['M&A Outcasts' K-Bio]③ "Streamline Pipelines and Focus on Core Competencies and Single Technology"

Reforming Board-Centered Corporate Governance
Diversifying Capital Exit Strategies
through Innovative and Cross-Industry M&A

Editor's NoteThe global pharmaceutical and biotech industry is experiencing an unprecedented M&A boom. By August of this year, over 276 trillion won in investments had flowed into the global biotech M&A market. However, there have been no "big deals" involving Korean companies. This is a frustrating outcome for Korea's biotech sector, which is increasingly being recognized for its industrial competitiveness on the world stage. Korea ranks third globally in terms of pipeline count, trailing only the United States and China, and many Korean new drug developers are being courted at overseas conferences and exhibitions. Nevertheless, it's clear that relying solely on IPOs for funding and investment returns has limitations. This series examines why Korean biotech companies are being overlooked, what fundamental improvements to competitiveness are needed, and what solutions can be found in the funding market.

['K-Bio Left Out of M&A] ① Explosive Deals Total 276 Trillion Won in H1, but Korea—the World’s No. 3—Is Sidelined

['K-Bio Left Out of M&A] ② Korea Caught in the Traps of Data, Clinical Trials, and Governance

['K-Bio Left Out of M&A] ③ "Streamline Pipelines and Focus on Core Competencies and Single Technologies"

To vitalize M&A in Korea’s biotech sector, experts suggest solutions such as improving R&D capabilities, reforming governance structures, and introducing contrarian M&A models. The key issue is whether bold restructuring to streamline sprawling pipelines can be achieved.

 

On August 3, Mansoon Hwang, CEO of Korea Investment Partners, stated, "It is essential to go all-in on a single technology where the company’s core competencies are concentrated, and to decisively sell off or abandon assets with low chances of success." He added, "From the venture capital side as well, we need to actively use private equity funds to acquire promising ventures through M&A and maximize pipeline value with the goal of leading exit strategies by selling to global conglomerates."

Mansoon Hwang, CEO of Korea Investment Partners

From a governance perspective, many point out that Korean biotech companies need to move away from founder-centric structures and normalize the role of the board of directors. Domestic biotech ventures are often criticized for founders serving as both CEO and board chair, wielding excessive decision-making authority, which hinders objective corporate valuation and timely decisions on asset sales.

Hwang emphasized, "It is essential to build a transparent board of directors that makes decisions solely for corporate growth from the very early stages, rather than prioritizing the interests of founders or major shareholders." He further suggested, "Institutional incentives are needed, such as awarding extra points to listed companies that run a proper board of directors or requiring the recording and storage of board proceedings as a compulsory practice." Seungkyou Lee, Vice Chairman of the Korea Biotechnology Industry Organization (KoreaBIO), also underscored, "A system must be in place to prevent autocratic management by CEOs and ensure that the board and auditors operate transparently, as this is the only way to attract foreign capital and regain market trust."

The highly skewed nature of Korea’s capital return market, which is excessively dependent on IPOs, is also causing companies’ capabilities to be dispersed. According to Korea Venture Capital Association (KVCA) statistics, last year only 4.2% of exit returns for domestic venture capital were through M&A by value, while reliance on IPOs and off-market sales accounted for over 90%.

This stands in stark contrast to the U.S., where the National Venture Capital Association (NVCA) reports that the share of M&A exits regularly exceeds 45%, and where, last year alone, U.S. biotech VC and other investors recouped 2.3 billion dollars (about 3.312 trillion won) through M&A.

Due to this capital return bottleneck to the stock market, Korean companies are compelled to consume resources to meet listing maintenance standards based on IPO and accounting criteria, creating a vicious cycle. Broadening the capital exit market through M&A could restore dynamism across the biotech sector.

Among concrete alternatives to loosen the blockages in capital circulation, experts also suggest introducing contrarian or “reverse” M&A models. Lee explained, "It is time to contemplate a model in which a biotech company with strong platform technology, supported by funding capital, acquires a traditional pharmaceutical company, inverting the usual pattern of established pharma acquiring ventures." He added, "By absorbing the stable cash flows and production infrastructure of traditional pharmaceutical companies—whose annual revenues may be in the hundreds of billions of won—bioventures can accelerate new drug development and strengthen their commercial viability."

The inflow of capital from disparate industries is also seen as a positive alternative. The acquisition in which confectionery company Orion invested 548.5 billion won to purchase a 25.7% stake in antibody-drug conjugate (ADC) specialist LegoChem Biosciences serves as a model case.

Despite achieving cumulative global technology exports worth more than 8 trillion won, LegoChem Biosciences had struggled to secure the funding needed for late-stage clinical trials and similar developments. Hwang assessed, "Large companies from traditional industries, which have accumulated ample capital, acquiring promising ventures is an exemplary model that benefits all and helps relieve capital shortages and boost M&A activity."

Support and pump-priming from the government level are also needed. Lee pointed out, "To activate the market, it is urgent to create large-scale funds capable of stably sustaining companies through Phase 2 clinical trials, alongside existing early-stage startup support funds." He proposed, "Tax benefits, such as effective corporate and inheritance tax reductions, should be provided when cross-industry or large-company venture acquisition deals are concluded, and tax policy reform is needed to inject dynamism into the stagnant M&A market."

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