Drugmakers see fewer staff as only tonic

About one year after the government forced them to cut their prices, foreign drug makers are scaling back their work forces due to falling profits.

Pfizer Korea, famous for selling Viagra, recently announced an early retirement program for all levels of employees for the first time since it entered the Korean market in 1969. It estimates that around 80 workers are likely to apply.

Most of the patents on its treatments for high blood pressure have expired and the company plans to cuts their prices by 14 percent to stay competitive, thus necessitating the moves to streamline its work force, the company said.

“We have many blood-pressure treatments that are affected by the government’s price-cut policy, but we can’t confirm yet whether or not our sales and operating profit fell last year,” said a spokeswoman at Pfizer.

In the third quarter of 2012, the U.S. drug maker saw sales fall 18 percent and net profit decline 14 percent. One of main causes was weaker sales of Lipitor, one of its best-selling high cholesterol drugs, as the company’s patent expired in late 2011.

“We are running the retirement program not only because of the price-cut policy, but also due to changing conditions in the global market,” the spokeswoman added.

Several foreign pharmaceutical manufacturers started laying off their employees last year to compensate for losses stemming from declining profits.

The local operation of British drug maker GlaxoSmithKline zis also trimming down its work force after it saw sales drop 8 percent and net profit decrease 18 percent in Q3.

This is not the first time its workers have faced the ax en masse, but never before has it encouraged employees of all grades to accept early retirement. It said it expects about 100 workers to accept the offer.

The Ministry of Health and Welfare lowered prices of around 6,000 different drugs by 14 percent starting last April as part of its plan to cut spending on national health insurance.

Despite strong opposition from the pharmaceutical industry, the ministry wanted national health insurance premiums to be lowered. It said drug makers would be able to weather the storm by cutting unnecessary spending.

German pharmaceutical manufacturer Bayer Korea laid off 100 employees in December. Janssen Korea and AstraZeneca Korea also accepted applications for early retirement from about 20 employees last year.

“Sales people are usually the first targets when it comes to early retirement,” said an insider at one of the aforementioned companies. “In recent years, the number of salespeople [at our company] has almost halved.”

“The government’s policy has apparently had a direct impact on foreign players, shaving about 30 to 40 percent off their operating profits, although they decline to disclose exact numbers,” said a high-ranking insider at a foreign drug maker.

The total size of the local drug market is expected to have shrunk 1 percent as a result of the policy.

According to the Pharmaceutical Industry Association, the local drug-making industry fell to 19.1 trillion won ($17.8 billion) last year - including drugs imported from overseas - down from 19.3 trillion won in 2010. The figure excludes exports of locally made products.

Prices of another 1,294 drugs that are covered by the national health insurance were lowered by 9.4 percent from Jan. 1, suggesting the local pharmaceutical industry will take another hit early this year.

By Song Su-hyun [ssh@joongang.co.kr]