[KR-China Bio Contrast] ④ Accelerating Clinical Trials and Easing Delisting Regulations Will Narrow the Gap

Clinical Trials from Home, Expanded to All Diseases

"Revising Beopchasohn That Strangles New Drug Developers"

Editor's NoteIn the first half of this year, Korean biotech companies have successively signed trillion-won technology export deals with global big pharma firms, fueling expectations for the entire industry. However, a closer look at the actual contracts reveals a different reality beneath the surface. Of particular note, the payments Korean companies receive for their technologies are strikingly lower compared to those received by Chinese companies, which are making their mark globally with their unique speed and agility. As bio-technology is considered a future national strategic asset, it is crucial to examine where the gap with China—now striving to move beyond Korea and become a global leader—originates. The Asia Business Daily sheds light on this reality and explores the background and potential solutions.

① Even for promising technologies, upfront payments are only one-third of those in China

② Korean firms sell at phase 1, while Chinese firms reach phase 3

③ Raising funds for clinical trials leads to delisting... Double hardship choking K-Bio

④ To narrow the gap, accelerate clinical trials and ease delisting regulations

Amid growing concerns of "threat" from China, there is a rising consensus that Korea's bio industry must swiftly overhaul the excessive regulations and clinical trial systems rooted in capital market principles to expand its foundation and secure future growth potential. Critics argue that the requirements for Pre-tax Loss from Continuing Operations (before corporate income tax deduction, or "beopchasun"), which force companies toward delisting by treating new drug development costs as losses, must be recalculated from the formula itself; similarly, regulations that hinder the speed of clinical trials should be revised to enhance "clinical capability" overall.

According to financial authorities and the pharmaceutical and biotech industry on June 16, the key reform tasks include revising the calculation formula to exclude or offset research and development (R&D) costs such as clinical trial expenses from beopchasun, and expanding decentralized clinical trials (DCT), which allow patients to participate from home, to all disease areas.

Not "abolishing" but "revising" beopchasun... Calls to foster M&A exit markets in parallel

According to the 2023 report "Analysis of the Appropriateness of Listing Maintenance Requirements for Biohealth Companies Listed via Technology Evaluation Exception" published by the Korea Health Industry Development Institute, about 84% of biohealth companies listed under the technology exception recorded annual beopchasun losses exceeding 1 billion won, compared to about 22% of regular listed biohealth companies. The report diagnosed that, to avoid designation as a watch list company, only the technology exception biohealth companies reduce R&D investment in their third to fifth year after listing, calling for a review of beopchasun requirements. One biotech Chief Financial Officer (CFO) said, "To avoid being put on the watch list, we have no choice but to delay or scale down clinical trials. This criterion, which prevents spending on clinical trials, ends up devaluing our technologies by design."

The Korea Exchange currently maintains that the beopchasun standard helps prevent marginal companies with little chance of recovery from remaining on the market and harming investors. It also raises the need to ensure consistency across industries. There are concerns that recklessly loosening beopchasun requirements could allow "zombie companies" to survive. The argument is that simply being a new drug company should not justify an exemption from loss regulations.

Nonetheless, there are increasing calls to at least actively consider improvements that would prevent the beopchasun formula from treating new drug development costs as ordinary operating losses, even if the standard itself is not abolished. An accountant with experience auditing pharmaceutical companies said, "New drug development expenses are investments that create future assets, but the current formula treats them as simple operating losses. Distinguishing the nature of these losses is the starting point for revising beopchasun."

In political circles, proposals have surfaced to extend the current three-year beopchasun grace period or introduce exceptions. While the Financial Supervisory Service allows clinical development costs to be treated as assets under certain conditions via supervisory guidelines, the industry points out that the technical feasibility requirements are so stringent that practical application remains limited.

Platform technologies build negotiating power... "AI and medical data, Korea's hidden weapons"

To strengthen clinical capability, experts highlight expanding decentralized clinical trials (DCT) to all disease areas—allowing patients to participate remotely from home—as a starting point. According to an analysis of 60 clinical trials by the Center for the Study of Drug Development (CSDD) at Tufts University in the U.S., clinical trials using DCT saw patient enrollment rates increase by 200% and costs decrease by 50%. Lower clinical trial costs would also ease the beopchasun burden.

Currently, Korea limits DCT pilot projects to four disease areas: depression, lung disease, sleep apnea, and obesity. The government is considering including DCT regulatory sandboxes in the "Mega Special Zone Act" to be submitted to the regular National Assembly session this September, with a plan to gradually expand the scope of application. Youngjoo Song, economic advisor at the law firm Bae, Kim & Lee LLC, said at a recent event, "Taiwan already allows decentralized clinical trials, and the U.S. is even further ahead, but Korea has only recently started to introduce such systems. Although it is a late start, decentralized clinical trials will serve as a turning point for improving the speed and efficiency of domestic clinical development."

Experts also advise that if companies can build negotiating power by actively investing in platform technologies rather than single candidate substances, a virtuous cycle—"technology development, appropriate valuation, reinvestment, and industrial base expansion"—can finally be established. Alteogen's ALT-B4, a subcutaneous injection formulation platform, and ABL Bio's Grabody-B, a blood-brain barrier penetration platform, are cited as prime examples of successful platform technologies. Sunjae Park, Chairman of Alteogen, said in a media interview, "The power of a platform is in the ability to transfer a technology continuously and repeatedly." Alteogen has secured technology transfer deals worth over 10 trillion won with ALT-B4 over a six-year period. A validated platform lines up big pharma companies and places negotiating power firmly in the hands of the developer.

In addition to regulatory improvements, there are also calls for Korea to leverage its data assets as a competitive edge in clinical development. The National Health Insurance database, which holds the medical records, checkup data, and claims history of about 50 million people—97% of the population—at a single institution, is a prime example. Combining artificial intelligence (AI) can help overcome the biggest bottleneck in clinical trials: patient recruitment. This differentiated "Korean-style clinical testbed" could attract global pharmaceutical companies. An executive at a pharmaceutical company that has developed a new drug in-house and achieved multi-trillion won in direct sales in the U.S. said, "If the government builds the proper AI infrastructure, we can create an AI-based clinical platform that finds the right patients for trials faster than anywhere else in the world. Rather than competing with China by scale, Korea should build a specialized clinical ecosystem and become a global testbed."

This content was produced with the assistance of AI translation services.