Korean Pharma Industry Braces for Clash Over Proposed Generic Drug Price Cuts
A plan to lower generic drug reimbursement rates is sparking a major dispute between South Korea’s pharmaceutical industry and the government, with industry leaders warning of significant job losses and a chilling effect on research and development.
Seoul is moving to lower the reimbursement price of generic drugs from 53.55% of the original branded medicine to 40%, a move the Ministry of Health and Welfare asserts will curb healthcare costs and improve patient access. Officials point to a similar price reduction in 2012, which they claim reduced annual drug spending by approximately 1.46 trillion won ($1 billion).
However, the proposed changes have ignited fierce opposition from the pharmaceutical sector, which argues the cuts are unsustainable and will ultimately stifle innovation. An emergency committee, comprised of five leading industry organizations – the Korea Pharmaceutical and Bio-Pharma Manufacturers Association, Korea Bio-Pharmaceutical Association, Korea Pharmaceutical Traders Association, Korea Drug Research Association, and Korea Pharmaceutical Industry Cooperative – has formed to fight the plan.
“If we lower the price of generic drugs to 40% in accordance with the government’s plan, the pharmaceutical industry projects an annual loss of up to 3.6 trillion won,” stated Yun Woong-sup, speaking at a press conference at the Korea Pharmaceutical and Bio-Pharma Manufacturers Association (KPBMA) headquarters on Monday. He further emphasized the precarious financial position of many Korean pharmaceutical companies, noting that the average operating profit rate among the top 100 firms is just 4.8%, with a net profit rate of only 3%. “Given this, the government’s drug pricing revision plan is a declaration to give up the domestic pharmaceutical industry’s future.”
The industry fears the price cuts will severely curtail investment in new drug development. According to the emergency committee, the proposed changes could jeopardize 14,800 jobs – representing over 10% of the entire Korean pharmaceutical workforce. Beyond employment concerns, industry representatives argue the cuts will diminish the sector’s global competitiveness and potentially lead to a contraction of the overall pharmaceutical market.
A key point of contention is the long-term impact of previous price cuts. The emergency committee highlighted that while the 2012 reduction yielded short-term savings, consumer spending on drugs ultimately increased by 13.8% in the years that followed. This suggests that artificially suppressing prices may not deliver sustained cost benefits.
Industry sources suggest the government’s plan, while potentially easing the immediate financial burden on consumers and improving the structure of the National Health Insurance, carries substantial risks. “If mid-sized pharmaceutical firms have to stop the production of certain generic drugs due to low profitability, patients may have to travel further to find the drugs they need immediately,” explained an official at a local pharmaceutical company.
Another concern is the potential for consolidation within the industry, with smaller firms potentially forced out of business, leaving larger companies with diminished resources for research. “This will lead to an overall lack of new drugs in the industry and the loss of medical sovereignty,” the official warned.
The Ministry of Health and Welfare, in a press release issued on November 28, attempted to assuage concerns, stating that the reform plan would “set up a reward system that corresponds to the degree of investments for innovation and medical security.” However, industry leaders remain skeptical, arguing that the proposed reimbursement rates are simply too low to incentivize continued investment.
The newly revised drug pricing measures are slated to be implemented in the second half of 2026, setting the stage for a prolonged and potentially damaging conflict between the government and one of South Korea’s key economic sectors.
