"Back in 2012, when drug prices were cut across the board, all employees gathered in front of the National Assembly to fight. After that, many pharmaceutical companies collapsed, and quite a few workers lost their jobs."Lee Jang-hun, Yuyu Pharma labor union leader
"With this reform plan, even a 10% drop in our Hyangnam Complex's sales could cost more than 500 people their jobs. For a family of three, that means the livelihoods of as many as 1,500 people would be pushed to the brink."Seo Jeong-o, executive director of the Korea Pharmaceutical Cooperative and head of the Hyangnam Pharmaceutical Complex management office
Tensions are escalating between the government and the pharmaceutical industry over plans to overhaul the drug pricing system. As the industry, which has run parallel with the Ministry of Health and Welfare over a cut in generic drug prices, signaled a collective response, the stakes rose further. It is the first time in 14 years since the across-the-board price cuts in 2012 that the industry has publicly mentioned "fight."
At the time, the industry gathered hundreds of thousands of signatures through a public petition campaign and held a rally at Jangchung Arena. More than 100 pharmaceutical companies resolved to file a joint administrative lawsuit. Resistance was so intense that even suspending factory operations for a day was discussed. But the policy went ahead as is. Prices for about 9,000 items were cut all at once, totaling 1.7 trillion won.
As a result, the sales growth rate of pharmaceutical companies, which had posted double-digit growth every year, remained in the 0% range for several years thereafter. Profitability indicators such as operating profit and net profit recorded negative growth.
The industry believes a similar round of price cuts is being pursued again after 14 years. Starting this year, the government plans to gradually cut prices for about 4,500 items over the next three to four years and pursue a total 1 trillion won reduction in drug spending.
Amid such a sense of crisis, five groups — the Korea Pharmaceutical and Bio-Pharma Manufacturers Association (KPBMA), the Korea Biomedicine Industry Association, the Korea Pharmaceutical Traders Association, the Korea Drug Research Association, and the Korea Pharmaceutical Cooperative — decided on the 20th to entrust future responses to the "Emergency Committee for Drug Pricing System Reform for Industrial Development." They also agreed to follow the emergency committee's judgment on whether to take collective action if necessary during talks with the government.
Two days later, on the 22nd, the emergency committee held a labor-management meeting at the Hyangnam Pharmaceutical Complex in Hwaseong, Gyeonggi Province. The Hyangnam complex, created in 1985, is the nation's first and largest pharmaceutical manufacturing industrial park. It accounts for about 30% of domestic pharmaceutical production, with about 4,800 people working at 36 corporations. That is why the word "fight" coming out of this place is not taken lightly.
Lee Dong-in, Dongwha Pharm labor union leader, said at the meeting, "We will stand in strong solidarity with the pharmaceutical industry on the ground and fight against job insecurity and restructuring caused by the pricing reform," adding, "If necessary, we will continue to raise the issue through various means, including National Assembly debates, domestic and overseas press conferences, on-site meetings, and joint action rallies by the pharmaceutical industry."
Noh Yeon-hong, head of the emergency committee, said, "A policy that ignores the voices on the ground cannot succeed," adding, "We will do our utmost to ensure that on-site concerns are reflected in the policy-making process."
◇ "3.6 trillion won · 14,800 people"… the price of cuts, according to the industry
In November last year, the Ministry of Health and Welfare reported to the Health Insurance Policy Deliberation Committee a reform plan to lower the price calculation rate for generics and off-patent drugs and to shift to a post-management system that reflects not only actual transaction prices but also market competition conditions. The plan is scheduled to be approved by the committee in Feb. and take effect in Jul.
Currently, generic drugs are recognized at 53.55% of the original price up to the 20th listing if they meet the conditions of their own bioequivalence tests and registered active ingredients. If the calculation rate drops to the 40% range, sales and profitability will inevitably decline significantly even if the same volume is sold.
The emergency committee estimated that if the government's plan is implemented, prices for about 21,000 previously listed drugs will be cut, resulting in annual sales losses of up to 3.6 trillion won. The figure is based on the total 26.8 trillion won in drug spending in 2024, applying a 53% share for generics and a maximum cut of 25.3%.
With the top 100 pharmaceutical companies posting an average operating margin of 4.8% and a net margin of 3%, the industry says it is hard to endure further pressure.
There are concerns that price cuts could lead to large-scale staff reductions. The pharmaceutical industry has a job inducement coefficient of 4.11 people per 1 billion won in sales, higher than semiconductors (1.6) and displays (3.2). Based on this, the emergency committee projected that a reduction of about 14,800 jobs would be unavoidable. That is more than 10% of the 120,000 workers in total.
In particular, as production and research facilities are spread across 17 cities and provinces nationwide, the impact on local economies is expected to be significant. Lee Won-seok, head of Daehan Nupharm, said, "Small and midsize pharmaceutical companies provide quality jobs nationwide, with regular workers accounting for 95% of staffing at production sites."
There are also concerns that cost pressure will lead to greater use of cheaper foreign ingredients. The self-sufficiency rate for domestic active pharmaceutical ingredients was only 31.4% in 2024, and the related industry is already seen as standing at a crossroads of survival. Oh Sang-jun, Dongkwang Pharm labor union leader, said, "If price cuts become a reality, small and midsize pharmaceutical companies will have no choice but to opt for cheaper ingredients such as those from China."
◇ Fears of a renewed race to the bottom… efficacy of compensation measures "unclear"
The industry also believes tougher post-management of prices will further intensify price pressure in distribution. If combined with the low-price purchasing incentive scheme, hospitals and pharmacies could demand steeper cuts, raising concerns about repeated races to the bottom. A representative example is the so-called "1 won winning bid," in which some drugs were awarded at an extremely low price in past public tenders by national and public hospitals.
There is also the possibility that price adjustments will not be a one-off if a market-linked post-management system is introduced. If prices are repeatedly tweaked depending on market shifts, the industry says it will be difficult to set medium- to long-term pricing strategies and investment plans.
That is why some say the reform plan does not align with the policy's intent. Lee Dong-in, Dongwha Pharm labor union leader, said, "The government stresses a virtuous cycle for innovative new drugs, but it makes no sense to demand more research and development investment while weakening the revenue base."
The "expanded preferential add-on" the government proposed to foster the research and development ecosystem is also seen as ineffective. The government has scrapped the existing differential pricing system and introduced a plan to differentially apply add-ons based on the research and development investment ratio of innovative pharmaceutical companies. For original drugs, the add-on period at the time of the first generic listing will be extended from one year to three years.
The industry argues the "three-year add-on" is far removed from the reality of the generic market. Noh Yeon-hong, head of the emergency committee, said, "It takes at least three years after listing for generics to see real prescription growth," adding, "Before that, it is virtually impossible to expect revenue." If generic prices uniformly drop to around 40% after the add-on period ends, prices would plunge just as investment recovery begins, inevitably increasing losses.
There is also criticism that the government's approach itself is misguided. Rather than lowering generic prices, which are the revenue base for pharmaceutical companies, some argue that policy efforts should focus on creating an environment conducive to new drug development. Jeon Hye-suk, head of the Gyeonggi-do Job Foundation, who served as a member of the Health and Welfare Committee in the 21st National Assembly and is a former pharmacist, said, "Tax support or assistance for phase 1 and 2 clinical trials could be more realistic alternatives."
The emergency committee is calling for a delay in implementation and for a joint verification of the effectiveness and side effects of the pricing policy, as well as the creation of a consultative structure to systematically reflect industry opinions. Cho Yong-jun, vice head of the emergency committee, said, "Corporations need time to improve their fundamentals," adding, "For Korea's pharmaceutical industry to gain global competitiveness, what is urgently needed is a promotion-oriented perspective, not government regulation."