LG once led Korea's bio industry — where did it all go wrong?

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LG once led Korea's bio industry — where did it all go wrong?

In the early 2000s, Korea’s largest conglomerates Samsung, LG and SK were all executing massive investment plans in the field of biopharmaceuticals — a highly unfamiliar realm to Koreans at the time. Now at Samsung and SK, the decade-long investment is just beginning to bear fruit, especially in the fields of biosimilars and contract manufacturing businesses.
 
LG’s contribution to Korea’s biopharmaceutical industry is clear: Some of the most acclaimed researchers and business leaders in the bio venture scene started their careers there. LG was the first Korean conglomerate to seriously invest in biopharmaceuticals, starting in the late 1970s. Yet today, the company’s presence in the bio industry pales in comparison to Samsung and SK.
 
What went wrong?
 
 

SK's 30-year wait

 
SK Group’s investment in biopharmaceuticals goes back to its old days as Korea Oil Corporation, or “Yu Kong.” It was the conglomerate’s late Chairman Chey Jong-hyun that initiated the “P project” in 1993, with the “P” standing for pharmaceutical. 
 
From that point, it took more than two decades before SK Biopharmaceuticals — the company’s bio unit — raised visible results including the commercialization of new drugs and a massive initial public offering in July.
 
That journey did not come without challenges. SK Biopharmaceuticals' first novel drug and epilepsy treatment carisbamate failed to reach market at the very last minute. 
 
After completing Phase 1 clinical trials, the drug candidate was licensed out to Johnson & Johnson but was not granted approval from the U.S. Food and Drug Administration (FDA). According to SK sources, that incident divided the company in half, with skeptics raising questions over whether investments in biopharmaceuticals should go on.
 
But investment did eventually go on to see two big milestones last year.
 
SK Biopharmaceuticals’ YKP10A, or solriamfetol, and YKP309, or cenobamate, became SK’s first two novel drugs to obtain U.S. FDA approval for medical use. YKP in both of those names is an abbreviation for “Yu Kong Product” — a small sign that tracks back decades to when the conglomerate first started going down the bio route.
 
 
SK Group Chairman Chey Tae-won, right, visits SK Biopharmaceuticals' R&D center in Pangyo, Gyeonggi, in 2016. [SK GROUP]

SK Group Chairman Chey Tae-won, right, visits SK Biopharmaceuticals' R&D center in Pangyo, Gyeonggi, in 2016. [SK GROUP]

Today, SK is one of the few companies in Korea equipped with a full biopharmaceutical value chain. SK Corporation has SK Biopharmaceuticals, developer of novel drugs; and SK Pharmteco, the contract manufacturing unit with production capacity. In 2015, SK Chemical spun off a business unit that was specializing in blood-derived medicine: SK Plasma. In 2018, the vaccine unit spun off as well to become SK Bioscience.
 
“Biopharmaceuticals require tenacious research and investment. Chairman Chey Tae-won having pushed through to continue investing in this risky industry may become his most notable achievement,” said an industry source.
 
 

Samsung's concentrated strategy 

 
Samsung was already investing in bio ventures in the early 2000s, but it wasn’t until a decade later that the company really started working toward making it a major business item. In 2010, the group publicly named biopharmaceuticals as one of its five major pillars for the future. A massive 10-year investment of 2 trillion won ($1.7 billion) was promised at that point.
 
The groundbreaking ceremony for Samsung Biologics' third factory in Songdo, Incheon, in December 2015. [JOINT PRESS CORPS]

The groundbreaking ceremony for Samsung Biologics' third factory in Songdo, Incheon, in December 2015. [JOINT PRESS CORPS]

In February 2011, Samsung announced it was officially joining the global competition for biosimilars and contract manufacturing organization (CMO) — the two fields that were thought most likely to reach a stable business in the shortest period.
 
“The strategy to prioritize CMO and biosimilars turned out to be the right direction rather than competing against multinational pharmaceutical giants developing new drugs, which incurs massive costs and high risks,” said a bio industry source.
 
After 10 years, Samsung’s CMO business today is assessed to have reached a stable growth point. Its CMO unit Samsung Biologics is expected to hit 1 trillion won in annual revenue for the first time this year. That would be close to a sixfold increase from what the company generated last year. 
 
A developer of biosimilars and a joint venture with U.S. Biogen, Samsung Bioepis last year raised revenue of 765.9 billion won, double that of 2018, and was in the black for the first time after eight years of business. Its operating profit for 2019 was 122.8 billion won.
 
 

LG's bio dark age

 
In the bio industry circle, LG is dubbed the “K-bio academy” for creating some of the country’s most recognized leaders in the field. For LG, the title is an honorable one, but not the ultimate compliment. Its list of former employees, or lost talent, includes the founders and heads of big names in Korea’s bio venture scene: Crystal Genomics, LegoChemBio and Alteogen.
 
Factive tablets developed by LG Life Sciences. [JOONGANG PHOTO]

Factive tablets developed by LG Life Sciences. [JOONGANG PHOTO]

LG was the first among the three to jump into biopharmaceutical investment. The 1976 opening of the Lucky Central Research Center was the starting point. This unit had its fair share of accomplishments — its Factive tablets became Korea's first novel drug to obtain U.S. FDA approval in 2003. The product was the outcome of 12 years of research. 
 
But biopharmaceuticals fell out of the conglomerate’s main interest as LG narrowed its focus to electronics, telecommunication and chemicals.
 
Bio industry sources say the 2002 decision to split off LG Life Sciences from the group’s holding company was the finishing blow.
 
“SK kept the novel drug research and development [R&D] unit under the holding company and continued to pour in financial support. LG went the opposite direction; splitting LG Life Sciences as if telling it to survive on its own,” said an industry source. “After that, novel drug projects were stopped — it was the start of a dark age.” 
 
This was when the core R&D workforce started leaving the company.
 
LG Life Sciences merged with LG Chem in 2016, but until now, the unit’s presence remains small in the bio industry as well as among LG Chem’s business units. LG Life Sciences contributed around 2 percent of LG Chem’s entire revenue last year. 
 
Last year, the life science arm generated 622.2 billion won in revenue with an operating profit of 37.2 billion won.
 
After LG Chem announced that it would spin off its battery business, Chief Financial Officer Cha Dong-seok said in a Sept. 15 conference call that the move “would allow increased investments in petrochemicals, new material and biopharmaceuticals to boost their value.” 
 
In the past decade, batteries have been the one business field that ate up the largest R&D investment in LG Chem. The increased spotlight could be an opportunity for LG Bio Science to truly show what it’s capable of.
 
“After the 2016 merger, there’s been a big increase in R&D investments and the pipeline of novel drug candidates was expanded to 40,” said an LG source. “Internally, the view toward this business is that we should give it another go.”
 
BY KIM TAE-YOON   [song.kyoungson@joongang.co.kr]
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