Teaching note: Dong-A pharmaceutical, strategic change, and threats

CASE SYNOPSIS This case study examines the Korean pharmaceutical industry, with a focus on Dong-A Pharmaceuticals. South Korea's pharmaceutical market accounts for approximately 2% of global pharmaceutical sales. With increasing insurance coverage and an aging population, the Korean pharmaceutical market will grow by approximately 6.5% annually until 2015. Dong-A has been a market leader since its foundation in 1932. In contrast to other Korean pharmaceutical firms, which primarily rely on generic drugs, Dong-A invests in R&D, which has yielded 3 successful original drugs that were developed in-house. In addition, Dong-A has made substantial efforts to expand its business into global markets, with success in Cambodia. However, the Korean government introduced a drug price reduction policy in 2011 that has resulted in an overall price reduction for ETC drugs and initiated a gradual decline in the price gap between original drugs and their generic analogs. Due to this change, Dong-A must address both decreased ETC revenues and a fading pricing advantage among generic drugs, which might increase competition from original drugs manufactured by foreign firms. Moreover, the new pricing policy could ultimately change the entire Korean pharmaceutical landscape. To sustain its strong market position, Dong-A must respond to this new policy.