[The Paradox of the KOSDAQ Promotion & Relegation System]② Technology Transfer Performance Requirement? ...Risk of Accelerating Early Technology Outflow

Premature Sell-Offs to Obtain 'Premium Rating'

Fears of Low-Value Deals and Technology Outflow

At Odds with the Health Ministry's 'Completion' Policy

Mid-Stage Clinical Ecosystem Facing Collapse

Editor's NoteThe Korean Exchange's push for a promotion-relegation (segment restructuring) system to invigorate KOSDAQ is raising growing concerns within the biotech industry. Given the nature of new drug development companies, which often pour significant research and development (R&D) funds without yet generating sales or profits, criteria that prioritize financial indicators to select high-quality company groups could act as a form of stigmatization. As achievements related to technology transfer are being discussed as a condition for entry into the high-quality league, some point out that this could ironically prompt promising domestic biotech firms to sell their pipelines early at low prices. This article examines the potential impact of the KOSDAQ promotion-relegation system on new drug development biotechs, the underlying issues, and possible remedies.

①Concerns Over a 'Premium League' Favoring Only Aesthetic Medicine

②Technology Transfer Criteria? ... May Trigger Premature Overseas Leak of Core Tech

③For the Promotion System to Actually Save Companies

There is growing debate over what standards should be applied to evaluate new drug developers under a separate set of criteria. Under the current "KOSDAQ Global Segment," companies for whom financial performance is not immediately applicable—such as new drug developers—must meet core requirements including: ▲ a market capitalization of at least 1 trillion won and equity capital of at least 100 billion won ▲ possession of multiple clinical candidates in Phase 1 or higher ▲ new drug approval or achievements in technology transfer (L/O). As there is now the possibility that similar standards may be introduced for the "KOSDAQ Select," industry concerns are mounting.

The most significant concern is that requiring biotech companies to show technology transfer achievements is highly likely to cause the premature overseas outflow of new drug assets. Lee Seung-kyou, Vice President of Korea Biotechnology Industry Organization(KoreaBIO), stated on the 27th, "The very criterion of technology transfer was introduced because it is so difficult for us to directly assess the technological prowess of the sector, so we created alternative indicators that are easier to evaluate." He continued, "While this may have worked as a guideline in the past, with the rapid pace of technological advancement today, it is time to fundamentally revise these standards."

The issue is that these criteria are not merely metrics for evaluation—they can distort actual corporate decision-making. If entry into the high-quality league depends on partnering achievements, companies will face intense pressure to transfer technology and create 'achievements' as quickly as possible, even before robust clinical results are available. An official with a biotech company remarked, "Ultimately, what's going to matter for evaluation is who the company has partnered with for its technology. If that happens, licensing out (technology transfer) will occur at these early stages before meaningful clinical data is available, inevitably dragging down the value."

Domestic companies are already entering into contracts to license out technology before reaching the clinical stage, often for advance payments of less than 100 billion won, due to various regulatory and capital challenges. This stands in stark contrast to Chinese companies, which receive between 300 billion and 500 billion won in advance payments after Phase 1 clinical trials before technology transfer. A biotech official recounted being recently asked by a Chinese pharma executive, "Why do Korean companies sell such good technology so cheaply?"

Some warn that if this trend continues, the entire mid-stage ecosystem—which forms the "waist" of new drug development—could collapse. Vice President Lee stated, "If examples of low-price technology transfer continue just to get into the top league, the entire ecosystem needed to reach Phase 2 clinical trials will disappear. Right now, startups can hardly secure investment and cannot progress to clinical trials. If even greater performance pressure is added, many items with late-stage clinical potential will vanish along with the companies developing them."

This is also at odds with the government's own policy drive. The Ministry of Health and Welfare established a 150 billion won fund this year dedicated specifically to Phase 3 clinical trials, aiming to prevent companies strapped for cash from giving up at the Phase 3 hurdle and opting for premature technology transfers. However, the moment technology transfer achievements become a criterion for inclusion in the KOSDAQ promotion-relegation system, the market may start to demand technology transfer at a much earlier stage as the hallmark of a top company. A source within the biotech industry said, "The government urges companies to see Phase 3 clinical trials through by providing dedicated funds, while the Exchange could end up demanding even earlier technology transfer deals to qualify as a top company. How are companies supposed to square these contradictory signals?"

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