Kwangdong Pharmaceutical (009290) said the sale price of a finished product cannot be judged by raw material costs alone, responding to criticism raised at a parliamentary audit over the pricing and advertising of its Chimhyangwhan herbal pills. The company said the expenses and technical know-how involved across the entire process — from sourcing and screening ingredients to manufacturing, quality control and safety testing — are reflected in the price. It said, however, that it would improve its review procedures for advertising language that could mislead consumers about its products.
According to the pharmaceutical industry on the 14th, Kwangdong said there are limits to assessing a product's appropriate sale price or profit margin based only on the content of a particular ingredient and the cost of raw materials, in response to the pricing and advertising controversy that surfaced at the recent audit.
Rep. Kim Kyo-heung of the Democratic Party of Korea, a member of the National Assembly's Health and Welfare Committee, raised questions on the 13th about the sales structure and pricing of Kwangdong's Chimhyangwhan during the committee's audit of the Ministry of Food and Drug Safety. He argued in particular that rules should be revised so that manufacturers, not just retailers, can be held accountable when overpricing and improper advertising occur.
Kwangdong responded that the price of Chimhyangwhan is not determined by raw material costs alone. Kwangdong Chimhyangwhan is made from agarwood and deer antler as its main ingredients, blended with about a dozen other components including cultivated wild ginseng root, poria mushroom and processed rehmannia root.
Agarwood is the resin-infused woody portion that forms in agarwood trees and is used as a herbal medicine ingredient. Kwangdong said manufacturing technology and quality-control expertise are required to screen the quality of agarwood and other ingredients and to blend them in fixed proportions.
Quality varies widely from one ingredient to another, the company said, and a finished product goes through multiple stages including storage, manufacturing and safety testing — making it inappropriate, in its view, to estimate a sale price or profit margin by simply comparing the content of a single component with raw material prices.
Kim Ho-soon, a former vice president of the Association of Korean Medicine, said quality differs greatly even among identical herbal materials because of the nature of the ingredients. "The handling know-how for each ingredient varies enormously, from storage to manufacturing and safety testing, so prices inevitably differ," Kim said.
On the advertising issues raised at the audit, Kwangdong said it agrees that improvements are needed to protect consumers. The company said it would upgrade the procedures retailers follow in providing information so that explanations of ingredients and product characteristics do not mislead buyers.
"We deeply share the view that consumer misunderstanding caused by advertising language must be prevented," a Kwangdong official said. "We will immediately improve the relevant processes so that accurate and reliable information is delivered at points of sale." The official added, "We will fulfill our responsibility to manage the appropriateness of our messaging so that accurate product information reaches consumers, and we will actively cooperate with the relevant authorities on regulatory improvements."