Mid-sized drugmaker Samjin pharm, known for the painkiller "Gevorin," has begun restructuring its business. It follows last year's move elevating second-generation founders Cho Gyu-seok and Choi Ji-hyun to co-CEOs.
According to Samjin pharm on the 9th, the company created an "oncology and pulmonary arterial hypertension division" this year. The strategy is meant to expand the business portfolio into high-value, high-complexity therapeutic areas.
The company's key task has become finding ways to ease its reliance on generics, the core revenue source. Last year, the government signaled a policy change this year to lower generic drug prices to 40% of original drugs. This has heightened a sense of crisis across the pharmaceutical industry over worsening profitability.
Although the Ministry of Health and Welfare did not specify the exact implementation timing, it was expected to begin in earnest in the second half of this year. Prices will first be cut for drugs that have not had price adjustments since the across-the-board reduction in 2012. For existing drugs listed under the national health insurance that are subject to cuts, prices will be reduced sequentially over three years to the 40% range.
◇ Generics that drove operational solidity face risk from price-cut policy
If generic prices are significantly reduced, Samjin pharm could see its growth momentum hit.
In 2024, Samjin pharm surpassed 300 billion won in annual revenue for the first time since its founding, and operating profit rose 54.5% year over year to 31.6 billion won. Cumulative revenue for the first to third quarters last year was 228.6 billion won, up 2.1% from the same period a year earlier. Operating profit was about 22.6 billion won, up 0.5% from the same period a year earlier. Although fourth-quarter results are pending, the first to third quarter results have drawn assessments that growth slowed from the previous year.
Most of the company's prescription drugs with the largest sales share—such as the antithrombotic Pleris, the cognitive enhancer Nutirin, and the appetite stimulant Trestan—are generics. Among over-the-counter products, the anti-inflammatory analgesic Gevorin and the health supplement Haru Engine account for a large share of sales.
In response, the company is tightening the reins. At the New Year's kickoff ceremony, CEO Kim Sang-jin, the professional manager newly appointed last year as overall head of management at Samjin pharm, said, "With the drug price cut policy slated to take effect, a more serious and difficult situation than ever is anticipated," and called for innovation in manufacturing cost structure by improving plant utilization and Production yield.
Kim urged employees to "secure diverse business opportunities such as technology transfer and joint research through research and development (R&D) in strategic areas including cancer and immunology" over the mid to long term.
Recently, Samjin pharm has moved to build competitiveness in new cancer drugs such as Antibody-Drug Conjugate (ADC) and immuno-oncology agents. There was also a call for the medical device division to discover new items and strengthen its portfolio. Samjin pharm designated the consumer health business as a new growth engine and launched the consumer health division in Aug. 2019. Over-the-counter drugs, quasi-drugs, medical devices, health supplements, and cosmetics fall under the consumer health business.
◇ Second-generation owners who took the baton of joint management face the task of overcoming growth stagnation
Samjin pharm's management and control structure is rare in Korea. The two founding families—Chairman Cho Ui-hwan and Chairman Choi Seung-ju—have jointly managed the company with professional managers for more than 50 years. In March last year, Chairman Cho's eldest son, CEO Cho Gyu-seok, and Chairman Choi's eldest daughter, CEO Choi Ji-hyun, were appointed as co-CEOs, putting a second-generation joint management system into full swing.
CEO Cho oversees management control, finance, and production, while CEO Choi oversees sales, marketing, and research and development. Chairman Cho's second son, Executive Vice President Cho Gyu-hyeong, and Chairman Choi's second daughter, Executive Vice President Choi Ji-seon, also joined the board as inside directors alongside CEO Cho and CEO Choi.
In terms of holdings, Chairman Cho and his family own 12.85%, and Chairman Choi's family owns 9.89%. Hana Pharm, classified as an external force, is also a major shareholder holding 8.24% of Samjin pharm equity.
In 2022, Hana Pharm secured 13.09% of Samjin pharm equity to become the largest shareholder, prompting some to raise the possibility of a management control dispute, but in 2024 Hana Pharm sold its Samjin pharm equity. At the time, Hana Pharm drew a line under the possibility of interfering in control, saying it had purchased Samjin pharm shares purely for investment.
Recently, in Nov. last year, Samjin pharm swapped about 7.9 billion won worth of treasury shares with ILSUNG IS (formerly Il Sung Pharm). In 2022, it exchanged roughly 5% equity in AriBio, while AriBio exchanged around 8% equity in Samjin pharm. The industry viewed this as a contingency move in anticipation of the Commercial Act amendment passing the National Assembly. The third amendment to the Commercial Act, which is pending in the National Assembly, would mandate cancellation of treasury shares upon disposal or restrict voting rights.
If the Commercial Act is amended to mandate the cancellation of treasury shares, the control of the two owner families could be weakened. To prepare, they are seeking to stabilize control by securing friendly equity through treasury share exchanges. An industry source explained, "Treasury shares have no voting rights while held by the company, but if shares are exchanged with friendly parties before the bill passes, the voting rights are revived, allowing them to be used as an indirect defense of management control."
The company has not yet completed equity succession from the first generation to the second. President Cho Gyu-seok holds 3.06%, and President Choi Ji-hyun holds 2.45%.
Choi Jong-gyeong, a research fellow at Heungkuk Securities, said, "With sweeping price cuts in the second half, the industry overall is expected to face tough conditions this year," and assessed, "For Samjin pharm, the absolute scale of results matters, but it is also a critical moment to prove business competitiveness by shoring up fundamentals to weather the crisis."