In a land where traditional medicine has an enormous following and where generic competition abounds, the research and development-driven multinational pharmaceutical industry has succeeded in putting down deep roots in Korea and grown in tandem with its host country. The attraction of the Korea for multinational investment has been tremendous. The market has historically registered growth rates of 10 to 15 percent annually, far outstripping GNP. By 1997 the market had grown to the 10th largest in the world and was worth some $4.6 billion. Multinationals have responded by pouring in investment which totalled $482 million by the end of November 1997.

Despite the volume of their investment and their three-decade in-country tenure, the multinationals have captured just 16 percent of the total market. Rather than representing difficulties for the viability of investment, Pfizer Korea's Representative Director and Senior Vice President Laurence Smith points out Korea is a "very large market, and the 16 percent share is not a barrier but a reflection of multinational penetration, and must be looked at form the point of view of the opportunities it offers." He noted the structure of the Korean pharmaceutical industry is unusual for a developed country in that more than 80 percent is of the market claimed by local generic manufacturers. "It's usually the reverse," he said, "multinationals having a far bigger share on account of their level of product innovation." The company presently manufactures its full range of 38 products in 75 dosage forms at its east Seoul plant. Pfizer's involvement in the Korean market dates back to 1959. A joint venture agreement in which Pfizer held 50 percent was signed 10 years later. The company is now in the process of spending $35 million to buy out minority partner Shinwon JNC and other shareholders.

Approximately 300 companies comprise the Korean pharmaceutical industry, 35 of them multinationals representing the majority; 20 are locally-based producing original and generic products, the latter licensed mainly from Japanese companies; and the remainder manufacture generics. Some 20 pharmaceutical companies are based in the Ansan Industrial Estate for Chemicals and Pharmaceuticals and include multinationals Sanofi, Abbott, Glaxo Wellcome, and UCB.

Brussels-based UCB's investment in the Korean market came later than Pfizer's and was prompted by the fact imported drugs are not included on the Korean Medical Reimbursement Schedule and denial of a profit margin to such drugs when reimbursement is made. An additional incentive lay in the manufacturing regulations on the registration and promotion of pharmaceutical products. Contract, or "toll" manufacturing, in which one company manufactures a drug on behalf of another, is only permitted when both firms, one of whom is the registration-holder, are manufacturers. "From 1989 to 1993 a local company manufactured for us," said UCB Korea General Manager J.S. Lee. "Then if we wanted to register the product under our own name and get reimbursement for the product, production had to be done by our own plant. " Accordingly, UCB bought out an existing manufacturer at the Ansan estate in 1993.

Meanwhile, UCB's product profile increasingly fit the health needs of the Koreans.The company's anti-allergenic Zyrtec enjoys strong support from a population 20 percent of which suffers from allergies while the introduction of the stroke victim-indicated Nootropil and heart-disease preventative Roconal is timely. "Stroke is a major cause of death in Korea where the population is aging and the incidence of cardiovascular disease is increasing," said Mr. Lee. "Because of industrialization, aging and increasing stress, the time is right for our products."

Mr. Lee notes too the level of Korea's social development especially in comparison to the rest of the region makes prospects particularly attractive for multinational investment. "Everybody is covered by health insurance, which is not the case in other Asian countries, so the result is the pharmaceutical market is very big," he said. The restrictions regarding imported drugs in regard to the reimbursement program and toll manufacturing have been the subject of government lobbying by the foreign-invested industry, in particular by the American Chamber of Commerce in Korea. However, by obliquely requiring a corporate presence by multinationals, such restrictions may have contributed to the local success of an industry which has historically found it advantageous to manufacture in-country."Our joint venture agreement at the time, I'm sure, was considered necessary to be as successful as possible, and it still holds true," notes Mr. Smith. "Imported finished goods have been relatively unsuccessful here than elsewhere in the world. There is a greater possibility of success of the product has a market niche, but the number of successful finished goods is very small."

One area where industry lobbying has delivered important results, and is continuing to deliver, concerns the length of patent protection. Such protection has been a fairly recent innovation Korea, a state of affairs which has allowed the generic industry to flourish. The law when introduced in 1987 permitted 12 years protection from the date of approval, subsequently lengthened to 15 years in 1990, and was changed again in 1997 to 20 years from the date of filing. Nevertheless, the industry has continued to push for an additional two or three years of drug patent life to compensate for the additional clinical trials demanded by the Ministry of Health & Welfare in addition to those already conducted in a drug's country of origin.

In an industry where it is commonplace for the passage of a drug from discovery to market to take 15 years, the existing 20-year protection under Korean law is often barely long enough to provide an advantage to the originating company when such additional trials are required as well as a "Certificate of Free Sales" from the country of origin indicating the drug in question is freely sold there. Both such demands are unique to Korea.

The issue of patent protection of was re-ignited last year when a local manufacturer launched a generic copy of Merck Sharp & Dome's bone-deficiency treatment at precisely the same time as the originating company, a matter which received attention at the highest levels As a result, the patent protection extension issue will again be before the National Assembly this year.

The recent devaluation of the Korean won has spurred the multinationals to lobbying on another front to maintain their profitability and cash-flow, this time over the issue of product pricing. While a concession has been won through re-pricing based on an exchange rate of 1300 won to the U.S., the actual rate is higher and the industry is going after more. "The industry needs a price increase," says Mr. Smith. "We've had one round but it's not enough to offset the devaluation which has caused a significant increase in the price of raw materials." Pfizer imports its raw material in bulk mainly from plants in the U.S. and Ireland.

Meanwhile the lure of the market and the prospects for political progress on the Korean peninsular continues to drive the multinational's expansion plans. World's largest pharmaceutical manufacturer Glaxo Wellcome began its Korean investment through a 50/50 joint venture with Korean partner Chong Kun Dang in 1986 before a buy-out nine years later. The company is now actively considering building a larger plant to meet its production needs and accommodate future planned expansion. Such investment will likely not take place in the Ansan estate. The company also signed an agreement in June 1997 with the North Korean government to establish a manufacturing joint venture in Pyongyang which will produce the entire Glaxo Wellcome product line. All such plans are taking place against the background of an aggressive sales program. Glaxo Wellcome Korea president and representative director Jin-Ho Kim said in speech to the company's 330 employees at the beginning of the year the company planned to boost output by 30 percent in 1998 with the aim of achieving 100 billion won in annual sales by the year 2000.

Such a goal may be considered ambitious in a market which insiders foresee contracting by five percent this year. Last year Pfizer bought and graded land outside Seoul to build a $65 million plant to which it planned to transfer its operations. "The decision to proceed depends on what happens regarding the economic situation, " said Mr. Smith. "Our existing facilities are adequate for our current needs so our new investment is under evaluation." He stresses, however, Korea's economic situation will not impact on the company's present level of investment. "It's a matter of weathering the storm; we're keeping our commitment here, we're committed to Korea and to our employees," said Mr. Smith. "We'll maintain our present size and number of employes for as long as we can. " Such commitment is matched by improving cooperative relations between the multinationals and local firms to the ultimate benefit of both, so encouraging a better investment climate. Last year Merck signed an agreement with LG Chemical Ltd. to develop and market worldwide the Korean company's off-patented bio-technically produced drugs. LG Chemical also found a customer in Glaxo Wellcome for its cephalosporin anti-biotic, Fortum. Glaxo Wellcome is also a client of local firm Samcholli for Zidovudine, a key ingredient in the U.K.-based company's AIDS-indicated drug, AZT.

By adapting to the Korean market, meeting its challenges and seizing its opportunities, the multinational pharmaceutical industry has displayed its resolve, has stayed, and has played to win.

by Charles Duerden