Domestic mid-sized pharmaceutical companies are reexamining weak points in their business structures ahead of a drug pricing system overhaul set to take effect in earnest in the second half of this year. Their domestically focused, generic-centered model, which has operated as a "safe cash generator," has hit structural limits amid government policy changes. Inside and outside the industry, analysts say the overhaul will be a watershed that separates the stronger from the weaker among mid-sized drugmakers.
◇ Collapse of the "safe cash generator"… 75.1% of drugs subject to price cuts belong to mid-sized companies
According to a survey the "Emergency Committee for Drug Pricing System Reform for the Development of the Pharmaceutical-Bio Industry" conducted on 59 pharmaceutical companies with manufacturing facilities and released on the 7th, if the prices of listed drugs maintained at 53.55% of their initial assessed prices are cut into the 40% range, the estimated annual sales loss would total 1.2144 trillion won. The average loss per company is 23.3 billion won.
The survey included seven large pharmaceutical companies with annual sales of 1 trillion won or more, 42 mid-sized corporations with annual sales of 100 billion won or more and less than 1 trillion won, and 10 small corporations with annual sales of less than 100 billion won.
The impact is expected to vary by company size. The sales loss rate was highest for small corporations at 10.5%, followed by mid-sized corporations at 6.8% and large corporations at 4.5%. However, in terms of the number of products subject to price cuts, mid-sized corporations account for the largest share. Of a total of 4,866 products, those held by mid-sized corporations numbered 3,653, or 75.1%.
The decline in operating profit is even steeper. Corporations expected an average 51.8% drop in operating profit per company if price cuts are implemented. In particular, the expected operating profit decline for mid-sized corporations was the highest at 55.6%, followed by large corporations (54.5%) and small corporations (23.9%).
Drugmakers warn that this deterioration in results could lead to cuts in research and development (R&D) investment and a contraction in hiring. Still, given the government's strong will to push policies aimed at easing the burden on the national health insurance budget, the prevailing view is that the overall direction of the overhaul is unlikely to change significantly.
An industry official said, "Pharmaceuticals are a typical regulated industry in which the government holds the key gates of approvals and national health insurance listing," adding, "In periods of pressure on the health insurance budget, the sector is structurally one of the first to be adjusted by policy."
The official added, "In the end, a company's own R&D results and whether it can enter global markets will inevitably decide its survival," and "the higher the dependence on generics, the greater the shock from this overhaul."
Credit rating agencies are drawing the same conclusion. Korea Ratings offered a "neutral" outlook for the pharmaceutical-bio industry this year but noted that as R&D investment has effectively become essential, the importance of the financial capacity to sustain it has grown even greater.
Kim Su-min, senior analyst at Korea Ratings, said, "This drug pricing overhaul will act as a direct downward pressure on the profitability of small and mid-sized drugmakers highly dependent on generics," adding, "The environment will shift in earnest to one that compels differentiation through research and development rather than simple generic production."
◇ Ildong Pharmaceutical led by the owner… R&D spending quadrupled from 2016 to 2023
Against this changing backdrop, some companies are seen as likely to be relatively less affected by the price shock. They had already recognized the limits of a generic-centered structure years ago and shifted their business direction. Ildong Pharmaceutical and Samjin pharm are representative.
Ildong Pharmaceutical's owner personally redirected its growth strategy. Since becoming CEO in 2014, Chair Yoon Ung-seop has led the transition to a holding company structure and a reorganization of the corporate system, streamlining governance and the business portfolio, and then established a business structure with pharmaceuticals and healthcare as two pillars. New drug research and development was the core of this strategy.
Yoon's choice is evident in the numbers. Ildong Pharmaceutical's R&D expenses rose from 21.2 billion won in 2016 to 97.4 billion won in 2023, more than quadrupling, and the share of R&D spending in sales expanded from the low-10% range to the 16% range over the same period.
Yoon's recent promotion to chair also shows that this mid- to long-term strategy has entered its next phase. As his first official move after the promotion, Yoon plans to attend the world's largest pharmaceutical-bio investment event, the "JP Morgan Healthcare Conference (JPMHC)," in the United States starting on the 12th (local time) to introduce the new drug pipeline.
Ildong Pharmaceutical Group currently has multiple new drug pipelines in metabolic diseases, gastrointestinal diseases, autoimmune diseases and solid tumors. At this event, it is expected to mainly present GLP-1–class obesity and diabetes treatments and P-CAB–class peptic ulcer treatments.
Lee Myung-seon, an analyst at DB Financial Investment, said, "Oral GLP-1–class drugs have repeatedly faced liver toxicity issues, but Ildong Pharmaceutical's candidate 'ID110521156' secured improved clinical data across all key indicators related to liver function," adding, "Based on this, the potential for a global technology transfer deal can also be expected."
◇ Samjin pharm shifts to high-value therapeutic areas… co-promotion results become visible
Samjin pharm is addressing the same challenge more gradually. It is using its existing sales force and external partnerships to reduce reliance on generics. The main tool is co-promotion, a model in which it jointly sells and markets in Korea drugs developed by other companies or introduced from overseas.
Results are becoming visible. The immune-enhancing influenza vaccine "Fluad" and the cell culture vaccine "Flucelvax," launched last year, posted 3.6 billion won in sales in just the first quarter after launch (July–Sept. 2025). The transdermal analgesic "Norspan patch," launched in 2024, has grown into a product expected to generate around 10 billion won in annual sales.
Samjin pharm also established oncology and pulmonary arterial hypertension divisions this year. The goal is to shift the portfolio to specialist therapeutic areas that are relatively less affected by price controls.
In oncology in particular, it is seeking to move away from a portfolio centered on cytotoxic chemotherapies and increase the share of oral targeted therapies. A case in point is "SJP364," a generic of the breast cancer treatment "Ibrance," which recently entered a bioequivalence study.
Adjustments are also being made in the R&D institutional sector. Samjin pharm wound down four pipelines related to MASH (metabolic dysfunction–associated steatohepatitis) in the third quarter of last year. The aim is to pivot to GLP-1–class obesity treatments that cover the spectrum of metabolic diseases. Its 12 oncology pipelines are being restructured with potential technology transfer in mind.
Choi Jong-kyung, an analyst at Heungkuk Securities, said, "Expanding into high-value, high-complexity therapeutic areas and accelerating growth in co-promotion products are what Samjin pharm has done best and where it can continue to be competitive," adding, "Based on this, this year's sales will rise 5.4% year over year to 325.1 billion won, operating profit will increase 10.9% to 29 billion won, and the operating margin will reach 8.9%."