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Future Directions for the Bio-industry Ecosystem in South Korean

KB Investment Bio-investment Group Managing Director Shin Jeongseop
During 2019, the bio-industry in South Korea has been on a roller coaster ride.

The year started with high expectations on the back of a boom in the American bio-industry including such advances as the global technology transfer of Lazertinib, a therapeutic product for lung cancer and immuno-oncology, but the bio stock market in South Korea plummeted on a series of troubling news items including the prosecutors' investigation into fraudulent accounting at Samsung Biologics, the revocation of the approval of Kolon Life Science's cell/gene therapy for osteoarthritis, the failure of Sillajen's phase 3 clinical trial in the United States and the results of HLB's phase 3 clinical trial in the US, causing the stock prices of biotech firms to plummet to 50 percent or less.

On the other hand, an autotaxin inhibitor developed by Bridge Biotherapeutics based on proprietary technology transferred from LegoChem Bioscience was successfully transferred to global pharmaceutical firm Boehringer Ingelheim in July at a value of 1.5 trillion KRW. The total of bio-investments made by domestic venture capitalists through September have reached to a record high of about 900 billion KRW, showing that the foundation for the industry has been solidified.      

The examples of Sillajen and HLB clearly show the risks for a company that relies solely on a single project. Proving safety and effectiveness in a clinical trial inevitably boils down to a matter of probabilities.  

An un-listed company, whether it focuses on a single project or has various portfolios, has the leeway to make decisions in accordance with its corporate strategies. However, the norm for listed company is that they should strive to increase their survival rate as high as possible by building portfolios. This is because an IPO (Initial Public Offering) is  a sort of social commitment to business stability so that the general public can confidently trade the company's stocks. 

In this aspect, credibility is even more important. Even with the best possible efforts, a clinical trial can still fail. We have already recognized that this is a possible. However, deceptive reporting or concealing data or financial information is a completely different story from the failure of a clinical trial because it indicates fraudulent behavior on the part of a company that is aware of a problem and has intentionally sought to conceal it. 

In terms of bio-business in particular, until a new medicine is finally approved by a regulatory body and released into the market, its value exists in the form of data. As data is an invisible, intangible asset, if anyone conceals or manipulates it, that could compromise the very credibility which is the backbone of the bio-industry. Thus, tolerance of a company that causes such an issue could contribute to the destruction of the industry altogether. Given the purpose of the Technology Special Listing System which is a primary route for domestic biotech firms to be listed on KOSDAQ, I believe any company with an issue of credibility shall be expelled from the market based on a "one strike and you're out" policy. Later, if the company resolves the issue and demonstrates its business growth, it could be allowed to pursue a re-listing. 

The stock prices of biotech firms are also controversial. Non-biotech firms in the sectors of IT and manufacturing and other companies in the healthcare sector including medical devices that are not connected to the development of new medicines might have a sense of relative deprivation.  

However, this is the case not only in South Korea but also in other countries including the United States. Since the prices are determined by the market, it is not something we can say is right or wrong. 

Having said that, both companies and investors should think of the adequacy of corporate value. Some companies' abnormally high prices are only possible when they regard their possibility for failure as zero. Such a choice could be a toxin that pushes the company to stand on the brink of cliff. In addition, if a bubble bursts, the crisis might move on to other companies, disrupting the industrial ecosystem.       

In the mid/late-2000s, there was a boom in back-door listings of biotech firms on the stock market. This phenomenon was a result of growing demands for bio stocks while there were not enough of them listed on KOSDAQ. Stock prices soared considerably, but in many cases, the biotech firms (pearls) merged with and/or acquired poorly-performing shell companies, failing to raise sufficient funds and entering into the market too early, while still during the development stage in an effort to show performance. As a result, most of these firms disappeared except for a very few such as Celltrion and Cha Biotech.   

That led to other serious adverse effects. As always, though an ecosystem can quickly be contaminated by a single incident, it a great deal of time and costs to return it to its original balanced, pristine state. 

An ecosystem is comprised of multi-layered structures. The bio-ecosystem is not an exception. It encompasses ecosystems for bio-R&D and the bio-industry and is connected to the healthcare ecosystem as well.  

The main players in the bio-industry ecosystem are definitely the companies. However, the roles of venture capitalists and the government are relatively more critical than that in other industries. 

The government should focus on creating a playing field where companies can vigorously move forward (creating infrastructure) and setting up the rules of the game (streamlining regulations). 

On their part, venture capitalists, who feed energy into companies, are evolving in a direction in which experience and networks are provided to help nurture companies. Such nurturing capacities will serve as indicators of competitiveness among venture capitalists. 

On the other hand, both the government and venture capitalists play a role in helping self-sustaining biotech firms to make their debuts in the stock market.

The government should also find a way to make its listing system more predictable so that companies with technology prowess and growth potential can continuously advance into the stock market while problematic companies are removed.  

It is a company's responsibility to look back on itself to maintain credibility. In this case, business risks will rely entirely on data-based science, and the bio-industry will be highly credited as a science-based industry and garner more investments. 

The bio-market is not a winner-take-all market but one that is being continuously segmented. This is because any new personal medicine or customized healthcare method represents a perspective market for each individual. 

Therefore, in order to create a new market, companies should engage in exchanges and ties with other companies as seen in the cooperation between LegoChem Bioscience and Bridge Biotherapeutics as well as collaboration between the industry, academia, research institutes and hospitals. On top of that, such a collaboration among companies will provide more benefits to patients and the general public and create synergistic effects.  
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