Navigating Emerging Markets: South Korea

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BioPharm International, BioPharm International-08-01-2013, Volume 26, Issue 8

The bio-pharmaceutical business outlook in South Korea remains positive

South Korea is a rapidly growing pharmaceutical market. Previously considered a developing economy, this country was reclassified as a developed economy in 2010, though it is still considered an emerging market. In recent years, South Korea's high growth rate has continued amid worldwide economic downturns and is expected to continue in years to come. It is estimated to be the fastest growing developed market in the world. Other characteristics, such as recent free-trade agreements strengthening intellectual property rights and an aging population, make the market attractive for multinational companies. There are, however, considerable challenges. While South Korea's overall economy has outpaced other countries in the years since the worldwide economic downturn, rapidly rising healthcare costs caused the government to cut drug prices in 2011. Because the government is the single payer, this rise in costs has had a profound impact. South Korea's new president, Park Geun-Hye, has made building a safe and happy population a centerpiece of her platform. As a result, the Ministry of Food and Drug Safety (MFDS) has highlighted their own goal of becoming an international model for drug safety.

Jill E. Sackman, D.V.M., PhD

South Korea Health and Pharmaceutical Market Overview

The International Monetary Fund (IMF) considers South Korea to be a "graduated" developing economy, with the 15th highest gross domestic product (GDP) per capita worldwide and the 12th highest purchasing power parity (PPP). It is now the fourth largest healthcare market in the Asia-Pacific region, following Japan, China, and Australia (1). According to the Korean Pharmaceutical Traders Association, Japan and China are also the largest buyers of exported drugs from South Korea (2).

Over the last four decades, South Korea's population has consistently migrated from the countryside to cities, especially the capitol, Seoul. With 9.8 million inhabitants at the last census in 2005 and more than 24.5 million people in the surrounding areas, Seoul is the most densely populated city in the OECD. The population is one of the most ethnically homogeneous, but low birth rates and a rapidly aging population have resulted in increasing immigration since 2000, largely from other Asian countries, with government projections that the immigrant population could be as high as 6% in 2030 (3). The government has also created incentives for fertility and adoption in recent years to balance the rapidly aging population.

The bio-pharmaceutical business outlook in South Korea remains positive. (Jason Teale Photography Images)

Population demographics have two particular implications for pharmaceutical companies looking to expand in the region: first the labor participation rates of the Korean population will decrease, and second, the aging population will face greater health needs.

Healthcare is paid for by National Health Insurance (NHI) with financing help from employee/employer contributions and is compulsory. Eligibility extends to all residents of South Korea, regardless of their nationality. This program does require copayments for pharmaceutical products, set at 3540%. Because the copay is a percentage, some individuals also purchase private plans to offset additional costs in the case of expensive diseases such as cancer.

Key Regulatory Considerations


The MFDS has established a number of specific goals for the pharmaceutical industry in South Korea. First, as part of President Park's goal to "open a new era of safe society and happiness for all people," the Minister of the MFDS, Chung Seung, has stated that his goal is "to become a globally recognized nation for food and drug safety" (4). Strategies for his work include promoting consumer participation in safety efforts.

There have also been changes to Korean pricing for drugs that have had the effect of slowing pharmaceutical market growth in recent years. In the past, Korean pharmaceutical companies had primarily focused on generics, with name-brand drugs produced by international companies. In January 2012, in response to rapidly rising healthcare costs, the government announced its plan to cut the price of drugs dramatically once patents expire. Previously, drug prices had been capped at 80% of original prices once the patent expired for original drugs, with generics capped at 68%. The new pricing scheme lowered those caps to a range of 59.5% to 70% for innovator drugs for the first year, and additional cuts after that (5). The stated goals of these cuts were twofold: to reduce the percent of government spending for drugs and to encourage Korean companies to pursue more innovative research. The Ministry of Health and Welfare also pledged financial incentives to companies that make innovative drug development a priority.

The MFDS has also worked in recent years to expand the manufacture of biosimilars. In 2009, the Ministry introduced regulatory guidelines and funding to promote biosimilar development. The stated goal of the government is for South Korea to achieve 22% global market share by 2020. The government's funding has been supplemented with private funding, with investments from companies such as Samsung Electronics ($389 million over five years) (6).

Other regulatory changes include the Korea-US Free Trade Agreement, which went into effect in March 2013. This agreement reduced tariffs between the two countries, and creates additional protection for patented drugs from generics-drug competition by increasing the testing requirements (and associated expenses) for generics and specifies additional data protection requirements.

Implications for Successful Market Entry and In-Region Partnering

South Korea, with its pharmaceutical market ranked in the global top 10 with sales of approximately $16.5 billion in 2011, clearly offers significant business opportunity. Trade has become significantly easier with the recent signing of the South Korea-EU Free Trade Agreement (FTA) in July 2011 and South Korea-United States (KORUS FTA) in March 2012. KORUS is widely seen as the most significant free-trade agreement ratified by the US since the North American Free Trade Agreement (NAFTA). For the US, KORUS-FTA opens up Korea's $1 trillion economy to "America's workers and businesses, while also strengthening our economic partnership with a key Asia-Pacific ally," said US Trade Representative (USTR) Ron Kirk (7). Along with KORUS-FTA, there has also been a significant commitment to strengthening to intellectual property rights and enforcement provisions.

For the biopharmaceutical market, KORUS is important because it not only focuses on intellectual property rights but also establishes discipline in the Korean Government's approach to drug reimbursement and pricing. As a single-payer system, gaining access to the Korean national healthcare system is a crucial element for success in this market.

On a cautionary note, Pharmaceutical Research and Manufacturers of America (PhRMA) CEO John Castellani is on the record as stating that, "while this FTA represents a 21st-century standard that should be a model for other agreements including the Trans Pacific Partnership (TPP), we [PhRMA] are highly concerned that the Korean government has not implemented certain provisions requiring transparency and due process in the manner that Korea prices and reimburses biopharmaceutical products" (8).

Also on the horizon is reform of the pharmaceutical reimbursement process. Recently the national health system announced reimbursement reform aimed at increasing "rational resource use in drug spending" (9). Following policies similar to those set in many EU economies, South Korea's national health system aims to take cost-effectiveness and budget impact of new drugs into consideration in payment decisions. If these policies are implemented, South Korea will be the first Asian country to officially use economic evaluation in healthcare.

Moving Forward in South Korea

South Korea has sustained rapid growth, low debt, and resilience to global financial stress. South Korea's high-quality healthcare system has stimulated demand for medical tourism with strong government support. Implementation of free-trade agreements with the EU and US will likely have a considerable positive impact on the healthcare market through IP protection, opening of access to the single-payer government system, and a reduction in trade tariffs (estimated to eliminate 95% of tariffs within five years). Overall, the pharmaceutical and biotech business outlook in South Korea remains positive.

On the flip side, manufacturers will need to keep a close eye on reimbursement reform as it progresses, and be prepared to provide both strong clinical and economic data to justify pricing and market access.

Jill E. Sackman, D.V.M., PhD, is a senior consultant at Numerof & Associates, Inc. (NAI).


1. WHO, Global Health Expenditure Database, World Health Organisation, 2010,, accessed July 22, 2013.

2. Korean Pharmaceutical Traders Association, Korea's Top 10 Exporting Markets, Korean Pharmaceutical Traders Association (2010),

3. Seo, Eunking. Bloomberg BusinessWeek, (Feb. 21, 2013),, accessed July 22, 2013.

4. Chung, Seung. Minister's Message. Ministry of Food and Drug Safety, 2013.

5. Kim, So-Hyun, The Korea Herald (Aug. 12, 2011),, accessed July 22, 2013.

6. Seo, Eun-kyung, Reuters (July 15, 2009),, accessed July 22, 2013.

7. Office of the United States Trade Representative. Press Release (Feb. 21, 2012).

8. PhRMA. Press Release, Feb. 21, 2012.

9. Yang BM, Bae EY, Kim J. Health Affairs, (2008) Jan-Feb;27(1):179-87. doi: 10.1377/hlthaff.27.1.179.