Companies prepare measures to cut costs ahead drug price cuts

Cost-cutting directives spread across all departments even before official notice…“Survival over growth”

New projects, advertising spend, and hiring put on hold

Generic drug prices to drop from 53.55% to the 40% range …direct hit to per unit revenues

Warnings of an upcoming drug price cut are shaking pharmaceutical companies from within. Even before the government’s official announcement, internal directives to reduce costs are already being implemented.

Some companies have instructed all departments to revise their plans with budget cuts of up to 30%. No division is exempt. R&D, sales, marketing, and HR are all subject to austerity measures. With core departments simultaneously targeted for austerity, tension is rising across the entire organization. Voices are emerging that operations are grinding to a halt.

According to industry sources, the atmosphere on the ground has changed dramatically since the government's drug price cut announcement.

An executive at a mid-sized pharmaceutical company said, “Because the exact scale of the price cuts has not yet been finalized, companies are acting even more conservatively. Management has decided to assume an immediate revenue decline and prioritize cash preservation.” Another industry insider reported, “With budget execution frozen, discussions on new projects are stalling. Meetings that used to focus on growth strategies have recently shifted to cost control.”

The R&D sector is also feeling the impact. New project launches are being put on hold, and external outsourcing contracts are under review. Clinical development plans are being divided into stages or delayed. One R&D executive said, “Approval for long-term projects has become much more difficult. The timing of investments is being recalculated.” Delays in internal approvals are also cited as narrowing the operational flexibility of research teams.

Sales and marketing organizations are no exception. Sponsorship of academic conferences and advertising are decreasing, and the scale of promotional material orders is also shrinking. Some companies have effectively halted recruitment plans.

The advertising sector is also seeing cases where execution timelines are delayed or contract terms are re-evaluated. A marketing executive stated, “We’ve been instructed to readjust annual advertising budgets. Maintaining brand awareness is important, but cost control is clearly the priority right now.”

Sales teams report noticeably slower approval processes. A sales director said, “Sales targets remain unchanged, but support is being reduced. The burden of defending revenue has become heavier. Compared to R&D, the blade is falling more sharply on sales departments.”

HR and management support divisions are also included in the austerity drive. Training budgets and welfare benefits are being adjusted, and performance bonus criteria are under further review. Some companies are even discussing the possibility of organizational downsizing. An HR official explained, “Managing fixed costs, including labor expenses, is the top priority. Aggressive investment is difficult until uncertainty is resolved.”

The core of the government's proposed reform plan is to lower the pricing benchmark for generic drugs from the current 53.55% of the original drug price to around 40%. While the exact impact will vary by product depending on the detailed implementation method, an adjustment to the unit sales price is inevitable. If the sales base is shaken, it becomes difficult to simultaneously maintain both R&D and sales expenses. This is the background behind some pharmaceutical companies’ preemptive implementation of austerity measures.

A sense of crisis is also evident across the industry. Recently, a labor-management meeting was held at the Hyangnam Pharmaceutical Industrial Complex in Hwaseong, Gyeonggi Province, attended by pharmaceutical companies and labor unions. The FKTU’s Pharmaceutical and Cosmetics Division and labor-management representatives of tenant companies urged a halt to the drug price reduction reform.

Labor groups presented numerical estimates of the potential shock. If the reform is implemented, annual revenue losses across the pharmaceutical and biotech industry are estimated at KRW 1.2144 trillion, with an average loss of KRW 23.3 billion per company. Operating profits could decline by an average of 52%, according to their analysis. They argue that deteriorating profitability could lead to labor cost reductions and restructuring pressure across production, sales, and R&D personnel.

Concerns over contracted R&D and investment were also raised. Implementation of drug price cuts is estimated to reduce R&D expenses by an average of 25% and facility investments by 32%. Analysis suggests investment reductions for small and medium-sized pharmaceutical companies could exceed 50%. A warning followed that approximately 9% of the industry's current workforce of around 39,000 could face layoffs.

A senior industry executive stated, “The fact that some pharmaceutical companies have already initiated company-wide austerity measures even before the official announcement demonstrates the intensity of the crisis. Cost reduction is not merely efficiency, it represents a shift in strategic priorities. On the ground, the talk is repeatedly about survival rather than growth. The fact that corporate management stances are already turning conservative internally, even before the drug price cuts are finalized, indicates significant repercussions.”