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By Nam Hyun-woo
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| Yuhan President & CEO Lee Jung-hee |
The officials said the drug makers have no other choice but to deal with falling profitability in beliefs that R&D spending will eventually lead to greater profits in the future. But the intensifying competition and the increasingly saturated market have made it more difficult for the firms to come out with new, commercially-viable medicines.
According to firms' regulatory filings, big 5 companies _ Yuhan, GC Pharma, Daewoong Pharmaceutical, Hanmi Pharmaceutical and Chong Kun Dang (CKD) Pharm. _ each posted double-digit declines in their operating profits for the third quarter of this year.
Of them, Yuhan logged 4.38 billion won ($3.88 million) in operating profit, down 77.3 percent from a year earlier.
Over its plunge, Yuhan said "A 9.6 percent drop in pharmaceutical ingredients exports led the contraction, while costs for R&D has surged."
Of notice was the sales plunge of its Hepatitis C medicines as the number of patients declined globally. During the period, however, the company invested 29.8 billion won for R&D, up 23 percent from the third quarter last year.
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| GC Pharma Chairman & CEO Huh Il-sup |
Others also suffered big drops in their margins.
Compared to a year earlier, Daewoong's operating profit shrank by 44.7 percent to 8.04 billion won, Hanmi by 22.8 percent to 22 billion won and CKD Pharm. by 11 percent to 21.04 billion won all in the third quarter this year. They all cited increased R&D costs as one of the major reasons for their contraction.
Along with increased R&D costs, industry officials say the domestic market volume seems to be facing its limit in growth, thus companies will be difficult to restore their profitability unless there is a huge growth in overseas market.
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| Daewoong Pharmaceutical CEO Jeon Seng-ho |
"Due to Korea's unique health insurance system, the country's drug making industry can only be stagnant, even if we take aging society into account," Hana Financial Investment analyst Sun Min-jung said. "For growth, pharmaceutical and bio firms have to focus on export or aggressive investments in R&D."
She said firms are increasing their expanding R&D costs compared to their sales, which results in declines in operating profits throughout this year. But she added that such a move is aimed at their future growth.
As profitability hurts on expanded R&D, however, some raise doubts that is this the right way to survive.
"Drug makers have belief that R&D is the only way to survive, but at the same time there is a doubt because there were several cases that such an effort end up wasting assets due to failure in grasping market condition and future trend," a pharmaceutical company official said asking not to be named.
