Korean Biotech 2020: Capital Flows & Volatility Forthcoming

Korean Biotech 2020 Capital Flows & Volatility Forthcoming

South Korean society embraces entrepreneurial pursuits with the best of them worldwide. Some of the world’s most successful companies were born on the southern-end of the Korean Peninsula. Korean society has caught biohealth fever. Capital flows are intensifying throughout biohealth, which includes biotech and pharma (drug development), medical devices and diagnostic firms. Dynamic partnerships with major academic research centers are on the rise.  The government engages actively and will put many more chips on the table as it has identified biohealth as an industry of strategic national interest. With greater investment, more licensing deals, growing expectations and investor demands for a path to return, this can pressure firms to exaggerate the results of clinical trials to boost company valuation—they operate globally and often outside of Korean regulators—drug development unfolds in a risky, complex and long-term research-based  ecosystem. Korean retail investors are at risk. 

Biohealth a Strategic Industry

The government, under President Moon Jae-in, will invest heavily in biohealth—it is one of the three new sectors for future growth. They seek to make Korea biopharma account for 6% of the global biopharma and medical device market share by 2030—representing $50 billion in biohealth exports. The Korean government is falling in line with other prominent nations in Asia (China, India) seeking to make biohealth a matter of national interest. For example, President Moon Jae-in was on record that Korean biotech are conducting clinical trials worldwide and that soon there would be a “Korean-made blockbuster drug.”

Government Spending on the Increase

The government will spend 4 trillion won ($3.4b) a year on the biohealth sector by 2025 as well as utilize a “scale-up fund” to spend more than 2 trillion won for the industry over the next five years in addition to ongoing enhancements to finance and tax support for corporate R&D and facility expenses.

Growing Number of Investors Seek Returns

In addition to government funds, there are rivers of private capital flowing into the Korean biohealth sector. They are increasingly attacked by local Korean biotech that are inking collaborative drug development deals with international pharma with more frequency. For example, Korean biopharma inked 8.7 trillion won ($7.5b) worth of deals in 2019 alone.

Deal Flow Intensifying

Yuhan inked a deal with German multinational Boehringer Ingelheim to co-develop a NASH drug following an out licensing deal with Janssen Biotech over Lazertinib, an investigational lung cancer drug. Both deals were worth 1 trillion won each, reported Korean Biomedical ReviewAlteogen signed a non-exclusive global license deal with a top 10 pharma for the human hyaluronidase (ALT-B4) platform technology for 1.61 trillion won. Bridge Biotherapeutics licensed out BBt-877 idiopathic pulmonary fibrosis (IPF) treatment candidate to Boehringer Ingelheim for 1.51 trillion won. Quratis licensed out QTP1010, a TB vaccine candidate, to Bio Farma, an Indonesian biopharma for 1.2 trillion won. GI Innovation licensed GI-101 a bispecific fusion protein for treating solid tumors to Simcere, a Chinese biopharma, for 939.3 billion won. Moreover, SK Biopharma obtained US FDA approval for its antiepileptic drug Xcopri without any partnering—the company will commercialize directly in America—the world’s largest drug market.

“Surging” Private Investment in Biotech but Trials & Errors

Investors aggressively take positions in Korean biopharma ventures given the intensifying licensing activities with Korean companies. Moreover, mid-sized Korean biopharma also takes positions in upstart biotech firms.  Some of these firms have formed joint ventures with professional investment firms such as MedytoxDongwha Pharm and Celltrion. Midsized Korean biotech often seek to invest in startups to reduce their R&D costs and capitalize on specialized knowledge and focus. Many, if not most, drugs won’t ultimately be commercialized—many clinical trials will fail. Do retail investors know what to look for?

Retail Investors at Risk

The Korean press reports that some companies are misleading investors—providing misinformation that can blur the judgment of retail investors lacking industry expertise. For example, a frequent tactic is to exaggerate the results of a clinical trials—they will capitalize on global trials as they fall outside of domestic regulatory agencies’ surveillance networks. A number of Korean biopharma startups receive investment based on one drug or technology—a single clinical failure can wipe out the investment.  Moreover in some cases biopharma’s primary end point will fail but the secondary endpoint succeeds—retail investors are cautioned that this situation represents high risk—it doesn’t equal “clinical success.” It is anticipated that as the level of investment rises the pressure mounts and it can be expected that unethical behavior could be on the rise.

Industry Association & Regulatory Bodies

Korea Research-based Pharma Industry Association (KRPIA), Korea Pharmaceutical and Bio-Pharma Manufacturers Association (KPBMA) http://www.kpbma.or.kr/english and Korea Medical Devices Industry Association (KMDIA) “use fair competition regulations to crack down on unfair label advertising” but Kim Yun-mi with Korea Biomedical Review reports that many local biopharma ventures don’t bother to join these organizations and, hence, don’t fall under their collective industry watch. Studies conducted locally are under the regulation of the Ministry of Food and Drug Safety. But trials conducted globally belong to the regulatory agency of that country. Publicly traded companies, traded on the Korea Exchange, fall ed the market surveillance of the KRX. But the KRX as well can struggle with confirming the authenticity of clinical results published by biotech ventures.

Conclusion

Retail investors should never invest directly in biotech companies unless 1) they have a deep understanding of the market and underlying science, 2) they have professional, licensed advisor that supports with a well-balanced, researched investment approach, 3) the biotech is part of a diversified portfolio of investments, or 4) they are an “accredited investor and can afford a loss.” The risks are great—why? Well, in the U.S. for example, an average drug may take 12 years from IND to FDA approval. Only 5 out of 5,000 drugs that enter preclinical testing will progress to human testing. One of these five drugs that are tested in people (e.g. clinical trials) will be approved. Thus, the chance of any one drug making it to market is about 1 in 5,000. Not the greatest odds. Moreover, just because a drug makes it to market doesn’t mean it will make money. How big is the market? Will payers (private or public) cover the costs of the drug? How good is the drug? Does the value justify the new high price? Does the company have the wherewithal to market and sell the drug in approved markets? If the company partners with a pharma company to commercialize, how much do they give away? And how does that impact investors?