Reform of the Innovative Pharmaceutical Company Certification System: What Pharmaceutical Companies Should Prepare

According to the plan to improve the drug-pricing system resolved by the Health Insurance Policy Deliberation Committee, the pricing rate for new generic drugs is scheduled to be adjusted from the current 53.55% to 45%.

By contrast, innovative pharmaceutical companies will be subject to a 60% rate, and quasi-innovative pharmaceutical companies to a 50% rate.

In addition, innovative pharmaceutical companies may receive expanded reduction benefits in the course of applying the usage-volume to drug-price linkage system.

For domestically produced drugs, the system is designed so that the preferential period may be further extended.

This proposed reform also includes matters that may affect the maintenance of certification, such as an upward adjustment of the R&D investment ratio, refinement of GMP-related requirements, expansion of quantitative evaluation, and reform of the certification criteria relating to rebates.

Accordingly, innovative pharmaceutical company certification needs to be treated as a management issue that must be reviewed together with the status of R&D investment, the quality-control framework, and the compliance framework.

To encourage continued R&D investment by innovative pharmaceutical companies, the Ministry of Health and Welfare has proposed raising the ratio of R&D expenditure to pharmaceutical sales, one of the certification requirements, by 2 percentage points for each type.

Through its explanatory materials on the proposed amendment, the Ministry of Health and Welfare cited as the background for the amendment that, since the system was introduced in 2012, the R&D investment ratio of domestic listed pharmaceutical companies has continued to increase, and that the scale of R&D investment by innovative pharmaceutical companies in particular has expanded.

However, in consideration of the preparation period for existing certified companies, this provision is scheduled to take effect on the date when three years have elapsed after promulgation.

Therefore, companies planning to renew their certification in the future need to review their R&D investment plans and their investment-ratio management framework from a medium- to long-term perspective.

The proposed amendment establishes a provision dividing innovative pharmaceutical companies into general innovative pharmaceutical companies and foreign-affiliated innovative pharmaceutical companies.

Previously, domestic pharmaceutical companies and foreign-affiliated pharmaceutical companies were reviewed under the same evaluation framework, but the proposed amendment establishes separate evaluation criteria so that the business structure and R&D characteristics of foreign-affiliated companies can be reflected.

This reflects the characteristic that, for foreign-affiliated pharmaceutical companies, R&D and patent rights are often concentrated at the overseas headquarters.

Accordingly, the government has established a framework that can more actively evaluate investment in domestic research and production facilities, joint research, and open-innovation activities.

The current system applies a relaxed R&D expenditure standard to companies that have received a cGMP or EU GMP conformity determination.

However, the current provisions impose no restriction on when the supporting documents are prepared, and it has been pointed out that the relaxed standard can be applied based solely on GMP-related materials obtained in the past.

Accordingly, the proposed amendment provides that, for a company applying for certification renewal to be subject to the relaxed GMP standard, it must submit supporting documents prepared within the three years preceding the expiration date of its certification's validity period.

This proposed amendment includes measures that comprehensively reorganize the certification review evaluation framework.

The existing 120-point framework is adjusted to a 100-point framework, the review items are reduced from 25 to 17, and the minimum certification score of 65 points is specified in the public notice, thereby increasing the predictability of the review criteria.

In particular, some items, such as the scale of R&D investment, the number of clinical trials, and the scale of exports, are reorganized around quantitative indicators.

In addition, a new item is scheduled to be introduced to evaluate corporate activities that contribute to stabilizing the pharmaceutical supply chain.

The government plans to disclose the detailed evaluation criteria in an appended table to the public notice so that companies can use them during their certification preparation.

The current criteria reflect in the review any rebate-related administrative dispositions that occurred within the five years preceding the certification review reference date, and, where litigation has been filed against an administrative disposition, the assessment is made as of the date the judgment becomes final.

Because of this, it has been pointed out that, regardless of when the violation occurred, a prolonged period of litigation may affect the certification review over a long period of time.

Reflecting this issue, the proposed amendment refines the provisions to allow conditional certification for a company under litigation, while permitting the certification to be revoked within a certain period if a judgment dismissing the company's claim subsequently becomes final.

In addition, the related criteria have been refined so that, where dispositions are received separately from the Ministry of Food and Drug Safety and the Fair Trade Commission for the same violation, they are not counted twice.

This reform newly introduces the quasi-innovative pharmaceutical company system.

Quasi-innovative pharmaceutical companies are companies that, although not certified as innovative pharmaceutical companies, carry out R&D investment at or above a certain level.

According to the resolution of the Health Insurance Policy Deliberation Committee, companies with sales of KRW 100 billion or more must meet a ratio of R&D expenditure to pharmaceutical sales of 5% or more, and companies with sales below KRW 100 billion must meet 7% or more.

In addition, companies that have received an administrative disposition on grounds of rebates within the last five years are excluded from eligibility as quasi-innovative pharmaceutical companies.

Where a company is recognized as a quasi-innovative pharmaceutical company, a pricing rate of 50% applies upon the listing of new generic drugs, and, for domestically produced drugs, the company may receive a preferential period of up to four years, the same as for innovative pharmaceutical companies.

A pharmaceutical company first needs to confirm whether its R&D investment ratio meets the amended standard.

Because the Ministry of Health and Welfare is scheduled to raise the ratio of R&D expenditure to pharmaceutical sales, a certification requirement, by 2 percentage points for each type, companies planning to renew their certification in the future should review their related investment status.

In addition, companies need to confirm whether supporting documents from within the last three years have been secured for the application of the relaxed GMP standard, as well as the management status of items subject to quantitative evaluation, such as clinical trials, candidate-substance development, and export performance.

Companies also need to organize supporting evidence for their supply chain stabilization activities and to review, together, whether there are rebate-related administrative dispositions and the validity period of their certification, in order to prepare for the changing review criteria.

Where innovative pharmaceutical company certification is revoked or the certification renewal fails, a company can no longer maintain its status as an innovative pharmaceutical company.

Accordingly, it may be excluded from eligibility for drug-pricing preferences, and it may also find it difficult to receive the reduction benefits associated with the usage-volume to drug-price linkage system.

In addition, because whether a company is certified is sometimes reflected as a review factor in the course of using government R&D projects, policy financing, and various support programs, the related effects also need to be reviewed together.

Because certification can also be used as one of the factors demonstrating R&D capabilities and corporate competitiveness in external cooperation processes such as attracting investment, technology transfer, and joint research, a company needs to continuously manage whether it maintains its certification.