Korea’s major pharmaceutical firms are turning their eyes to overseas markets in order to compensate for falling profits from domestic sales

2014-01-10 16:21

Drug makers eye overseas markets

By Kim Tae-jong
Korea’s major pharmaceutical firms are turning their eyes to overseas markets in order to compensate for falling profits from domestic sales.
“Now we all know that we should seek to advance into overseas markets in order to make up for reduced profits due to drug price cuts,” Lee gun-nyung, assistant manager at the investment relations team of Daewoong Pharmaceutical. “But it is very challenging to compete with global pharmaceutical firms.”It is expected that pharmaceutical firms will see a huge drop in profits due to the government’s schemes to reduce the price of drugs covered by medical insurance.
Their traditional marketing has already contracted because the government has cracked down on illegal “kickback” practices, one of the reasons causes of inflated drug prices here.
Doctors, pharmacists and hospital officials have received kickbacks in various forms from drug makers and medical device manufacturers in return for prescribing, purchasing or recommending their products.
One of the new plans is that the government will provide doctors or medical institutes with incentives of up to 70 percent of the difference between tag prices and actual purchase prices.
The logic behind this is that many drugs are traded at higher prices and the measure can encourage doctors or medical institutes to buy drugs at lower prices than the price tags offered by pharmaceutical firms and will consequently benefit consumers and the National Health Insurance.
This new incentive system will go into effect from February and is expected to cause pharmaceutical firms a huge drop in sales.
In a recent survey on 30 pharmaceutical firms, 10 of them said they will see a drop in sales of between 10 billion and 20 billion won while five said they expected to see an over 20 billion won drop in sales due to the incentive system.
Hanwha Investment and Securities also forecast in a recent report that the market will only grow by 5 percent this year due to various negative factors such as government regulations, a decrease in the number of patients and the sluggish economy.
“The performance in overseas markets will be important for major local pharmaceutical firms to enhance their profitability,” said Chung Bo-ra, an analyst at the securities firm.
In fact, major pharmaceutical firms have been actively seeking a new growth engine.
For example, Donga-ST has received a preliminary approval from the Food and Drug Administration for the locally-developed anti-biotic Tedizolid Phosphate.
Hanmi Pharm has sold reflux esophagitis drug Esomezol capsules in the U.S. since December after it received a marketing authorization from FDA, expecting the sales to surpass $ 100 million.
According to Hanhwa Securities, the portion of exports in total sales of major pharmaceutical firms— Donga-ST, Yuhan Corp., Chongkundangm, Daewoong and Hanmi — jumped to 15.9 percent in 2013, up from 13.8 percent in 2011, and will increase to 22 percent in 2015.
Experts also suggest that pharmaceutical firms should turn their eyes to emerging markets.
According to IMS Health, a global firm that provides information on the healthcare industry, the global drug market will grow to 1,400 trillion won by 2016, of which 30 percent will come from emerging economies in Asia, Africa, and Central and South America.
But market insiders said it would be difficult for most pharmaceutical firms here, which merely depend on the sales of generics, to advance into overseas markets, as they cannot compete with global pharmaceutical firms, which spend a huge amount of money on research and development for new drugs.
“Tapping into overseas markets would be an empty slogan for most pharmaceutical firms here, as they are too small to compete with pharmaceutical giants,” said an official from a pharmaceutical firm.