'Receiving recognization of the value of new drugs' is one of the key challenges for pharma and biotech companies.

With the proportion of new drugs being introduced into Korea rising and the number of homegrown new drugs increasing, the need for a drug pricing policy that recognizes the value of these new drugs has been growing.

Recognizing the value of new drugs can lead to a virtuous cycle that drives profits and motivation for subsequent research and development (R&D) in the industry.

The 'Measure to Improve the Drug Pricing System to Reflect the Innovative Value of New Drugs' being discussed in this context has raised industry expectations, promising improved access to innovative new drugs and preferential treatment during pharmacoeconomic evaluations.

However, as the system is being implemented for the first time, a gray zone where the interpretation of the regulations may differ does exist, raising concerns about the system’s practicality. In the long run, it will be interesting to see if the government's intention to reflect the innovative value of drugs translates into the real world.

'Innovation' condition added to the flexible ICER threshold... Will the threshold exceed KRW 55 million?

On the 16th, the National Health Insurance Review and Assessment Service (HIRA) released the 'Detailed Evaluation Criteria for Drugs Subject to Negotiation, including New Drugs', which was revised based on the deliberations of the Drug Reimbursement Evaluation Committee (DREC).

The revisions include ▲ establishment of ICER threshold elasticity evaluation criteria for drugs ▲ addition of severe diseases to the risk-sharing program ▲ omission of the Drug Evaluation Committee when expanding the coverage of risk-sharing drugs under 1.5 billion won ▲ and new conditions for submitting clinical evidence such as RWD and RWE when renewing risk-sharing programs.

The most notable part is that the 'innovativeness of the new drug' standard had been specified in the criteria to flexibly evaluate the ICER (incremental cost-effectiveness ratio) threshold.

Previously, the regulations referred to the use of an ICER threshold as “instead of using an explicit threshold, flexibly refer to the results of previous deliberations considering the severity of disease, social burden of disease, impact on quality of life, and innovativeness.”


In the specified regulations, a new drug is now regarded as ‘innovative’ when it satisfies all of the following criteria: ▲ there is no substitutable or therapeutically equivalent product or treatment ▲ a significant clinical improvement, such as prolonged survival, is recognized in the final outcome, ▲ the new drug is approved by the MFDS under Article 35(4)(2) of the Pharmaceutical Affairs Act through expedited review or is recognized as equivalent by the committee.

The question now is how much of the innovativeness of a new drug can be recognized. The industry believes that Enhertu's case will serve as one reference point.

Although there is no clearly documented figure, it is generally accepted that the maximum ICER granted for reimbursement in Korea is KRW 50 million. And even the KRW 50 million threshold is known to have been granted very few times. The ICER threshold that the government had set for Enhertu is likely in the low KRW 50 million range. In other words, the drug was recognized as cost-effective despite exceeding the ICER threshold.

In this regard, the pharmaceutical industry believes that the ICER threshold should be more flexibly applied given the effectiveness of each drug.

A representative from a multinational pharmaceutical company said, “If a drug has such a good effect that it prolongs survival, the ICER is bound to increase because it is more costly to administer. This should be recognized to some extent, but if the flexible ICER range is in the KRW 55 million range, these good drugs will still have difficulty passing the threshold.”

For example, the ICER threshold should be more reflective of the innovativeness of a new drug that comes out after decades of lack of treatment, or a treatment that has a much better hazard ratio during survival than existing treatments and improves survival by over twofold.


Actual cases of flexible ICER application is key...KRPIA, “Flexible approach adopted by major countries should be considered” 

In particular, the industry predicts that actual cases of application will be important, especially given that many drugs that should be eligible for flexible application of the ICER threshold are awaiting evaluation.

“I think it's positive that the government explicitly stated their intention to recognize innovation compared to how such a wording was non-existent regarding the application of the ICER thresholds,” said an industry representative. “There are about 8 drugs that would want to be recognized for their innovativeness, so we have high hopes for the new direction.”

“However, if the government’s range of flexibility is adding a mere KRW 5 million to the current upper ICER limit of KRW 50 million, a big difference in perspective will remain. The company's efforts are important, but for real-world application, it remains to be seen whether the government will be willing to recognize an ICER threshold of an unconventional level, whether it is KRW 70 million or KRW 100 million.” 

The industry pointed out that there are many difficulties for drugs in passing pharmacoeconomic evaluations, such as the reduction in the price of alternative drugs due to various follow-up measures and DREC’s repeated requests for supplementary data until the desired price level is reached. It is unlikely that a small increase in ICER, which fluctuates greatly depending on the assumptions made, will be enough to get an innovative new drug approved quickly.

The ICER threshold desired by multinational pharmaceutical companies is reflected in the 'KRPIA Policy Proposal for Improving Public Healthcare' that was released by the Korean Research-based Pharmaceutical Industry Association (KRPIA).

In the 'Prospects for New Drug Access Policy' part of the policy proposal, KRPIA suggested that it is not easy to objectively evaluate the effectiveness and innovativeness of new drugs and that it is necessary to consider the flexible new drug evaluation methods of major countries.


In the United Kingdom, “a broad and multi-layered ICER criterion is applied, which considers the disease characteristics, clinical utility, payment value, and societal needs,” and in Canada “ICER is a reference for drug pricing negotiations, and the decisive factor is the level of symptom improvement, and the price of the drug is set at the upper limit of the median drug price in 11 major countries.

In Germany, “pharmaceutical companies may autonomously set the initial price and negotiate reimbursement and discount rates after 1 year by evaluating its innovativeness and usage,” and Japan also adopts a system that evaluates a drug’s innovativeness and assigns an adjusted price.

In consideration of this global trend, KRPIA emphasized that Korea also needs to more flexibly view ICER, etc. to recognize the innovativeness of new drugs.

While the pharmaceutical industry welcomes the inclusion of the 'new drug’s innovative value' and 'expanded coverage for severe and rare diseases' in the government's major policies, the industry is emphasizing the need to set a more specific direction.

For example, Kay Bae, the Chair of KRPIA stated, “While the government's recognition of the value of new drugs is an encouraging achievement, the government needs to come up with more practical and concrete measures so that new drugs can be supplied to patients quickly and lead to a virtuous R&D cycle in Korea.”

The amended system has measures in place that require observation, such as the submission of clinical evidence such as RWD and RWE when renewing RSA contracts. In the long run, the government and the pharmaceutical industry are eye-to-eye in that they believe in the need to recognize the 'innovativeness of new drugs'.

Well begun is half done, and the pharmaceutical industry welcomes the government’s launch of the 'Measure to Improve the Drug Pricing System to Reflect the Innovative Value of New Drugs.’ How well the system is applied and supplemented will remain a future task.