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Successful Challenges to Korean Health Insurance Regulator’s 13-Year Old System of Automatic Reduction of Original Drug Price
The Seoul Administrative Court and the Seoul High Court issued orders suspending the automatic reduction of the price of the original drug “A” upon generic entry claiming patent non-infringement and the automatic reduction of the price of the original drug “B” upon generic entry claiming patent invalidity, respectively. The automatic price reduction of the original drug B has been continuously suspended since the Administrative Commission’s suspension order issued in April 2018.
Original Drug Price Reduction upon Generic Entry
Under the Korean National Health Insurance Act and related rules and regulations, the original drug price is automatically reduced to 53.55% when a generic product is approved and its price is registered, even during the term of a valid patent covering the original drug. This price reduction scheme was first introduced in 2006 and has been in effect for 13 years to date. Once reduced, the original drug price may only be recovered upon the Supreme Court’s final decision confirming patent infringement by the generic company (or a decision having an equivalent effect).
As a result, many innovator drug companies had to see their prices drop to near 50% upon generic entry. Normally, innovator drug companies suffer huge losses of revenue due to the price reduction, and their loss of revenue attributable to market share loss would be small in comparison.
Against this backdrop, Lee & Ko presented an effective argument against the long-standing price reduction scheme and persuaded the courts to suspend the original drug price reduction following generic entry claiming invalidity or non-infringement.
March 15, 2019 Suspension Order Related To Negative Scope Confirmation
Action – Generic Version of Original Drug “A” Claiming Non-Infringement
A generic manufacturer entered the market claiming non-infringement by filing a negative scope confirmation action (a declaratory judgment action in which the petitioner seeks a ruling that its specified product does not fall within the scope of the patent-at-issue).
After the generic product’s price was listed, the Ministry of Health and Welfare
(“MOHW”) issued a notification that the price of the original drug “A” would be reduced.
Lee & Ko successfully persuaded the court to issue a suspension order by explaining how the scope confirmation action can be irrelevant to the actual generic product and the importance of strong patent protection.
March 18, 2019 Suspension Order Related To Invalidation Action – Generic
Version of Original Drug “B” Claiming Invalidity
A generic manufacturer entered the market conceding infringement but claiming invalidity by filing an invalidation action. After the generic product’s price was listed,
MOHW issued a notification that the price of the original drug “B” would be reduced.
Lee & Ko obtained successive suspension orders by the Seoul Administrative Court and the
Seoul High Court, by thoroughly explaining the unreasonableness of the automatic price reduction implemented without due consideration of patent infringement or validity issues.
Prevented Huge Losses of Revenue for Original Drug Manufacturer – Significant
Impact on the Korean Pharmaceutical Industry Expected
Lee & Ko was able to prevent huge losses of revenue for the original drug manufacturer by achieving repeated success in protecting the original drug price by obtaining suspension orders against administrative dispositions automatically reducing the original drug price triggered by unlawful acts of generic manufacturers despite pending patent disputes.
Lee & Ko’s repeated success in suspending original drug price reduction has shed pertinent light on the problems entailed with the current drug price reduction scheme related to generic entry which has been in effect for more than 13 years and therefore is expected to have a significant impact on the pharmaceutical industry.
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