2005. The key driver of the OTC segment growth is the more effective separation of prescribing and dispensing. However, BMI cautions that the high consumer marketing costs coupled with relatively low demand may begin to force local companies to shift their focus into potentially more lucrative areas such as prescription drugs.

The multinational sector is proving to be a disappointment, as many leading companies, including Pfizer, Wyeth and Eli Lilly, are closing down manufacturing operations in the country. The emergence of markets such as India and China directly challenges South Korea's position as a cost-effective location for outsourcing drug production. However, South Korea does benefit from an excellent scientific infrastructure and advanced technical capabilities, and this makes the market extremely attractive in areas such as drug development and clinical trials, especially as major pharmaceutical companies increasingly become disillusioned with the cost of undertaking such activities in nearby Japan.

BMI predicts a growth of the South Korean pharmaceutical sector of around 11% in 2006. The market is ranked third in our regional ranking of 14 Asian countries, behind only Australia and Japan. Sales value is likely to approach US$20bn by 2010, boosted by demographic changes and rising healthcare spending. The strong domestic generic industry and the biased regulatory environment will continue to stimulate the development of the low-cost copy drugs, as will the 20% cut in the prices of foreign-made drugs going off-patent. The Ministry of Health is also considering reducing the number of drugs available for reimbursement and paying for only drugs deemed sufficiently cost-effective.

Free trade agreement (FTA) negotiations between South Korea and the US are back under way, potentially providing for a tighter regulatory network and encouraging local investment by multinationals. Negotiations initially stalled after disagreements over pharmaceutical pricing issues - notably including the introduction of a 'positive list' - in August 2006. As Seoul seems unwilling to shift on this point, Washington appears to have accepted some measure of pricing controls. However, US officials are likely to push for reciprocal measures, such as patent term extensions and the introduction of the intellectual property (IP) controls that are stricter than those set out by the World Trade Organisation (WTO)'s Trade-Related Aspects of Intellectual Property Rights (TRIPS) accord.

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