[Column] Why the bio boom fell flat

Korea’s bio industry has failed to pick up due to a lack of entrepreneurship and long-term large-scale investment, a vibrant bio habitat and a government strategy.

Cho Won-kyungThe author is head of the Global Academy-Industry Cooperation Center at the Ulsan National Institute of Science and Technology. Expectations for the Korean bio industry were high after the outbreak of the Covid-19 pandemic. Stocks rallied on the interest in and anticipation of Korean vaccines and new drugs. But the buzz fizzled out. After the number of assessment items for fast-tracking Kosdaq listings for promising technologies was raised to 35 from 26, bio ventures faced tougher challenges to go public. Those listed on the stock market have been abandoned.

Initial public offerings (IPOs) by bio, pharmaceutical and healthcare companies more than halved to 12 in 2022 from 27 in 2020. Last year, IPO proceeds were 330 billion won ($268 million), just 20 percent of the 1.62 trillion won in 2020. Investments in bio from venture capital (VC) also shrank fast. The share of bio in new VC investments contracted to 16.3 percent last year from 27.8 percent in 2020. The barriers to IPOs and lower VC investments have dried up funds and caused a liquidity crisis for bio ventures. Many worry the bio habitat could be wiped out amid the streamlining in workforce, deferred wage payments and R&D cutbacks.

Looking back, all new governments in Korea have come up with the catchphrase of promoting the bio industry to meet the call of the times. But they stopped short of taking innovative steps for the country to become a powerhouse in new drugs. Was their promise to nurture the bio industry as a new growth engine — and a core industry — just an empty slogan? The global bio and healthcare market is forecast to undergo a continuous expansion on par with the combined market size of Korea’s three top exports — semiconductors, chemicals and automobiles. But as the presence of our domestic bio market on the global stage is minimal, it is urgent for the government to draw up a national-level strategy and action plan.

Korea’s bio industry has failed to pick up due to a lack of entrepreneurship and long-term large-scale investment, a vibrant bio habitat and a government strategy. All these deficiencies led to a lack of trust in the bio industry.

First, let’s look at the entrepreneurship and long-term massive investment. It could be excessive to expect entrepreneurship from researchers devoting most of their time in laboratories. As commercialization of a novel innovation needs continuous research and funding, determination to see through the R&D process and the will to discover the right markets is more important than ever.

But achieving this is not easy. In the U.S. and other bio powerhouses, venture capital played a key role. Let’s look at the history of U.S. bio industry first. Genentech, sometimes called the world’s first biotech company, was founded in 1976 by venture capitalist Robert Swanson and molecular geneticist Herbert Boyer, a professor at the University of California, San Francisco. Swanson founded the company to commercialize Boyer’s discovery of the genetic recombination technology.

After it succeeded in producing a number of new cures, Genentech helped draw many scientists out of their labs. The company spent 20 to 25 percent of its annual sales on R&D for new drugs. A novel drug needs an average of 10 or more years for development and costs billions of dollars. Although the success rate is one in 10,000, the profitability from commercialization is explosive. It is the typical high-risk, high-return investment.

Eli Lilly and Company (LLY), an American pharmaceutical company, was the world’s 17th largest in terms of market cap at the end of 2022, much bigger than the market cap of Samsung Electronics, whose rank fell to 27th. LLY share price ended 2022 at $366 compared with $271 at the beginning of the same year to reflect confidence in American pharmaceutical and bio enterprise. LLY is known for aggressive investment and patience in R&D. The company on average spent $2.6 billion on developing a new drug. It takes 10 years for a new discovery from research to become a prescribed treatment for patients.

Can a company of such scale appear in Korea with a short bio history? Top local pharma and bio names such as Samsung Biologics, Celltrion and SK bioscience specialize in consigned manufacturing. Even large companies are hesitant to enter the new drug development, which requires lengthy investment and patience. For bio venture promotion, daring entrepreneurship and lengthy investment are essential.

Second, let’s look at the fragile bio habitat in Korea. In the U.S. and Europe, so-called “open innovation” through the clustering of industry, academia and research institutes is active. Boston, the Silicon Valley of the biotech industry, hosts more than 1,000 enterprises, like Biogen, Novartis and Moderna, as well as research centers, hospitals and universities. The bio industry synchronizes with the new technology trend to feed innovation. Open innovation has changed the perspective on biotech. The developing time and costs have been sharply reduced, and collaborations or mega deals between multinational pharma and bio ventures have rapidly come to meet consumer needs.

The Korean bio industry is still at a fledgling stage. It is small and faces multilayer regulations. Multinationals prefer China for the sheer size of its bio market and regulation-free Singapore. Moreover, the strategic alliance among Korean universities, research centers and companies, as well as their networking with the global habitat, is still weak. Building economies of scale is urgent. Bio companies cannot survive on domestic demand alone. Globalization and internationalization are crucial for survival.

The share of the pharmaceutical industry in Korea was considerable before companies under the banner of Samsung and Hyundai grew big. But drug companies were devoted to the domestic market and did not invest heavily in technology. Growth is still constrained as the pharmaceutical industry and fundamental infrastructure are oriented towards the domestic market instead of global standards.

Melbourne, Australia invests heavily in infrastructure to acquire global competitiveness in clinical trials. Korea’s bio companies must target the global market from the initial stage. Otherwise, bio ventures would merely serve as an investment tool after their listing.

The fact that Korea’s bio materials, parts and equipment rely on foreign countries for more than 90 percent of inputs underscores the weakness in the bio industry. Localization is less than 10 percent. Large companies also shun domestic suppliers of materials and equipment. They must use local inputs for their suppliers to build global competitiveness.

Last, a systematic backup is needed to pave the way for bio growth. Local bio investments have soured partly because investors, including VCs, cannot retrieve profits after IPO chances were restricted. Many investors had been burned by profiteering by some bio companies during the bubbly period after listing.

Authorities have their reasons to toughen the guidelines for listing to protect investors. But our bio industry cannot hone competitiveness as long as new drug discovery and pipelines become stalemated due to difficulties in fund-raising. There must be a national system to identify promising bio enterprises and help them raise necessary funding through markets.

The standards of the market’s evaluation on bio tech also must be raised. As VCs lack expertise, they tend to decide on investment based on market trends and sentiment instead of technology competitiveness. Listing procedures should be led by a pool of experts evaluating candidates, and investment from then on should be left to the market.

A survey shows that companies listed on the fast track turned out faster business results than other listed companies. Making the guidelines more difficult cannot be a solution. The government should consider establishing a mega fund focused on the bio industry. It must act to stimulate investment sentiment.

The government must hurry deregulation in the face of an economic slump, in particular. The demand for a colossal revamp of the regulatory system has long existed to help foster the bio industry in line with the digital and fourth industrial revolution age. Without deregulation, advancing Korea’s bio industry is just a pipe dream.

Translation by the Korea JoongAng Daily staff.