The South Korean pharmaceutical industry is rapidly restructuring and adjusting its business strategies as the government prepares to implement a phased drug price reduction system in just over a month. In response to inevitable revenue declines, companies are focusing on cost efficiency while also changing their pipeline management strategies.
According to industry sources, the government plans to lower the pricing rate for generic drugs from the current 53.55% to 45%, along with reforms to the pricing system, starting in August. Industry experts view this move as a potential game-changer that could affect not only profitability but also the future strategies of companies. With intensified competition among similar products, the price cuts are expected to lead directly to revenue declines, heightening concerns within the sector.
In response, major pharmaceutical companies have begun streamlining their operations. Chong Kun Dang has decided to consolidate departments with similar functions to slim down its organizational structure. While the company has stated that there will be no layoffs, it recognizes the need to reduce redundant functions and improve decision-making speed. Plans to transition some products to contract sales organizations (CSOs) have also been temporarily postponed in light of the anticipated impact of the price cuts on sales strategies.
Hanmi Pharmaceutical is also restructuring to adapt. The company has reorganized into four main divisions: innovative growth, sustainable growth, future growth, and growth support, while integrating its new product development center to strengthen the link between research and commercialization. The research and development (R&D) organization has been placed under the future growth division, focusing on securing long-term growth drivers. This strategy aims not only for short-term cost savings but also to enhance the efficiency of new drug development and diversify revenue streams.
The industry anticipates that the drug price cuts will accelerate both organizational streamlining and business restructuring. With the profitability of the revenue-dependent generic business declining, companies must rebalance their investments in R&D and sales strategies.
A representative from a domestic pharmaceutical company stated, "We are holding weekly meetings through a task force to monitor market conditions in response to the price cuts. Given that visible impacts are expected starting next year, our organizational restructuring and response systems will become more concrete."
Smaller pharmaceutical companies are also making noticeable strategic shifts. Companies with limited financial resources are increasingly opting to secure profits through technology transfers rather than leading clinical trials for candidate substances. This choice reflects the challenges of managing large clinical trial costs and market entry risks.
However, some analysts suggest that the impact of the price cuts on larger pharmaceutical companies may be limited. Jeong Yoon-taek, director of the Pharmaceutical Industry Strategy Research Institute, noted, "The effects of the price cuts could be somewhat mitigated through the registration of innovative and quasi-innovative pharmaceutical companies, and since the policy will be gradually implemented until 2030, larger companies have the capacity to absorb short-term shocks." He added that, given the government's focus on fostering in-house drug development and overseas expansion, companies should view this regulatory change not just as cost pressure but as an opportunity to shift towards an R&D-centered approach.
Regarding overseas expansion strategies, a more pragmatic approach is necessary. Jeong emphasized, "While there are direct entry examples like SK Biopharm and Celltrion, most companies will have to rely on partnerships with global firms to access international markets. They should develop their strategies based on licensing out while strengthening responsibilities through joint development with global companies."
* This article has been translated by AI.
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