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’Drug makers offered W100b in rebates over 5 years’

FTC last year slapped fines on Korean units of Sanofi-Aventis and Janssen

Drug makers in Korea have offered nearly 100 billion won ($89.4 million) in rebates between 2006 and 2010, a report showed Sunday, pointing to a rampant illicit practice that has long dragged on one of Asia’s fastest growing pharmaceutical markets.

Last year, 17 local and multinational firms were fined 14.3 billion for having offered cash, gift cards, lavish entertainment and other kickbacks to nearly 8,700 hospitals, doctors and pharmacists over the five-year period, according to the Fair Trade Commission.

The toughest punishment of 18.6 billion won was slapped on Sanofi-Aventis Korea, the No.4 player in the domestic market. Janssen Korea came next with 15.4 billion won, followed by Pacificpharma with 15.2 billion won and Hanall Biopharma with 8.9 billion won.

“The actual sum of money used in unlawful financial dealings should be a lot larger than revealed as the time span of the investigation was only up to three years per company and there were also other cases for which we haven’t secured material evidence,” an FTC official was quoted as telling Yonhap News.

The antitrust watchdog noted that its crackdown on illegal rebates reached a tipping point in 2010 when it adopted a tipster rewards program, triggering a surge in whistle-blowing claims.

Vowing to sever the dubious relationship between drug makers and their clients, the government began punishing both the givers and receivers in late 2010.

Rebates are regarded as a common practice here among drug suppliers trying to defend their stake in the relatively small but saturated market.

Korea took up a meager 2 percent of the $856 billion world market as of the end of 2010, according to the Ministry of Health and Welfare. Despite a recent slowing pace, the industry has grown 10 percent annually between 2003 and 2008.

Pharmaceutical firms operating here are believed to spend an average 20 percent of their revenues on rebate programs every year, worth some 3 trillion won in total. Their marketing budget accounts for about 35 percent of sales, nearly triple the manufacturing industry average.

Experts have for years criticized that the pharmaceutical giants, doctors and pharmacists line their pockets at the expense of patients. They called for greater transparency and bigger investment in research and development, tagging them as the main obstacles to the domestic industry’s takeoff.

“In light of the rebate crackdown and drug price cuts, novel drug development is now a must, not an option, for the drug companies to sustain growth and enter international markets,” Lee Jung-min, a senior researcher at Korea Ratings, a rating and financial services firm in Seoul, said in a report.

In December, 13 groups representing the medical, pharmaceutical and healthcare equipment industries pledged to eradicate illicit rebates during a joint rally in Seoul.

A spate of leading drug makers, including Dong-A Pharmaceutical, Green Cross and Daewoong Pharmaceutical, said they will sharply increase R&D spending to boost their competitiveness this year.

By Shin Hyon-hee (