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Drug makers bet on novel products to tackle difficulties

Generic manufacturers boost R&D and biomedicine, stem cell research sees upturn

Soaring research costs, rampant illicit rebates and a gushing inflow of multinational drug giants following free trade pacts have come together to ignite the biggest crisis in years in Korea’s pharmaceutical industry.

Heaping further pressure is the government’s push to slash drug prices and its sweeping crackdown on unfair trade practices, as well as economic uncertainties stemming from Europe.

To tackle the daunting challenges, local drug makers crafted a two-pronged strategy this year: Bet big on research and development, and jump on the biomedicine bandwagon.

Generic manufacturing has long been a major source of revenue for most Korean pharmaceutical firms. That heavy reliance and their weak overseas presence caused them to shirk from drug development as it costs huge amounts of time and money with no assurance of success.

Reckoning the need for long-term growth strategies, however, a surging number of companies are stepping up efforts to reinforce their pipelines eyeing international markets.

Dong-A Pharmaceutical, the industry frontrunner, aims to make global inroads this year by cultivating novel products and raising exports to half of its sales.

Green Cross, a leading vaccine producer, will notch up its R&D spending to 10 percent of revenue from 7 to 8 percent. It set a goal of posting 2 trillion won ($1.76 billion) each in domestic and overseas sales by 2020.

Daewoong Pharmaceutical and Hanmi Pharmaceutical also unveiled aggressive plans this year, which entail spurring clinical trials, revamping facilities and expanding networks with overseas partners.

“Despite financial burdens of clinical tests, major drug makers are steadily increase investment in R&D and equipment to boost their global competitiveness,” says Lee Jung-min, a senior researcher at Korea Ratings, a rating and financial services firm in Seoul.

Meanwhile, biomedicine is on the verge of a boom as new chemical drug discovery options are depleting at a rapid clip. 
A researcher shows Medipost’s allogeneic stem cell drug Cartistem at the biotech firm’s laboratory in Seoul in January. (Medipost)
A researcher shows Medipost’s allogeneic stem cell drug Cartistem at the biotech firm’s laboratory in Seoul in January. (Medipost)

With their patents expiring on an unprecedented scale, multinational drug giants face dire straits. Generics have been cast as blockbusters’ foe. Still, Pfizer, Novartis, Merck and others are relaying to embark on their own copycat business, while seeking alliances with innovative developers in emerging economies.

The sea change, perhaps, is creating fresh opportunities for life-science firms and biotech startups here.

Clinical trials are vigorous at home and abroad. Blue-chip companies like Celltrion, ViroMed and CrystalGenomics are enticing foreign investors.

Major industrial groups led by Samsung and Hanwha, as well as Dong-A Pharmaceutical, already declared their entries into the nascent market with a focus on biosimilar.

“Everyone is touting in chorus growth prospects of biomedicine,” says Choi Jong-kyung, an analyst at HMC Investment & Securities. “The massive patent expirations, coupled with exhausting new drug development options, prompted a shift even in a multitude of global industry powerhouses.”

The fledgling sector is in part underpinned by stem cell research, which is gradually emerging from prolonged doldrums on the heels of a 2006 scientific fraud.

In July, FCB Pharmicell announced its heart drug called Hearticell-gram became the world’s first approved stem cell remedy after Korea’s drug agency cleared the way for its commercial sales.

Last week, Medipost and Anterogen, Seoul-based bioventures, also received approval from the Korea Food and Drug Administration respectively for their stem-cell based medicines for arthritis and anal fistula.

Medipost in particular stepped into the limelight last year as the first foreign stem cell drug maker to enter second-phase trials in the U.S. It is in talks with two multinationals for global sales of Cartistem, which is designed to regenerate knee cartilage using stem cells derived from newborns’ umbilical cord blood.

According to the agency, an additional five drug candidates are awaiting the green light and 13 drugs are in clinical trials currently. Samsung Economic Research Institute projects the market for stem cell therapies to reach $32.4 billion worldwide this year.

The domestic pharmaceutical market is also growing on the back of spiraling demand for health and beauty products from the rapidly aging population.

According to the Ministry of Health and Welfare, Korea accounts for a frail 2 percent of the $856 billion world market as of the end of 2010. Despite its slowing pace over the past couple years, the industry has expanded 10 percent each year between 2003 and 2008.

Nonetheless, prevailing regional and external risks paint a somber outlook this year.

Starting April, drug prices will go down an average 17 percent. The government pledged to put an end to dubious financial relations between drug makers and doctors and pharmacists.

With free trade deals with the EU and the U.S. in place, the local production of generic drugs is expected to shrink by as much as 120 billion won annually for the next decade, the government forecasts. Trade deficits are to widen by about $16 million during the period, while about 1,000 jobs will disappear.

“Those policy changes could deteriorate the business environment and make it hard for drug makers to sustain their virtuous R&D cycle,” analyst Lee Hye-rin with KTB Investment & Securities says.

Such difficulties, on the other side, could trigger large-scale restructuring at the companies and eventually enhance transparency, which foreign experts point as chief obstacles to the industry’s takeoff, Lee adds.

To alleviate industry concerns, the government plans to provide subsidies, cheap loans and tax breaks for R&D projects.

The government set aside nearly 147 billion won to transform 12 innovative firms into international medical leaders by 2020. It targets a global market share of 5.4 percent with 10 hit products.

“Korean firms should preempt niche markets whose needs have yet to be fulfilled such as cancer, dementia and arthritis by innovating convergent services including drugs, medical devices and health care programs,” notes Choi Jin-young, a senior researcher at Samsung Economic Research Institute.

By Shin Hyon-hee (