Summary
South Korea boasts a well-developed pharmaceutical market and a solid business environment, although these attributes have proven insufficient to prevent a number of major multinationals (including giants such as Pfizer, Wyeth and Eli Lilly) from relocating their production facilities to cheaper locations, including neighbouring China. On the other hand, recently announced investment in the country's research and development (R&D) by foreign firms indicate a changing focus of international operations in South Korea. This trend is likely to continue over the coming years, as foreign firms become increasingly exasperated by the cost and red tape hampering clinical trials and other such initiatives in the traditionally used Japanese market.
In the meantime, the strength of the local industry will continue to stimulate further development of the generics market, currently estimated at around 32% of the total by value. Other drivers of growth will include government's cost-containment initiatives implemented to halt the rising health expenditure, partly blamed on arrangements between doctors and multinationals regarding the promotion of expensive products. At the same time, multinationals will be fighting to preserve the exclusivity of their branded products in courts, which face a 20% cut upon patent expiration, although generic competition is inevitable.
In the latest BMI Business Environment Rankings adjusted in Q307, South Korea's position worsened by one place, with the country now slipping to third. While its absolute score improved in light of the improvement in trading and intellectual property (IP) environment, the rise of China to pole position resulted in a downgrading of South Korea. Nevertheless, the country still represents a better long-term prospect than the most developed regional market of Japan.
The conclusion of the free trade agreement (FTA) negotiations between South Korea and the US will encourage further foreign direct investment (FDI), especially in the area of R&D. Local producers also have the opportunity to benefit from a facilitated access to the key global market, which is most likely to be obtained through partnerships and similar agreements with US companies. On the domestic market, local companies are continuing to increase their R&D expenditure for novel drugs and medications, which has resulted in a score of new launches in recent years. However, the saturation of individual market segments - such as erectile dysfunction - will threaten revenues of new products in such therapeutic areas.
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