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South Korea Pharmaceuticals and Healthcare Report Q1 2012
Business Monitor International, Nov 2011, Pages: 106
Business Monitor International's South Korea Pharmaceuticals and Healthcare Report provides industry professionals and strategists, corporate analysts, pharmaceutical associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on South Korea's pharmaceuticals and healthcare industry.
BMI View: Unlike some observers, BMI classes South Korea as a developed country and this is underpinned by the balanced risk/reward profile of its pharmaceutical market. Negative attributes include the sub-standard enforcement of intellectual property rights, market access issues and price cuts. South Korea's continuous price cuts will negatively impact the domestic pharmaceutical sector, despite the government's intention to spend more on research and development (R&D). We believe this strategy will fail to boost R&D development as companies are unable to generate significant revenues due to price cuts. Demand for pharmaceuticals will be supported by an ageing population and a culture of medication. The anticipated free trade agreement with the US will be emphatically welcomed by foreign multinational drugmakers.
Headline Expenditure Projections
- Pharmaceuticals: KRW13,212bn (US$11.42bn) in 2010 to KRW13,849bn (US$12.59bn) in 2011; +4.8% in local currency terms and +10.2% in US dollar terms.
- Healthcare: KRW78,425bn (US$67.81bn) in 2010 to KRW83,198bn (US$75.63bn) in 2011; +6.1% in local currency terms and 11.5% in US dollar terms.
- Medical devices: KRW4,151bn (US$3.59bn) in 2010 to KRW4,511bn (US$4.10bn) in 2011; +8.7% in local currency terms and 14.2% in US dollar terms.
Business Environment Rating: Healthcare investors will have the Asia-Pacific region high on their list of priorities, primarily due to ageing populations in countries such as Japan, Singapore and South Korea. South Korea’s Pharmaceutical BER score for Q112 stands at 66.4, placing it in second place in the 17- country Asia Pacific ratings system.
Key Trends & Developments
- In August 2011, South Korea's Ministry of Health and Welfare unveiled plans to cut generic drug prices by up to 33%, effective from 2012. This will bring down the average prices of approximately 8,776 of the 14,410 drugs registered in the national health insurance system by 17%, allowing consumers to save an estimated KRW600bn (US$559mn) and the government to save KRW1.5trn (US$1.4bn) in health insurance payouts. Domestic firms' share prices fell by up to 8% after the news was announced.
- In October 2011, the US Congress approved the Republic of Korea-United States Free Trade Agreement (KORUS FTA), which was first signed with South Korea in 2007. The KORUS FTA, if ratified by the South Korean legislators, is estimated to boost US GDP by approximately US$12bn, according to a 2007 report by the United States International Trade Commission.
BMI Economic View: While we find the government's recent budget proposals for FY2012 relatively attainable, we highlight that their projections for revenue growth are too optimistic. With a slowdown in South Korea's economic activity likely on the cards, a decline in tax receipts should follow suit, weighing on overall revenues. A possible economic stimulus in the event of a sharp contraction in the economy would see government expenditures surge and tip the budget balance towards a deficit. That said, in the absence of a severe deterioration in the economy, a return to strong growth in 2013 should allow South Korea to attain fiscal balance over the coming years, albeit over a longer timescale than the government would have hoped.
BMI Political View: South Korea is likely to see a renewed push for constitutional change over the coming years in order to address imbalances in the political system that lead to periodic instability. In addition, owing to the single-term restriction on the presidency, most presidents typically become 'lame ducks' well before departing office, leaving the country in a state of drift.
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