[Market Pulse]Toward Progressive Transformation of the Innovative Pharmaceutical Company Certification System

Noh Yeonhong, Chairman of the Korea Pharmaceutical and Bio-Pharma Manufacturers Association

The pharmaceutical and bio-pharma industry has established itself as a national asset that protects public health and drives the growth of South Korea, while also being an industry that generates high added value. This achievement is the result of innovative efforts by companies, national interest and support, and the government's policy backing. Given that pharmaceuticals and bio-pharma are highly regulated industries, the "Innovative Pharmaceutical Company Certification System" is widely recognized as a key government policy for fostering and supporting the industry.

This system is operated based on the Special Act for the Promotion and Support of the Pharmaceutical Industry, enacted in 2012, and discussions are underway to improve it in a way that further promotes research and development (R&D) investment from the perspective of regulatory innovation. The industry has consistently suggested improvements, arguing that the rule mandating immediate cancellation of certification if an innovative pharmaceutical company is found to have provided rebates exceeding 5 million won or has received administrative sanctions for rebates more than twice, is an excessive hurdle that does not align with the system's fundamental purpose of encouraging R&D. The government is also pursuing reforms after gathering expert opinions, aiming to create a regulatory environment that fosters innovation and sustainable R&D investment. As a result, the industry welcomes the move and expects rational decisions, although there are some critical voices labeling this as a "policy that loosens restrictions on rebates."

Innovative Pharmaceutical Company Certification System: Discussions on Improvement Amid Contrasting Opinions

Given the existence of contrasting opinions, it is important to examine the essence of the system for productive discussion. The Innovative Pharmaceutical Company Certification System was introduced through social consensus to reinforce the qualitative growth and R&D-oriented structure of the pharmaceutical and bio-pharma industry. The certification process is extremely rigorous. Companies must score highly in all 25 evaluation items, including R&D investment, patent technology transfer achievements, domestic supply of innovative medicines, social responsibility, and corporate management transparency. Once designated as an innovative pharmaceutical company, they receive benefits such as additional points when participating in government-supported R&D, preferential drug pricing, and tax incentives. Encouraged by this supportive government stance, the industry has developed 41 domestically produced new drugs and now possesses over 3,200 new drug pipelines-the third largest in the world-demonstrating its strengthened R&D capabilities.

Therefore, it is reasonable to view the trend of quantifying the disqualification conditions for innovative pharmaceutical companies, as is done during certification, not as "granting privileges to companies," but as a transition to a rational management system that aligns with the system's purpose of driving industrial innovation. Above all, rebates are already subject to strict legal penalties under the Pharmaceutical Affairs Act and the Fair Trade Act. If a rebate is discovered, the penalty is imprisonment for up to three years or a fine of up to 30 million won, and any economic benefits gained through rebates are confiscated. Not only the employees who provide rebates but also the company itself, as well as the doctors or pharmacists who receive them, are subject to the same penalties.

The losses are also significant. If a drug is found to be involved in a rebate, its sale may be suspended or its approval revoked. Furthermore, insurance coverage for the drug may be reduced or suspended. Once coverage is suspended, the drug is stigmatized as a "rebate drug," making it virtually impossible to survive in the market. This essentially means expulsion.

Finding Balance Between Punishment for Misconduct and Rewards for Sustainable Innovation

Developing a new drug requires more than 15 years and nearly 3 trillion won, making continuity in the process essential. Nevertheless, the success rate is only 0.01%, which is extremely low. In such an environment, exclusion from the list of certified companies inevitably undermines R&D momentum, including continuity. Rather than stripping certification and expelling companies from the ranks of innovation, sophisticated supplementary measures, such as introducing a conditional system that reasonably evaluates R&D efforts, are needed. Of course, the revised plan must not grant immunity for rebates, nor should it hinder the future of the industry. A wise balance is urgently needed between "punishment for misconduct" and "rewards that enable sustainable innovation."

The association and the industry are striving to establish ethical management by introducing and operating the Fair Trade Compliance Program (CP) and the International Anti-Bribery Management System (ISO 37001). When the self-regulatory efforts at the industrial level, R&D innovation, and rational regulatory reforms by the government are harmonized, the explosive growth of the pharmaceutical and bio-pharma sector as a global powerhouse will be further accelerated.

Noh Yeonhong, Chairman of the Korea Pharmaceutical and Bio-Pharma Manufacturers Association

Reference image. The Asia Business Daily DB