Pharmaceutical Industry Hit by Drug Price Cuts, All-Out Effort to Strengthen R&D

Responding to the Government's Reform of Generic Drug Pricing System

Accelerating Organizational Restructuring, Including Leadership Changes

Ildong Pharmaceutical to Merge Subsidiary Yunovia

Yuyu Pharma, Medytox, Dongwha Pharm, and Others

Revamping Personnel by Recruiting External Experts

Major domestic pharmaceutical companies are accelerating organizational restructuring by successively replacing their heads of research and development (R&D) and reintegrating previously spun-off R&D subsidiaries. This trend follows the government's overhaul of the drug pricing system, which substantially lowers the price of generic drugs but provides preferential pricing to companies with a higher proportion of R&D investment. As a result, these companies are focusing on strengthening their R&D capabilities to secure the status of "innovative companies." Observers note that this shift goes beyond simple personnel changes and marks a fundamental shift in management strategy.

According to the pharmaceutical and biotech industry on April 17, Ildong Pharmaceutical held a board meeting on April 13 and decided to merge its new drug R&D subsidiary, Yunovia. The merger date is set for June 16, and it will be carried out as a non-capital-increase merger, with no new shares issued. This decision to merge comes less than three years after the original spin-off. Previously, on April 1, the company recruited Park Jaehong, a former executive at Dong-A ST with experience at major global pharmaceutical companies, to lead its R&D efforts. Park has a track record of leading clinical development and commercialization at Janssen, Takeda Pharmaceutical, and Boehringer Ingelheim.

Ildong Pharmaceutical established Yunovia in November 2023 by spinning off its R&D division, aiming to separate out R&D costs, which had been the main reason for three consecutive years of losses. The impact was immediate: the company swung from an operating loss of 40.7 billion won in 2023 to an operating profit of 49.8 billion won the following year. However, due to the separation of the R&D division, the ratio of R&D to sales plummeted from 16.3% in 2023 to 1.54% in 2024, and remained at only 6.54% last year.

The decision to reintegrate the subsidiary after just three years is interpreted as a preemptive response to the government's changes in the drug pricing system. Last month, the Ministry of Health and Welfare announced that it would lower the generic drug pricing rate from 53.55% to 45% of the original drug price as part of its reform plan. However, innovative pharmaceutical companies with a high R&D ratio will receive a preferential price of 49% for already listed drugs, and up to 60% for newly listed generics, for up to four years. The requirement for innovative certification—"the ratio of R&D investment to pharmaceutical sales"—has also been raised from 5% to 7% for companies with annual sales exceeding 100 billion won. Ildong Pharmaceutical’s R&D ratio last year (6.54%) meets the current standard (5%) but falls short of the upcoming 7% requirement. Since prescription drugs account for about 55% of the company’s total sales, losing its innovative status would directly impact its sales and profit structure. Given the uncertainty over how subsidiary R&D investment will be reflected in the parent company's evaluation, the move to reintegrate R&D performance into the parent company is seen as an effort to eliminate this uncertainty in advance.

This movement is spreading across the industry. Dong-A ST appointed Vice President Oh Yunseok, former CEO of NeoImmuneTech, as Chief Scientific Officer (CSO) to fill the vacancy left by Park Jaehong’s move to Ildong Pharmaceutical. The company plans to systematically promote global clinical development, technical cooperation, and open innovation in major pipeline areas such as immunological, metabolic, and oncology diseases. SK Bioscience has recruited Vice President Ma Sangho, an expert in infectious disease research project management, as Head of Research Support at the Bio Research Headquarters, and reorganized its research management process by establishing a Research Planning Team, Bio-Regulatory Management Team, Nonclinical Support Team, and Clinical Sample Analysis Team.

Yuyu Pharma has brought in Executive Director Ryu Hyun-gi, who has experience in development planning and business development (BD), as Head of Development to strengthen its next-generation improved drug pipeline. Medytox recruited Executive Director Lee Taesang, who worked for over 20 years at the global clinical team of Janssen Korea. Dongwha Pharm also hired Executive Director Jang Jaewon, who previously served as Head of Development and Sales, and Director of the Central Research Institute at Yuyu Pharma, as its new Head of Research and Development.

An industry insider commented, "Since the changes in the drug pricing system directly link R&D investment to drug pricing, pharmaceutical companies have no choice but to go beyond simply hiring external experts and are also being driven to restructure their pipelines and organizational structures in succession," adding, "This R&D personnel reshuffle is unlikely to be just a short-term response."

This content was produced with the assistance of AI translation services.