"At the time of the across-the-board drug price cut in 2012, all employees gathered in front of the National Assembly and took to the struggle. Since then, many pharmaceutical companies have collapsed, and not a few workers have lost their jobs."Lee Jang-hun, Yuyu Pharma labor union chief
"With this overhaul plan, even if our Hyangnam complex's sales fall by just 10%, more than 500 people could lose their jobs. For a three-person household, as many as 1,500 people's livelihoods would be driven to the edge of a cliff."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 the drug pricing system overhaul plan. As the industry, which has run parallel with the Ministry of Health and Welfare over cutting prices for generics, signaled a collective response, the level of tension rose further. It is the first time in 14 years that the industry has publicly mentioned "struggle" since the across-the-board drug price cut in 2012.
At that time, the industry gathered hundreds of thousands of signatures through a nationwide petition drive and held an outdoor rally at Jangchung Arena. It also resolved to pursue a joint administrative lawsuit with more than 100 pharmaceutical companies participating. The backlash was so intense that even a plan to halt factory operations for a day was floated. But the policy was implemented as is. A one-time cut was carried out for about 9,000 items, 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 income and net income recorded negative growth.
The industry sees a similar price cut being pushed again for the first time in 14 years. Starting this year, the government plans to implement the system and gradually cut prices for about 4,500 items over the next three to four years, aiming to save a total of 1 trillion won in drug spending.
Amid this 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 — on the 20th entrusted future responses to the "Emergency Committee for Drug Pricing System Overhaul for Industrial Development." They also decided to follow the emergency committee's judgment on whether to take collective action if needed 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. The Hyangnam complex, created in 1985, is Korea's first and largest pharmaceutical manufacturing industrial park. It accounts for about 30% of domestic pharmaceutical production, with more than 4,800 people working at 36 corporations. That is why the word "struggle" coming out of this place is not taken lightly.
Lee Dong-in, Dongwha Pharm labor union chief, said at the meeting, "We will stand in strong struggle in solidarity with the pharmaceutical industry on the ground against job insecurity and restructuring caused by the drug pricing system overhaul," adding, "If necessary, we will continue to raise the issue through various means such as National Assembly debates, domestic and overseas press conferences, on-site meetings, and joint action rallies by the pharmaceutical industry."
Emergency committee chair Noh Yeon-hong said, "A policy that ignores the voices on the ground cannot succeed," adding, "We will do our best to ensure that on-site concerns are reflected in the policy-making process."
◇ "3.6 trillion won · 14,800 people" … the price the industry says comes with cuts
In November last year, the Ministry of Health and Welfare reported to the Health Insurance Policy Review Committee an overhaul plan to lower the pricing rates 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 July.
Currently, if generic drugs meet the conditions of their own bioequivalence tests and the use of registered raw materials, they are recognized at 53.55% of the original price up to the 20th order of listing. If the rate falls to the 40% range, sales and profitability will inevitably shrink significantly even if the same volume is sold.
The emergency committee estimated that if the government plan is implemented, prices for about 21,000 already-listed drugs would be cut, resulting in up to 3.6 trillion won in annual sales losses. This figure was calculated by applying a 53% generic share and a maximum reduction rate of 25.3% to total drug expenditures of 26.8 trillion won in 2024.
With the average operating margin of the top 100 pharmaceutical companies at 4.8% and the net margin at 3%, the industry says it cannot endure this.
There are also concerns that the price cuts could lead to large-scale workforce reductions. The pharmaceutical industry has an employment 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 expects an unavoidable reduction of about 14,800 jobs. That exceeds 10% of the total 120,000 workers.
In particular, with production and research facilities spread across 17 metropolitan cities and provinces nationwide, the impact on regional economies is expected to be significant. Lee Won-seok, CEO of Daewon New Pharm, said, "Small and mid-sized pharmaceutical companies provide quality jobs with a 95% share of full-time positions at production sites nationwide."
There are also concerns that cost pressure will spur greater use of low-priced foreign raw materials. With the self-sufficiency rate for domestic active pharmaceutical ingredients at just 31.4% as of 2024, the related industry is already seen as standing at a crossroads of survival. Oh Sang-jun, Dongkwang Pharm labor union chief, said, "If price cuts become reality, small and mid-sized pharmaceutical companies will have no choice but to choose cheaper raw materials such as those from China."
◇ Fears of a renewed race to the bottom … the effectiveness of compensation measures is "uncertain"
The industry also believes that stronger post-management of prices will further increase price pressure in distribution. If coupled with the low-price purchasing incentive system, hospitals and pharmacies are likely to step up demands for cuts, raising concerns that a race to the bottom will repeat. A representative example is the so-called "1 won bid" cases in which some drugs were awarded at extremely low prices during open tenders by national and public hospitals in the past.
There are concerns that introducing a market-linked post-management system will not limit price adjustments to a one-off. If prices are repeatedly revised with changes in market conditions, it will be hard to set mid- to long-term pricing strategies and investment plans, the industry says.
This is why some say the overhaul plan does not align with the policy's stated purpose. Lee Dong-in, Dongwha Pharm labor union chief, said, "The government stresses a virtuous cycle for innovative new drugs, but asking for more research and development investment while weakening the revenue base does not add up."
The government's proposed "expansion of preferential add-ons" to foster the research and development ecosystem is also seen as ineffective. The government scrapped the existing differential pricing system and proposed applying add-ons differentially according to the research and development investment ratio of innovative pharmaceutical companies. For original drugs, the add-on period at the time of first generic listing will be extended from the current one year to three years.
The industry argues that the "three-year add-on" is far removed from the reality of the generic market. Emergency committee chair Noh Yeon-hong said, "It takes at least three years after listing for generics to see actual prescriptions increase," adding, "Before then, it is virtually impossible to expect revenue." If the structure is such that generic prices uniformly drop to the 40% level 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 flawed. Rather than lowering the price of generics, which are the revenue base of pharmaceutical companies, some argue that policy capacity should focus on creating an environment where new drugs can be developed. Chun Hye-sook, chair of the Gyeonggi Jobs Foundation, who is a pharmacist and served as a member of the Health and Welfare Committee in the 21st National Assembly, said, "Tax support or support for Phase 1 and 2 trials could be more realistic alternatives."
The emergency committee is calling for a deferral of implementation of the overhaul plan, joint verification of the effects and side effects of drug pricing policies, and the creation of a consultative framework to institutionally reflect industry opinions. Emergency committee vice chair Cho Yong-jun said, "Corporations need time to improve their fundamentals," adding, "For Korea's pharmaceutical industry to gain global competitiveness, a promotion-centered approach is essential, not regulation by the government."