"Steep drug price cuts will bring down the pharmaceutical industry."
The emergency committee for reforming the drug pricing system, formed to promote industry development, issued that warning at an emergency news conference March 10 at the Korea Pharmaceutical and Bio-Pharma Manufacturers Association. The group said signs of strain are already emerging across the sector as the government pushes price cuts and as a newly erupted Middle East situation drives up costs.
It urged the government to immediately launch joint studies with industry on three areas: analyzing the impact of price cuts, restoring order in drug distribution, and developing plans to modernize the pharmaceutical industry in a sustainable way.
The Ministry of Health and Welfare is set to hold a subcommittee meeting of the Health Insurance Policy Deliberation Committee on March 11 to discuss drug pricing reforms. The government has said it would lower the pricing benchmark for generics from 53.55% of the original drug price to a level in the 40% range. After strong industry opposition, the agenda item was put on hold at the committee in February.
With the government and industry at odds over the proposed "40% range" benchmark, the subcommittee discussion is expected to shape a more detailed outline at the committee’s full meeting later this month.
The industry says that given listed companies’ operating profit margins of around 5%, it can tolerate a cut only to 48.2%, about 10% lower than the current level.
Noh Yeon-hong, a co-chair of the committee, said fears of a "fourth oil shock" are spreading due to the Middle East situation. He said surging international oil prices and exchange rates are sharply increasing cost burdens. He added that companies are already considering cutting research and development and facility investment, halting new hiring and reducing production.
Noh said the burden is likely to grow given South Korea’s heavy reliance on imported active pharmaceutical ingredients.
He said companies have moved into emergency management, shelving new investment plans. Firms are scaling back or reconsidering R&D and capital spending, he said, while others are giving up on new hiring, voluntarily canceling approvals for low-profit products, or reviewing production-line reductions.
The committee formally proposed government-industry joint research on the ripple effects of price cuts, measures to restore distribution order, and a sustainable modernization strategy.
The proposed studies would cover: the impact on public health and the industry structure if the government’s reform plan is implemented as drafted; the current state of distribution practices and possible reforms amid a surge in pharmaceutical sales promotion agents, known as CSOs, and commission payments; and broader measures for sustainable advancement.
"The pharmaceutical industry is a national strategic industry directly tied to public health," Noh said. He urged the government to accept the request for joint research, produce results within a year, and develop implementation plans to improve transparency and predictability in policymaking and increase acceptance in the field.
* This article has been translated by AI.
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