Korea-EU Free Trade Agreement Creates Another Threat To Local Korean Pharmas; Good For MNCs

SEOUL - The conclusion of the Free Trade Agreement talks on July 13 with the European Union could deal another blow to generic-dependent local South Korean pharma companies, already hit by a similar pact pending with the U.S.

Details of the agreement were not immediately available, but industry watchers say a couple of "clauses" in the Korea-EU agreement - they assume - could be bad news for local pharmas as they may have to eventually delay making generics, which is their main pipeline of profit.

Although government officials did not specify, industry watchers said the South Korea-EU agreement preserves "data protection" of originator products of EU multinational companies for five years, which is lower than the eight years demanded by the EU, but the same as the FTA deal struck with the U.S.

When that deal was announced in 2008, the Korean government said data protection would be observed for five years as it is applied not only for the same drug, but also for a similar entity. Data involving significant efforts, both disclosed and undisclosed, are also protected. (Also see "South Korea-U.S. Free Trade Agreement Likely To Put Stranglehold On Local Korean Drug Makers" - Scrip, 12 Nov, 2008.)

Although it is uncertain when the Korea-EU agreement will be implemented, it is clear that South Korean pharma companies will lose a larger portion of their main sales and profit pipeline from generics.

Local companies will also have to deal with an added negative effect created by the elimination of an average of 8 percent tariffs on the products of EU MNCs.

Along with data protection and tariff elimination, local South Korean pharmas will also have to prepare for another threat of "patent linkage," which could further delay launches of generics when originator companies claim their patent rights against potential generics.

"Data protection, patent rights and elimination of tariffs, which we assume are agreed upon in the Korean-EU FTA agreement, are all bad news for local pharmas," said Korea Pharmaceutical Manufacturers Association Spokesman Jung Cheol-Won. "Data protection and [protection of] patent rights will eventually hold local pharmas from moving forward for the production of generics when the FTA pact is implemented in the future."

Although it was not immediately confirmed, South Korea's Ministry of Foreign Affairs and Trade FTA chief negotiator Lee Hae-Min was quoted by local media as saying in a press briefing that the patent rights clause linked with government approvals needed for the production of generics was not included in the Korea-EU FTA.

Once an originator company claims that its IP is infringed, Korea FDA's approval for the generic version will automatically be delayed for a certain period of time

Although the FTA agreement should be approved by the 27 EU member countries, South Korea hopes to implement the agreement beginning next year.

An official at the Ministry for Health, Welfare and Family Affairs said he did not believe the patent rights clause linked with approvals was included in the FTA with the EU.

South Korea's export of drugs to the EU averages $324.4 million per year while imports represent $1.67 billion, with nearly 40 percent of Korea's annual drug imports coming from the EU. South Korea's imports of medical devices and equipment from the EU reached an annual average $678 million while exports to the EU for devices stands at $215 million.

Akthough the Korean-U.S. FTA is not yet ratified, it is already taking its toll on local South Korean pharma companies, demonstrated by a sharp drop in regulatory approvals for local companies to produce generics. (Also see "Korean Drug Makers Caught Between GMPs And FTA To Compete Globally" - Scrip, 23 Dec, 2008.)

- Peter Chang ([email protected])