BMI View: Despite having an ageing population with a high burden of non-communicable diseases, market potential in South Korea will continue to be limited by the government ' s cost containment policies. We highlight that companies will continue to invest in innovative products or expand overseas in order to maintain their revenues.
The South Korean government will continue to enforce price pressures on pharmaceuticals as a means to contain the escalating healthcare costs brought on by the country's ageing population. This is particularly as other avenues - including shifting the healthcare cost burden onto consumers - will remain more subdued as private expenditure already accounts for a large portion of total healthcare spending. Moreover, South Korea has developed multiple price control mechanisms that it can leverage upon to reduce pharmaceutical prices.
Headline Expenditure Projections
Pharmaceuticals: KRW16,590bn (USD15.8bn) in 2014 to KRW17,117bn (USD15.6bn) in 2015; +3.2% in local currency terms and -1.2% in US dollar terms. Forecast unchanged from previous quarter.
Healthcare: KRW108,117.1bn (USD102.7bn) in 2014 to KRW114,226.3bn (USD103.9bn) in 2015; +5.7% in local currency terms and +1.1% in US dollar terms. Forecast slightly unchanged from previous quarter.
In Q4 2015, South Korea ranks second out of the 19 countries surveyed in the Asia Pacific region. South Korea's score for its Rewards variable is high, indicating the country's favourable longer-term standing in terms of its pharmaceutical market development. However, we note that Risks - particularly in relation to pharmaceutical pricing and reimbursement - will remain present, especially as the population ages and requires more public sector resources.
Key Trends & Developments
In July 2015, th e South Korean Health and Welfare ministry announced plans to reform local hospitals in order to deal with the outbreak of the Middle East Respiratory Syndrome (MERS). The ministry has committed to revamp the hospital system, primarily by downsizing rooms. Six-person rooms will be reduced to four-person rooms, while patients with contagious diseases will be isolated for medical treatment. Samsung Medical Center has been partially shut down for an indefinite period after it was revealed that the centre was thought to be responsible for allowing the illness to spread. The ministry also plans to increase personnel and begin consultation programmes for small and mid-sized hospitals
In June 2015, the South Korean government reportedly plans to draw up a supplementary budget of more than KRW10trn (USD9bn) to deal with the economic slowdown caused by the outbreak of Middle East Respiratory Syndrome (MERS) in the country. South Koreans are choosing to remain at home or away from shops for fear of contracting the virus, which has negatively affected the country's service industry and domestic consumption. Around KRW5trn (USD4.5bn) of the budget will be used to make up for tax deficits, while the remaining KRW5trn (USD4.5bn) will be set aside for extra spending
In the same month, Samsung Bioepis, a pharmaceutical subsidiary of Samsung Group, is looking to raise nearly KRW1.5trn (USD1.3bn) from a NASDAQ initial public offering (IPO) for future product development. The company is expected to have a market value of at least KRW8trn (USD7.1bn). Bioepis recorded an operating loss of KRW25bn (USD22.37mn) in 2014, but expects to release two new products in 2016.
BMI Economic View: The passing of the bill to reform South Korea's outmoded pension system will help strengthen the country's fiscal position and reduce public sector debt. However, the bill was only passed when the ruling Saenuri party agreed to also revise the National Assembly Act, a controversial move that sets the stage for continued political conflict between parliament and the Blue House.
BMI Political View: The deepening rift between President Park Geun-hye and her Saenuri party looks set to impede key economic revitalisation bills, thus constraining economic growth. Despite this, the Saenuri party is better placed to win the April 2016 parliamentary election than the disorganised opposition.