[China Shock, K-Industry on the Brink | Biotech] ④ Can South Korea Weather the Endurance Test of Late-Stage Development?

Technology Out-Licensing Gap Widens 11-Fold in Five Years
Funding Shortages Force Biotech Ventures to License Out Early
More Investment in Late-Stage Trials and Stronger Cooperation with China Needed

Editor's NoteAs China's industrial rise rapidly expands into new areas, its growing clout in the biotech sector is becoming increasingly apparent. In particular, over the past few years, China has continuously achieved unprecedented or highly unconventional results in technology transactions for drug candidates with global Big Pharma companies, comfortably pulling ahead of competitors, including South Korea. This series examines where China's strength comes from and how South Korea, which once led China on the strength of its trust built up in the global industry, should respond going forward.

① Big Pharma Sweeps Up Entire Chinese Drug Candidates

② Hard to Sell Even Once, but China Sells Again and Again

③ Chinese Drug Sold for $8.4 Billion: The Results Three Years Later

④ Can South Korea Withstand the Endurance Test of Late-Stage Development?

In 2021, South Korea and China recorded $11 billion (about KRW 14.718 trillion) and $13.4 billion (about KRW 17.9292 trillion), respectively, in technology exports (licensing out) for innovative drugs. But in the first half of this year, China recorded about $99.7 billion (about KRW 133.3986 trillion) in licensing-out deals, while South Korea managed just $8.7 billion (about KRW 11.6406 trillion). The figures were comparable just five years ago, but China has now pulled ahead, widening the gap to about 11 times South Korea's level. As China's biotech rise, which began with competition to discover drug candidates, spreads to clinical development and global technology transactions, the gap between the two countries' industries is also widening rapidly.

According to the Korea Drug Development Fund on October 19, South Korea ranked third globally, behind the United States and China, with 1,337 domestic drug candidates newly entering preclinical or clinical development from 2022 to 2024. But pipelines thin rapidly as candidates advance through clinical stages. Currently, just 57 domestic drug candidates have entered Phase 3 clinical trials. There are 851 candidates in the discovery stage and 760 in preclinical development, meaning 74.5% of the total have yet to enter clinical trials. Industry observers say the gap is widening not so much in the ability to identify drug candidates as in the ability to turn them into clinical data and advance them into late-stage development.

Lee Seung-kyou, vice chairman of the Korea Biotechnology Industry Organization (KoreaBIO), said, "Chinese companies often enter licensing-out negotiations after securing clinical data, while domestic companies often pursue deals based on preclinical data. Clinical trials ultimately require funding, but investment at this stage has not been sufficient in South Korea."

Of the 1,929 pipelines held by South Korea's industry, 1,505 belong to biotech ventures, accounting for 78.0%. Mid-sized companies have 399 pipelines, while large companies have 25. In China, large pharmaceutical companies such as Hengrui Pharmaceuticals continue developing the next drug candidates while accepting that some assets may fail, with some companies advancing more than 100 innovative drugs through clinical development at the same time. In South Korea, by contrast, biotech ventures hold most of the pipelines, even though their future investment and very survival may depend on the success or failure of just one or two key drug candidates.

An executive at a biotech venture with experience licensing out to Big Pharma said, "We have a drug candidate currently in Phase 2 clinical trials, and even though we are confident it will succeed, we are planning to license it out to a Big Pharma company relatively early, sometime next year." The executive added, "The reason for signing a deal before completing clinical trials is entirely the cost. We know it would be advantageous to carry the trials as far as possible and license out the drug at a later stage, but in reality, we cannot afford to cover the costs all the way through."

Domestic biotech investment totaled KRW 1.9306 trillion from the start of this year through September 22, surpassing the total for all of last year. What the industry takes issue with is not the total amount, but how the money is flowing. Funding is pouring into companies with demonstrated clinical results or a track record of technology transfers, while biotech ventures that need to advance beyond drug discovery and through early- and mid-stage clinical trials continue to report funding shortages. Costs typically rise to tens or even hundreds of billions of won as candidates advance through clinical stages, but there is little long-term capital available to support them over several years.

Some also point out that investment statistics may obscure conditions on the ground. Vice Chairman Lee said, "The size of investment funds appears to have grown compared with last year, but a closer look shows that large amounts of funding are often absorbed by companies that are already doing well. Very little investment is actually reaching startups or companies that could continue supplying new pipelines." He therefore recommended leaving areas where private investors can invest to the private sector, while using policy funding to fill gaps in areas where risk makes private investors reluctant to step in and help sustain the ecosystem.

This recommendation points to the need to change the nature of funding rather than simply increase total biotech investment. In addition to broadly distributing funds across drug discovery and early-stage clinical trials, the industry needs growth capital to select assets whose competitiveness has been demonstrated through clinical data and advance them through late-stage development. Since policy funding cannot support every candidate through Phase 3 trials, one alternative is to pool private capital, policy finance, and funding from large domestic pharmaceutical companies to invest over the long term in promising assets.

Of course, taking every drug candidate all the way through Phase 3 trials is not the only solution. For assets with a high risk of failure or those requiring enormous sums for global clinical trials, it may be more reasonable to pursue co-development with global pharmaceutical companies or license them out at an early stage. Conversely, companies can continue building data on candidates whose competitiveness has been demonstrated through Phase 2, raise their value, and then sign a deal. An industry official said, "South Korean companies don't need to compete with China by creating dozens of drug candidates. Instead of rushing to hand over good assets because funding has run out, companies need to be in a position to decide for themselves which candidates to develop and which to discontinue."

Some say South Korea also needs to further strengthen its clinical-trial capabilities, an area where it has traditionally excelled. China is rapidly improving the speed and quality of its clinical trials by leveraging its large patient populations and clinical infrastructure, making it harder to stand out through the fast and accurate execution of clinical trials alone.

A drug development researcher at a domestic university hospital said, "In the past, global pharmaceutical companies came to South Korea because confidence in the quality of clinical trials in China was low, but Chinese clinical data is now gaining international recognition. South Korea should combine its strengths in translational research and biomarker discovery with drug development." The researcher added, "We need to create incentives and an environment that encourage domestic hospitals to actively participate not only in drug development by global Big Pharma companies but also in research and clinical trials for drug candidates from domestic biotech ventures."

Some also recommend finding areas for cooperation rather than engaging in an all-out race to catch up with China. As tensions between the United States and China increase uncertainty about Chinese biotech companies' access to the U.S. market, South Korea could connect its clinical infrastructure, medical professionals, and their accumulated research capabilities with Chinese companies to pursue some degree of cooperation and synergy. This could also help Chinese companies expand globally. Vice Chairman Lee said, "It is not realistic to compete with China to catch up in every field. We should compete where necessary, but we also need a strategy for entering global markets together with Chinese companies through clinical trials or co-development."

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