KOREA’S PHARMACEUTICAL MARKET: NEW DEVELOPMENTS HELPFUL FOR FOREIGN FIRMS
Less than two years ago, the Korean government significantly revamped rules governing the prescription and sale of pharmaceuticals in that country. Prior to the reform, distinct roles between those who prescribed and sold drugs were not clearly defined. Doctors and pharmacists could perform both duties. As a result, the industry was plagued by over-medication and other inefficiencies. The August 2000 policy change set distinct roles for doctors and pharmacists -- doctors prescribe drugs, and pharmacists sell them.

While many applauded the separation of prescribing and dispensing drugs, doctors, realizing the income loss they would bear, went on strike to protest. In order to help compensate for the doctors’ lost incomes, the government increased the amount doctors could charge in prescribing fees. The result? Korea’s national health insurance system experienced a significant deficit in 2001 that nearly doubled earlier predictions.

But increased doctors’ fees are not the only reason for rising national insurance costs in Korea. Corrupt marketing practices have also contributed to the deficit. Pharmaceutical wholesalers often sell drugs to pharmacies, hospitals, or other medical institutions at a discount. However, institutions receiving the discounted prices often report the original price to the state-operated insurance system, making illegal profits off the government.

To help combat both the deficit and illegal marketing practices, the Korean Ministry of Health and Welfare cut the reimbursement prices of 5,575 insurance-covered drugs by an average of 7.63% at the end of 2001. Prices on an additional 400 drugs were cut during the first quarter in 2002. The government is also gradually prohibiting the reimbursement of certain OTC products. A total of 6,000 OTC drugs, including cold remedies, ointments, and digestives, will no longer be reimbursed by the national health insurance system.

Since the separation of prescribing and dispensing functions, foreign manufacturers have seen a significant increase in Korean sales of their products. This is at least partially attributable to the fact that doctors no longer have a profit incentive to prescribe generics. When doctors had both prescribing and dispensing powers, reimbursement rates were such that it was more profitable to prescribe generics. This is no longer the case. According to the Health Insurance Review Agency in Korea, sales of original drugs rose from 43% of the market in May 2000 (pre-separation) to 62% in November 2000 (post-separation). MSD Korea (a subsidiary of Merck & Co. Inc.) reported doubled sales for 2000, while Glaxo-Wellcome Korea’s sales rose 59% and Pfizer’s were up 38%. Although local Korean companies are trying to develop original drugs, it will take years before these drugs hit the market. On average, Korean pharmaceutical companies only put forth 4% of sales into R&D, as opposed to large foreign firms that invest 15-20% in developing new drugs.

BIOTECHNOLOGY IN TAIWAN: CREATING A VIBRANT DOMESTIC INDUSTRY
Taiwan invested over NT$20 billion (US$571 million) in biotechnology in 2001, up over 100 percent compared to 2000. Premier Chang Chun-hsiung announced last year that Taiwan’s government plans to increase its NT$10 billion (US$285.5 million) annual investment in biotechnology by 25 percent annually. Taiwan has already set aside NT$52 billion (US$1.48 billion) for biotechnology investment over the next five years. In late 2001, there were 150 biotechnology firms in Taiwan, most of which were engaged in the production of antibiotic and patent medicines. The government has also created a number of research centers and revamped science parks in hopes of cultivating a vibrant domestic biotech industry.

One problem plaguing the Taiwanese biotechnology industry is the government bureaucracy surrounding the industry. At least five Ministry of Economic Affairs agencies oversee the industry, including the “Development Center for Biotechnology” and the “Biotechnology & Pharmaceutical Investment Programs Office.” Two other government agencies and several research groups also exert some influence over the sector. Government officials announced recently that they would soon open a “one-stop center” for biotechnology under the Committee for Biotech and Pharmaceutical Industries Development. It remains to be seen whether this new “one-stop” entity will streamline government oversight or add yet another layer of bureaucracy to the already overburdened industry.

Taiwan’s biotechnology industry will also face challenges in the wake of its recent WTO accession. Local companies will be exposed to increased competition from international firms looking to penetrate Taiwan’s domestic market. On the other hand, domestic biotech companies will benefit from trade liberalization on both sides of the Taiwan Strait (China was also recently admitted to the WTO). Moreover, trade liberalization may attract foreign investment into Taiwan’s biotechnology industry.
Despite the potential pitfalls, biotechnology has the potential to be a huge growth industry for Taiwan. With its strengths in computing technology, Taiwan is particularly well situated to be a major player in the growing bioinformatics industry. (Bioinformatics refers to the use of computer applications in the biosciences.) Though government efforts to develop “superstar” domestic companies in this field have been disappointing, several local firms are making their mark on the industry. U-Vision Biotech Corp., for example, is using gene sequencing to help test the efficacy of traditional Chinese medicine compounds in the search for new drugs. Another company, Digital-Gene Biosciences Co., is active in the field of proteomics. The firm provides protein identification services and does protein sequencing.

CHINA’S PHARMACEUTICAL MARKET: OPPORTUNITIES AND CHALLENGES
China’s pharmaceutical market continues to grow by 10 to 15 percent per year. Many expect it to be the world’s largest pharmaceutical market by 2020, with sales topping US$60 billion by 2010. Imports from the U.S. accounted for 8.51% of the market in 2000, ranking fourth (behind Germany, the U.K., and France) among pharmaceutical importing nations. Huge growth areas are in anti-infectives, antibiotics, cardiovascular and digestive system treatments, infectious disease treatments, and vaccines. U.S. vitamins and nutritional supplements are also in great demand. Overall, the pharmaceutical market is dominated by the hospital sector, which accounts for 90% of all drug sales. Over 13,000 of 64,000 hospitals in China use Western pharmaceuticals and medical devices.

Despite the attractiveness of the Chinese market, many foreign companies have concerns about operating in China. One important concern is intellectual property protection. Despite government crackdowns and other measures, counterfeiting remains a problem. China’s State Drug Administration (SDA) makes available information on foreign pharmaceuticals applying for Chinese patent protection to Chinese firms, ostensibly to make certain that the product is not similar to drugs already being produced in China. This system leaves foreign drugs vulnerable to copying. Often, counterfeiting and piracy goes undetected, and once detected, punishment is often minimal or non-existent.

That said, rules have been implemented to fight intellectual property violators. The SDA recently implemented the “Regulation on Supervision and Management of Drug Distribution” and the “Regulation on Procedure of Administrative Punishment on Drug Supervision,” aiming to eliminate illegal drug markets and production at unauthorized firms by having manufacturers market only their own products. The recent accession of China into the WTO also provides an enforcement mechanism, via the Trade Related Aspects of Intellectual Property Rights (TRIPs) agreement.

Many multinational pharmaceutical firms have invested directly in the Chinese pharmaceutical market, and more companies join their ranks every year. For example, roughly 30 multinational pharmaceutical companies currently are sponsoring clinical trials in China for new Class I drugs. In November 2001, Proctor and Gamble signed a cooperation agreement with the Medical College of Nankia University to explore new medicines for osteoporosis treatment. In January 2002, Bayer partnered with GlaxoSmithKline (GSK) to market Vardenafil, a drug treating erectile dysfunction that the companies hope will challenge the popularity of Viagra in China. In addition to its alliance with Bayer, GSK also invested US$144.93 million in setting up a manufacturing plant, in November 2001, to produce Heptodin, a chronic hepatitis B treatment.

MEDICAL EQUIPMENT IN VIETNAM: MARKET ENTRY AND DISTRIBUTION
Vietnam imports nearly all the medical equipment and devices used domestically. As such, foreign firms interested in the Vietnamese market must understand the rules and regulations governing the import, sale, and distribution of medical equipment in that market.

Although laws have been loosened to allow any firm -- foreign or Vietnamese -- with a business license to import and export goods, Vietnamese law prohibits foreign firms from distributing imported goods, including medical equipment. Foreign firms thus must find a reputable distributor to represent it in the Vietnamese market. Historically, only State-owned trading firms were allowed to participate in this business. Consequently, State-owned companies have strong relationships with purchasers (especially in the government) and are often well established in the marketplace. However, “upstart” private distributors also have their advantages. For a foreign firm, it is often easier to work with a more flexible, more market-oriented private company.

Import tariffs on medical equipment range between 0 and 5 percent. Imports are also subject to a value added tax (VAT). The VAT on medical equipment is 5 percent. With regard to government purchases, procurements valued at over 100 million VND (US$6,900) are subject to a competitive bidding process. By law, procurement agreements are written in Vietnamese currency; thus, foreign firms must cover their foreign exchange risk or face potential fluctuations in the market.