I INTRODUCTION

The principal regulator of pharmaceuticals and medical devices is the Ministry of Food and Drug Safety (MFDS), which regulates the manufacture, importation, distribution, sale and advertisement of pharmaceuticals and medical devices. The principle legislation that governs business activities of pharmaceutical companies and pharmaceuticals is the Pharmaceutical Affairs Act (PAA). Medical device companies and medical devices are regulated under the Medical Device Act (MDA).

Other relevant legislation includes the National Health Insurance Act (NHIA), which governs the pricing and reimbursement of pharmaceuticals and medical devices. The relevant government authorities involved in pricing and reimbursement for pharmaceuticals and medical devices are the Ministry of Health and Welfare (MOHW), the National Health Insurance Review and Assessment Service (HIRA) and the National Health Insurance Service (NHIS). In addition, general antitrust and fair trade statutes apply to the marketing and advertising of pharmaceuticals and medical devices including the Monopoly Regulation and Fair Trade Law (FTL) and the Fair Labelling and Advertising Act, enforced by the Korea Fair Trade Commission (KFTC).

II THE REGULATORY REGIME

i Classification

Pharmaceutical products are defined, in essence, as: (1) products listed in the Korean Pharmacopoeia; (2) products used for the purposes of diagnosis, alleviation, treatment or prevention of disease excluding appliances, machinery and equipment; and (3) products other than appliances, machinery or equipment (Article 2(4) of the PAA). Medical devices are defined, in essence, as instruments, machines, devices, materials or any other similar product used to diagnose, cure, alleviate, correct or prevent a disease, injury or impairment (Article 2 of the MDA).

Other regulated products such as food, cosmetics, chemical and general consumer products are regulated under different and separate statutes (e.g., food is regulated under the Food Sanitation Act and attendant regulations). Given the strict regulatory environment for pharmaceuticals and medical devices, for borderline products, companies would need to ensure that their products do not fall within the definition of pharmaceuticals or medical devices in order to classify their products as products other than pharmaceuticals or medical devices.

ii Non-clinical studies

Non-clinical studies involving animals, plants, microorganisms, physical or chemical media or their composites must be conducted in compliance with the Good Laboratory Practice guidelines (GLP), as prescribed under the PAA and the MDA. The purpose of the GLP is to ensure transparency and ultimate reliability of study results through the systematic management of non-clinical studies.

If non-clinical studies involve vertebrates, such studies must also comply with the Laboratory Animal Act and be registered with the MFDS. As a general matter, any study using animals must also comply with relevant provisions under the Animal Protection Act.

iii Clinical trials

Clinical trials conducted in Korea must comply with the Good Clinical Practice guidelines (GCP), as prescribed under the PAA and the MDA. The GCP provides guidelines on conducting, performing, analysing, recording and reporting of clinical trials. The MFDS has also issued detailed regulations that supplement the GCP, including the Guidelines on Compensation for Clinical Trial Subjects, which requires sponsors to be insured for covering patient harm.

A clinical trial application (including the trial protocol) must be submitted to, and approved by, the MFDS before a clinical trial can commence. No such approval from the MFDS is required for clinical trials of approved pharmaceuticals and medical devices for approved indications. Under the GCP, the clinical trial protocol must be separately submitted to and approved by the institutional review board (IRB) of the institution where the clinical trial will be conducted. Written informed consent must be obtained from the trial subjects, and all adverse events that are serious and unexpected must be reported to the investigators, institutions, the IRBs, and the MFDS.

Foreign entities conducting clinical trials in Korea are not required to establish a business in Korea and can utilise contract research organisations to conduct clinical trials on their behalf.

iv Named-patient and compassionate use procedures

Under the PAA, named-patient and compassionate use of unapproved pharmaceuticals outside of clinical trials are permitted for treatment purposes where a patient has (1) a serious life-threatening disease, such as terminal cancer or acquired immunodeficiency syndrome (AIDS); (2) a serious or urgent life-threatening condition; or (3) no other alternative treatment methods in a condition that warrants urgent treatment.

Under the MDA, medical devices that are not approved may also be used for diagnosis and treatment in case of an outbreak of an infectious disease and during radiation emergencies.

v Pre-market clearance

To be an official holder of a product registration (i.e., marketing authorisation) of either a pharmaceutical or medical device, an entity must be located in Korea. Therefore, a foreign entity must establish a branch or subsidiary in Korea, or designate a third-party domestic entity to obtain the product registration. Such entity must also hold a manufacturer or importer business licence, which is issued by the MFDS.

Pharmaceuticals

A company seeking to manufacture or import a pharmaceutical in Korea for sale must be licensed as a pharmaceutical manufacturer or importer, and obtain product registration (i.e., marketing authorisation) from the MFDS for each pharmaceutical. The product registration of patented pharmaceuticals must follow the new drug application (NDA) procedure. The NDA dossier consists of: (1) safety and efficacy data; (2) standards and testing methods; (3) good manufacturing practice (GMP) evaluation data; (d4) a drug master file (DMF); and (5) a risk management plan (RMP). A recurring issue is whether a bridging study (that is, a testing of the drug on the Korean population to determine any impact that ethnic differences may have on its safety and efficacy) should be included in the clinical data package. Pre-meetings with MFDS personnel are available to give applicants a sense of what will be required in the application package and to expedite the application process. The processing periods for GMP and DMF evaluations are 90 and 120 business days, respectively. It is possible to facilitate the process by commencing DMF approval early, before initiation of the NDA procedure.

Applicants seeking product registration of generic pharmaceuticals can follow the abbreviated new drug application (ANDA) procedure. The basic ANDA dossier comprises: (1) safety and efficacy data; (2) standards and testing methods; (3) GMP evaluation data; and (4) a DMF. The ANDA procedure does not require submission of clinical trial data if there is sufficient data showing that the pharmaceutical is therapeutically interchangeable with the reference pharmaceutical.

For both ANDA and NDA procedures, the processing periods for GMP and DMF evaluations are 90 and 120 business days, respectively.

Medical devices

Medical devices are classified into four classes depending on the possible health risks posed by the devices (Class I posing the least, Class IV posing the greatest health risk). A company seeking to manufacture or import a medical device for sale must be licensed as a medical device manufacturer or importer and register each medical device (Class I) or obtain product registration (Class II, Class III and Class IV) from the MFDS for each medical device. Companies must obtain GMP certification from an MFDS-authorised evaluation body before submitting an application for product registration. The certification process includes an audit of the manufacturing site. Class II, III and IV medical devices are subject to this audit. An application for product registration must include GMP certification as well as safety and efficacy data.

There is no prescribed review period for the initial GMP review but GMP certification must be renewed every three years and the application for recertification must be made three months before expiry. The processing period for technical document evaluation is 65 days without clinical trial data and 80 days with clinical trial data.

vi Regulatory incentives

Before the Korea–US Free Trade Agreement (FTA), the Korean regulatory authorities issued product registrations for generic pharmaceuticals even where the original pharmaceutical was still protected by a patent. Now, as a result of the FTA, patentee or original pharmaceutical makers are entitled to certain period of market exclusivity for patents listed on the Green List (similar to the US Food and Drug Administration's Orange Book) and can prevent generics from entering into the market prior to expiry of the patent. Once a patent is listed on the Green List, an ANDA applicant who submitted market approval of its generic drug must notify a patentee or a party who listed the patent on the Green List regarding the approval. The patent holder then can file a patent infringement litigation within 45 days from the date of receiving notification from the generic drug applicant and petition the MFDS to stay or prohibit the sales of the generic drugs. The MFDS can prohibit the sale up to nine months from the date on which the patentee receives the notification.

vii Post-approval controls

To ensure the effectiveness and safety of approved pharmaceuticals, post-marketing surveillance is required pursuant to the PAA for pharmaceuticals. Post-marketing surveillance consists of the following three systems: (1) re-examination system (companies conduct every four or six years from the date of product registration for new pharmaceuticals and some prescription-only pharmaceuticals); (2) re-evaluation system (MFDS selects pharmaceuticals subject to re-revaluation to monitor effectiveness and safety of pharmaceuticals); and (3) safety information management system (for serious adverse events, companies must notify the MFDS within 15 days of becoming aware of such adverse events).

Similarly for medical devices, post-marketing surveillance in the forms of the re-examination system, re-evaluation system and safety information management system must be implemented pursuant to the MDA.

Administrative sanctions are possible for failure to conduct the post-marketing surveillance activities outlined above, including but not limited to confiscation or destruction of the relevant products, suspension of business and cancellation of product registrations (the severity of sanctions may vary depending on the type and frequency of the violation).

viii Manufacturing controls

Under the GMP certification system, manufacturers and importers of pharmaceuticals and medical devices must also obtain GMP certification of the manufacturing facility where the product will be manufactured. For importers, the MFDS will review the manufacturing facilities located overseas.

ix Advertising and promotion

The PAA and MDA and their respective attendant regulations regulate the advertising of pharmaceuticals and medical devices. The PAA and attendant regulations prohibit advertising of prescription pharmaceuticals directly or indirectly through mass media with limited exceptions such as communicating expert content to medical professionals. The MDA and attendant regulations permit advertising of medical devices through mass media but require that such advertisements obtain prior review from the industry association, the Korea Medical Device Industry Association.

When advertising pharmaceuticals and medical devices, only on-label advertising (i.e., use of the product for approved indications) is permitted and the advertising restrictions prescribed under the PAA and the MDA including the prohibition against false, misleading or exaggerated advertising would apply.

Sales on the internet or by mail order are prohibited for pharmaceuticals. Medical devices, however, can be sold on the internet and by mail order, but this requires a separate business licence under a separate regulatory regime for online businesses including the Act on Consumer Protection in Electronic Commerce, Etc.

Pharmaceutical companies and medical device companies must also comply with the general advertising requirements under the Fair Labelling and Advertising Act, enforced by the KFTC.

x Distributors and wholesalers

To sell and distribute pharmaceuticals in Korea, companies other than manufacturers and importers of the pharmaceuticals must obtain a pharmaceutical wholesaler licence from the MFDS and comply with good supply practice (GSP) requirements.

Similarly, medical device sellers and distributors, other than manufacturers or importers, must obtain a seller business licence from the MFDS and comply with GSP requirements.

xi Classification of products

There are two legal classifications of pharmaceuticals: prescription pharmaceuticals and non-prescription (or over-the-counter) pharmaceuticals. Both prescription and OTC pharmaceuticals can only be sold at pharmacies. However, certain OTC products designated by the MOHW may be sold outside of the pharmacy at convenience stores. Such OTC products include antipyretics, analgesics, cold medicine, digestive medicine and pain relief patches.

The PAA also regulates quasi-pharmaceuticals such as gauzes, hand sanitisers and sanitary napkins (Article 2(7) of the PAA). Quasi-pharmaceuticals are specifically prescribed through a Notification issued by the MFDS. There is no restriction on point of sale for quasi-pharmaceuticals.

For medical devices, there is no restriction on the point of sale but a medical device seller licence obtained from the MFDS is required to sell medical devices. Some medical devices such as thermometers and pregnancy tests can be sold without a medical device seller licence.

xii Imports and exports

Pharmaceuticals

Pharmaceutical importers must obtain a product registration for each pharmaceutical imported and obtain an importer business licence from the MFDS.

Korean authorities no longer require product registrations for pharmaceuticals manufactured for the sole purpose of export. However, where the importing country's authorities require a certificate of pharmaceutical product certification (CoPP), companies may still file for a product registration – in such case, the documentation submission requirements on safety, efficacy or quality may be relaxed or waived. GMP certification, however, is required even for products that are manufactured for export purposes.

Medical devices

To import medical devices, companies must obtain an importer business licence, product registration for the relevant product and GMP certification for the overseas manufacturing facility where the imported product is manufactured.

Companies that manufacture medical devices for export must hold a manufacturer business licence and a product registration for a medical device to be exported. The submission requirements (e.g., the technical documentation requirement) may be relaxed or waived for medical devices that are manufactured exclusively for export purposes. GMP certification is not required for export.

xiii Controlled substances

The Narcotics Control Act (NCA) regulates (1) narcotics; (2) psychotropic drugs; and (3) marijuana (collectively 'controlled substances'). Under the NCA, anyone intending to import controlled substances must be licensed by the MFDS as a narcotics importer, and must further obtain from the MFDS: (1) a product registration for any pharmaceutical classified as a controlled substance; and (2) approval for each imported shipment.

Under the NCA, a violation of the applicable requirements under the NCA can result in criminal sanctions. Anyone who imports controlled substances without a narcotics importer licence may be subject to imprisonment of five years or more. The employer can be held criminally liable for up to 100 million won.

xiv Enforcement

Government agencies would hold their own proceedings for the purpose of determining whether to impose administrative sanctions for violations of relevant regulations. They may also refer the matter to the public prosecutor's office for a criminal investigation, if the relevant statutes provide for criminal sanctions.

The health authorities may take various administrative actions (e.g., order to test, recall, dispose, make public notice of ceasing the use of relevant products, revocation of business or product licences, order to cease relevant operations), impose administrative fines and/or make a criminal referral. The authorities may also decide to impose an administrative fine in lieu of an order for suspension of sales, manufacturing or import, in order to alleviate the detrimental effects that a suspension may have on a business or public health.

Additionally, industry associations for pharmaceutical and medical device companies have promulgated various industry codes of conduct, most notably for interactions with healthcare professionals (HCPs).

III PRICING AND REIMBURSEMENT

The Korean government offers universal health coverage, which means all citizens are eligible for at least some form of a public healthcare subsidy. As of 2018, 97.2 per cent of Korean citizens were enrolled in national health insurance, and those who were not enrolled received subsidies in the form of medical benefit payments from the government. The national health insurance scheme in Korea is a single-payer system operated by the NHIS.

When a manufacturer or an importer applies for pricing and reimbursement of a pharmaceutical, HIRA determines the eligibility for reimbursement and the NHIS determines the maximum reimbursement price (MRP) through negotiations with the companies. The pricing and reimbursement of new pharmaceuticals is determined based on a cost-effective analysis (pharmaco-economic evaluation), while the pricing of generics is based on a set formula. Therefore, generics are not subject to price negotiations with the NHIS. The MOHW notifies the MRP of generics after HIRA decides that a generic product will be reimbursed under the NHI. For a drug to be reimbursed under the NHI, the manufacturer or importer must apply for listing, which is a two-part process involving separate negotiation over the reimbursement scope and MRP. Once a drug is listed for reimbursement, the reimbursement rate (the portion reimbursed by the NHI) is determined. Overall, patients are responsible for 30 to 60 per cent of medical service fees and about 30 per cent of the cost of pharmaceuticals.

Medical devices can be differentiated between those not covered by health insurance (non-reimbursed) and those that are covered by health insurance (reimbursed). For non-reimbursed medical devices, the final seller (medical institutions such as hospitals) independently decides the price based on market dynamics. Meanwhile, for reimbursed medical devices, the price can be included in the HCPs' service fees and reimbursed, or separately calculated per medical device. Where the price of a medical device is separately calculated and reimbursed, HIRA determines eligibility for reimbursement based, in essence, on cost-effectiveness, and the MRP. The co-pay amount for patients is similar to pharmaceuticals.

IV ADMINISTRATIVE AND JUDICIAL REMEDIES

In an administrative enforcement action, companies are provided an opportunity to present their defence arguments before the relevant administrative agency before an administrative decision is rendered. Companies may also challenge the administrative decision (administrative fine, corrective order, etc.) by filing a lawsuit with the administrative court under the Administrative Litigation Act, or by initiating an administrative appeal with the general court system under the Administrative Appeals Act. Companies charged with criminal violations of relevant statutes can avail themselves of the criminal trial process to proffer defences.

The procedure for administrative cases is nearly identical to that of civil cases: a complaint is filed and served upon the defendant, arguments are made thereafter in the answer, reply brief, and other rebuttal briefs, evidence is examined at hearings, and a judgment is rendered. A final decision on the matter can be, in general, expected six months to a year following the initial filing.

V FINANCIAL RELATIONSHIPS WITH PRESCRIBERS AND PAYORS

There are numerous anti-bribery and anti-corruption statutes that govern the interactions between pharmaceutical and medical device companies and prescribers and payors.

Mainly, the PAA and the MDA prohibits the provision of economic benefits to HCPs and medical institutions for promotional purposes unless specifically prescribed as exceptions. A violation of the foregoing prohibition would expose companies to administrative as well as criminal sanctions. Economic benefits include cash, goods, advantages, services, entertainment, labour or any other forms of benefits. Exceptions are not open-ended exceptions; for example, meals can be provided during product detailing sessions but cannot exceed 100,000 won.

The FTL, enforced by the KFTC, also prohibits companies from engaging in unfair solicitation of customers. Essentially, companies are prohibited from providing economic benefits that are improper or excessive in light of socially accepted norms in order to induce customers. Companies in violation of the FTL may be subject to a corrective order, administrative fine or criminal referral. The respective industry associations have also promulgated codes of conduct, which were reviewed and endorsed by the KFTC for compliance with the FTL prohibition against unfair solicitation of customers, and reviewed by the health authorities for compliance with the PAA and MDA. While a violation of the industry codes is not a per se violation of the PAA, MDA or the FTL, the companies in practice could bear the burden of proving their compliance with the relevant statutes if a violation of the industry codes is found.

The Criminal Code penalises official and commercial bribery. Official bribery pertains to bribing government officials whereas commercial bribery pertains to bribing a person entrusted with conducting commercial duties for an employer or a company. Individuals can be held criminally liable for official bribery and commercial bribery.

The Act on Prohibition of Improper Requests and Provision/Receipt of Money and Valuables (the Anti-Graft Act) applies to the provision and receipt of things of value to public officials, a group that is broadly defined. For the healthcare sector, the statute applies to a wide range of individuals including government officials employed with health authorities as well as HCPs and faculty or staff members of public and private universities. Unlike official bribery under the Criminal Code, no quid pro quo or connection with the recipient's official duties is needed for there to be a violation under the Anti-Graft Act. Individuals can be held criminally liable and companies can be held vicariously liable under the Anti-Graft Act for their employees.

VI SPECIAL LIABILITY OR COMPENSATION SYSTEMS

The health authorities have set up an Adverse Event Compensation Scheme (AECS) for adverse reactions to pharmaceuticals, to provide compensation to patients and their families for death, injury, funeral costs and treatment costs caused by adverse effects from pharmaceuticals. The AECS is funded by pharmaceutical companies and operated by the Korean Institute of Drug Safety & Risk Management. The patients need not establish a defect in the product to be eligible for compensation under the AECS.

The statutory ceiling amount that pharmaceutical companies need to contribute to the AECS is up to 0.1 per cent of the preceding year's manufacture or import amount. Additional contributions may be required of up to 25 per cent of the amount paid out to patients under the AECS during the previous year due to a company's pharmaceuticals (not to exceed 0.1 per cent of the preceding year's manufacture of import amount).

Buyers or users of defective pharmaceuticals or medical devices can also seek compensation under the Civil Code or the Product Liability Act (PLA). The claimant must prove negligence or intentional conduct that caused damage to the claimant under the Civil Code. Under the PLA, however, the claimant is only required to prove causation between the damages suffered and the defect in the relevant product (the claimant need not prove the manufacturer's negligence or intent).

VII TRANSACTIONAL AND COMPETITION ISSUES

i Competition law

In 2010, KTFC initiated an industry-wide investigation into intellectual property (IP) rights abuse, which was focused on whether innovators abused their IP rights, which would ultimately lead to delay in generic entry. Based on the survey and subsequent investigation, the KFTC found that a multinational drug company (innovator) and a domestic company (generic company) entered into a pay-for-delay settlement agreement in resolving a patent dispute, and also found that non-compete provisions in exclusive distribution agreements were unlawful as they went beyond the patent term, extended beyond the competing products and included irrelevant products (later affirmed by the Supreme Court).

In 2017, the KFTC commenced another IP rights survey of the pharmaceutical industry spearheaded by the Knowledge Industry Anti-Monopoly Division, which was established to oversee certain knowledge-based industries including the pharmaceutical industry. As a follow-on to the survey, according to media reports, the KFTC raided several pharmaceutical companies likely probing into collusive conduct stemming from business relationships between originator companies and generic companies. There has been no reports the KFTC has concluded its investigation.

ii Transactional issues

Two main collaborations in the pharmaceutical and medical device industries posing potential concern are licensing and distribution arrangements. For licensing arrangements, the KFTC's Guidelines for Fair Patent Licensing Agreements provide for potential issues with patent licensing agreements that may violate the FTL and attendant regulations that include but are not limited to licence terms that restrict the licensee's ability to license or use competing technology and products due to confidentiality concerns, adequate allocation of benefits derived from improving the licensed patent technology and territorial restrictions.

For distribution arrangements, the FTL as well as the Fair Distributorship Transactions Act provide provisions governing relationships with distributors. Areas most likely to raise concerns for pharmaceutical companies and medical device companies in their relationships with distributors are, among others, resale price maintenance, namely, requiring the distributor to resell the product to its customers at a set price, setting of forced sales targets, and refusing to transact or renew an existing transaction without justifiable reasons.

VIII CURRENT DEVELOPMENTS

i Innovation-promoting legislation

Recently, the Korean government has been trying to provide a more innovation-friendly regulatory framework to support the life science industries. As a part of this effort, the In Vitro Diagnostics Act (the IVD Act) and the Act on Promotion of Medical Device Industry and Support for Innovative Medical Device Products (the Innovative Device Act), which will become effect on 1 May 2020, were enacted. The IVD Act was enacted to address concerns that in vitro diagnostics (IVDs) should be regulated separately from other medical devices as they are used for diagnostics purposes only and do not come in direct contact with the human body. Once in effect, the IVD Act will, among other effects, expand the scope of IVDs that can be marketed in Korea without a product registration and change the labelling requirements for IVDs. The Innovative Device Act will introduce systems to encourage research, development and commercialisation of innovative medical devices. As an example, a company that has obtained certification as an innovative medical device company under the Innovative Device Act can enjoy preferential status for participating in various government projects and tax incentives. A medical device can be certified as an innovative medical device under the Innovative Device Act, in which case a simplified review process for product registration can apply.

ii Digital health

Recently, digital health has gained much traction and interest among industry leaders, physicians, patients, and the healthcare industry generally. Korea is a very attractive market for digital health since Korea has advanced medical technology, sophisticated IT infrastructure, a large amount of medical data, and an ever-increasing elderly population that demands a better healthcare system. However, it is reported that the regulatory environment has not been so friendly to the development of Korea's digital health industry. Prohibition of remote healthcare and direct-to-consumer genetic testing and other data-related regulations are a few examples of such hurdles. To address this problem, government agencies such as the MOHW and MFDS are attempting to revise and improve regulations regarding digital health, and are publishing or releasing guidelines, handbooks and authoritative interpretations to better explain vague policies.

Since January 2019, as part of this effort to improve the regulatory environment and to encourage development of new technology and industries, the Ministry of Science and ICT and the Ministry of Trade, Industry, and Energy have adopted a 'Regulatory Sandbox' system. If existing regulations are unclear, irrational or prohibitive, the Regulatory Sandbox system allows three mechanisms to address these issues. First, under the 'Proven Exception' provision, the Regulatory Sandbox system will relax a restrictive regulation under specific conditions of scope, scale and duration. Second, under the 'Temporary Approval', the system allows for a market-first, evaluation-later approach. Third, under the 'Active Administrative Interpretation', it allows a more relaxed interpretation of existing regulations.

One example of the application of these Regulatory Sandbox mechanisms to the digital health field is the online brokerage service for clinical trial participants, which is a service that connects (applies and registers) clinical trial participants to the organisation conducting the trial through a smart phone application. Previously, providing information about clinical trials for a prescription pharmaceutical online and connecting participants with the clinical trial sponsors was prohibited under the PAA, because it was interpreted as prohibited mass-media advertisement of prescription pharmaceuticals. Under the Active Administrative Interpretation, such online brokerage service is permitted upon the IRB's discretionary approval to allow online brokerage services after considering the nature of the clinical trial.

After the Regulatory Sandbox took effect, companies have begun to offer services that were previously prohibited in Korea due to strict regulations.


Footnotes

1 Yong Hoon Cho is an attorney and Myung Soon Chung is a foreign attorney at Kim & Chang.