Korean drugmakers will face a two-sided squeeze: falling returns from generics just as the government pushes them to spend more on R&D.

South Korea plans to give companies that meet minimum R&D thresholds preferential drug pricing, while cutting generic reimbursement from about 54% towards 45%. That means the cash flows many manufacturers rely on to fund research will weaken at the same time as the requirements for pricing privileges grow. Firms may respond by selling lower-margin generic lines and redirecting the proceeds into R&D, but without foreign pharmaceutical buyers or other sources of outside capital, many could face several hard years where profits will fall.