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The pharmaceutical and biotech industry is on high alert as the won-dollar exchange rate has soared to its highest level since the global financial crisis, approaching the 1,560-won mark. Traditional pharmaceutical companies focused on generics, which rely heavily on imported raw materials, face rising ingredient costs as the dollar strengthens, while also bracing for cuts to generic drug prices.
According to the pharmaceutical industry on the 2nd, drugmakers that import active pharmaceutical ingredients (APIs) for use as raw materials are taking a direct hit from the rising exchange rate. The previous day, the won-dollar exchange rate ended daytime trading at 1,554.9 won (3:30 p.m.), up 5.5 won. It soared to its highest level in 17 years, since March 5, 2009 (1,568 won), during the global financial crisis.
An executive at a mid-sized pharmaceutical company (A) said, "We drew up this year's business plan assuming an exchange rate of 1,500 won, but the rate has broken through 1,550 won," adding, "Some companies will see their cost of sales swell by anywhere from a few billion won to tens of billions of won." An accounting team leader at another mid-sized pharmaceutical company (B) said, "It's no exaggeration to say that domestic pharmaceutical companies depend almost entirely on China for the base materials of cephalosporin antibiotics used in drug production," lamenting, "China and India have all but dominated these markets, and payments for these APIs are mostly made in dollars, so it's true that we are taking a direct hit from the sharp rise in the exchange rate."
Indeed, according to the Korea Pharmaceutical and Bio-Pharma Manufacturers Association, the self-sufficiency rate for APIs among domestic pharmaceutical and biotech firms stood at just 25.6% as of 2023. Dependence on Chinese products is 37.7% and on Indian products 12.5%, meaning reliance on these two Asian countries exceeds half. This leaves Korea's essential drug supply chain vulnerable to external shocks.
The bigger problem is that there are no signs of the won-dollar exchange rate falling. Moreover, with health authorities set to implement a "generic drug pricing system reform" starting Aug. 1, generic-focused pharmaceutical companies face the double burden of a surging exchange rate and drug price cuts. The government plans to lower generic drug prices to 45%, down from the previous 53.55% of the original drug's price. An official at a traditional pharmaceutical company said, "With our sales structure currently centered on the domestic market, it's difficult to avoid the price cuts," adding, "The rising share of raw material costs due to the higher exchange rate is worsening the business environment further."
