Drug Pricing Reform Leaves Pharma Firms Unable to Finalize 2025 Strategies

Since the government announced its drug pricing reform plan on November 28, pharmaceutical companies have struggled to finalize next year’s business strategies. Although firms must realign their 2025 plans to match the new pricing framework, many say it remains impossible to estimate revenue impact because detailed criteria for each premium category have yet to be released.

According to industry sources on December 4th, one mid-sized South Korean pharmaceutical company has begun re-evaluating its entire 2025 plan. With generics comprising most of its portfolio, the reform directly affects its core business, forcing a full revision of multi-year revenue projections. Yet the company still cannot assess how much its sales and operating profit will decline. While it understands which products may qualify for premiums, it cannot calculate the actual price erosion that will occur once the revised structure is applied.

Companies with multiple affiliates face an additional hurdle: when both a parent company and subsidiary hold approvals for the same product, their generic prices may differ depending on how R&D expenses are attributed. Because only the entity that conducted the development can claim those costs, firms must now decide which products to exclude from their portfolios.

Firms that rely heavily on contract sales organizations (CSOs) are also uncertain about how to adjust commission rates. One small South Korean company noted that while it currently pays fees slightly above industry averages, expected price cuts make it unclear whether commissions should be recalibrated relative to higher-priced generics whose premiums depend on R&D spending. Most companies set CSO fees as a fixed percentage of sales, but beginning in the second half of 2026, premium levels will vary by company—making existing commission structures difficult to maintain.

Concerns are growing over the premium period as well. The reform extends the one-year premium for original products after generic entry to three years. For South Korean companies, however, this becomes “three years plus α,” as the duration may be adjusted based on each firm’s R&D-to-sales ratio. Because these ratios can fluctuate quarterly, companies warn that frequent price changes will further undermine product-level profit forecasting.

A key component of the reform is the removal of the uniform one-year generic premium—previously set at 70% of the original drug price for generics, 68% for innovative pharmaceutical companies, and 59.5% for others. Under the new system, original drugs will retain the 70% rate, while the premium for innovative companies will be tied to their R&D-to-sales ratio: those in the top 30% will receive 68%, while the remaining 70% will receive 60%. Companies with less than $33.9 million in South Korean sales or those with at least one Phase 2 clinical trial approval within the past three years may qualify for a 55% premium.

The government has stated that revised generic pricing criteria will take effect in July 2025, with price reductions for currently listed products implemented gradually from the second half of 2025 through 2030. However, for companies not designated as innovative pharmaceutical manufacturers, actual reimbursement prices will vary depending on their ability to meet the new requirements.

Industry observers say the core issue is the absence of detailed implementation standards. “Without specific criteria for each premium category, simulations are impossible,” one official said. “We don’t know what the reimbursement price will be, so we can’t estimate the revenue impact.”

Another official added, “We only have the framework. Without concrete numbers, companies cannot set response strategies. Detailed standards must be finalized quickly.” Many firms also note that personnel who handled the 2012 across-the-board price cuts have since left the industry, leaving companies without experienced staff to guide practical countermeasures.

The government plans to continue collecting feedback and refine the reform plan by category before submitting it to the Health Insurance Policy Deliberation Committee for review. Until the final details are released, industry uncertainty—and the inability to model financial outcomes—is expected to persist.