20080715-Mirae Asset-Drug Pricing in Korea vs. Japan

Can Domestic Pharmas Survive Price Cuts?
Domestic pharmas mired by cost increases and price cuts
Our findings after 2Q08 earnings previews are that pharmaceutical companies
should inevitably see profitability deterioration as they have to spend more for
SG&A following releases of generic versions of blockbuster drugs. Yet even
with cost increases and selling price cuts, the global stock market weakness of
late has made pharmas even more attractive. Korean pharmas should take
away lessons from Japanese pharmas continued profitability even after facing
past price cuts.
Drug repricing system in Japan: premium addition on drug pricing
Japan conducts drug repricing every two years. The way it determines the
price of generics upon the registration of drugs on the reimbursement list is
also very similar to that of Korea. Japan’s drug repricing system is, however,
distinguished from ours in that drug repricing could lead to price hikes due to a
premium addition. At present, Japan’s pharmaceutical expenditure is 19.0% of
total healthcare expenditure, relatively lower than Korea’s 27.3%, and has
been on the decline since 1999.
Less regulatory risk-sensitive pharmas recommended
Pharmas are still under the pressure of a series of generics launches
accompanied by SG&A cost increases and the government’s strong intention
to lower drug prices. However, we believe regulatory factors are already priced
in. We advise investors to pay attention to such pharma stocks as Green
Cross, with product portfolio less exposed to ever intensifying, fast changing
regulatory risks.