The pharmaceutical industry in Korea is expected to suffer sales declines in the second half amid tax investigations into some firms.

Drug companies are bracing for a drop in sales as patients tend to shun hospital visits due to the recent confirmation of the first Middle East Respiratory Syndrome (MERS) case in three years. The upcoming national holiday of Chuseok in the last week of September will reduce business days, which could also lead to a slide in revenue.

Samjin Pharmaceutical and Daewoong Pharmaceutical are under tax probes. Kwangdong Pharmaceutical is also under the prosecutor’s investigation over the suspicion of receiving illegal rebates from an advertisement firm.

The Seoul Regional Tax Office began the tax investigation into Samjin Pharm in July. Although the company said it was a regular probe, the investigation team’s involvement raised speculation that tax investigators were looking into any suspicion of illicit funds or tax evasions.

Daewoong Pharm, which recently made headlines with its owner’s verbal attack on a subordinate, also received investigations from the National Tax Office on Wednesday. News reports said the probe was part of a regular tax investigation that comes every four or five years.

However, observers are paying attention to the outcome of the tax investigation because it came just after former Chairman Yoon Jae-seung, the company’s owner and the third son of founder Yoon Young-hwan, stepped down after employee abusing.

The junior Yoon resigned from all his posts and gave up management rights. However, his grip over Daewoong Pharm is still dominant.

Yoon is on the board of directors at Daewoong Pharm’s subsidiaries such as Daewoong Bio and Insung Information. As of last month, he was the largest stakeholder at multiple companies, with his shares reaching 11.61 percent at Daewoong, 34.61 percent at DN Company, 20.99 percent at Insung Information, and 53.08 percent at Blue Net. Some of the companies hold stakes of Daewoong and Daewoong Pharm.

If the tax investigation over Daewoong affects Yoon’s dominance over Daewoong and its affiliated companies, it will also be a significant burden both for Yoon and Daewoong Pharm, company officials said.

The prosecution started an investigation into Kwangdong Pharm as it was suspected of receiving illegal rebates worth 1 billion won from an advertisement company.

During the questioning, Kwangdong Hospital of Traditional Korean Medicine CEO Lee Gang-nam attempted suicide by jumping off from a building near the prosecutors’ office on Tuesday. Lee was an executive at Kwangdong Pharm, which is the owner of the hospital.

“If such investigation on illegal rebates is revealed, it is very difficult to visit clients,” said a salesperson at a local pharmaceutical firm.

sjh@docdocdoc.co.kr

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