[NEWS IN FOCUS] 2020 is the word as the biopharm sector tries to forget 2019

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[NEWS IN FOCUS] 2020 is the word as the biopharm sector tries to forget 2019

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It was a year of highs and lows in the Korean biopharmaceutical sector, but mostly lows as optimism gave way to pessimism and reality started to sink in. It was also a year of lessons - the main one being that a clinical trial is just that - a trial.

This year was certainly one of drama, one of dramatic failures, lies and cover-ups as companies went from promising to near zero and crimes were alleged.

Most importantly, the Korean bio bubble popped, the second such crash in five years.

Hopes remain, especially for 2020. Initial public offerings (IPOs) are in the works, and more clinical trials have been scheduled. Momentum could quickly return, especially as local companies, small and big alike, start to become players on the world stage.

By the end of Wednesday, Korea Exchange’s healthcare index was down 22.5 percent from 3,508.66 posted on the first trading day of the year to 2,720.79. The index went as low as 2,259.32 on Aug. 6, when investors offloaded biopharmaceutical stocks and caused the long-brewing bubble to pop for the second time.

In 2019, the companies evolved. But so did the investors. They learned that betting on the success of local drug makers is not just a game of probability. They are now aware that it takes more than just an approval for clinical trials and signing of technology export agreements for the local biopharmaceutical industry to make blockbuster progress and truly serve as the future growth engine of Korea.

“It is no longer feasible to invest with unconditional hopes,” said Seo Mi-hwa, an analyst at Yuanta Securities. “We can no longer bet on the outcome of clinical trials, as investor sentiment has lowered as many companies with promising Phase 3 clinical trial pipelines announced results below expectations.”

Seo and many analysts believe that the local biopharmaceutical industry could get back on track starting early 2020.

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“As the series of announcements on clinical trial pipelines have come to an end, it is safe to expect the biopharmaceutical sector stock prices to stabilize again,” Seo added.

“Now the drugs will be evaluated on the value of data acquired from clinical trials. It’s no longer a game of probability; companies and treatments have to confirm future market prospects in comparison to competitors and their products.”



Beginning of the year

As 2019 started, investors were especially hopeful. The companies had more Phase 3 clinical trials than ever.

Then, it all fell apart.

Just four months in, Kolon Life Science was banned from selling its Invossa gene therapy in Korea and lost its chance for an approval from the U.S. Food and Drug Administration (FDA). Kolon TissueGene, the U.S. subsidiary of Kolon Life Science, is on the verge of getting kicked off the Kosdaq, with the Korea Exchange giving it one year to explain itself.

Four months later, SillaJen halted Phase 3 clinical trials for its Pexa-Vec liver cancer therapy. It was discovered by a third party that the treatment doesn’t work. Although the company said it would pursue technology export agreements and keep investing to soldier on with trials, its stock price has collapsed.

Then came Helixmith. Data from a Phase 3 clinical trial of its gene therapy turned out to be worthless. In a surprising error, the placebo got mixed up with the treatment, and everything had to be scrapped.

Mezzion Pharma also failed to acquire usable results from its global Phase 3 study on a heart disease treatment, which was announced Nov. 18. Investors saw the results as a failure, as its stock price sharply dropped 38.3 percent.



Conflicts beyond products

In some cases, the damage is far beyond just dropping stock prices and failed trials.

Invossa being taken off the market and the scrapping of plans for more clinical trials and an FDA approval in the United States aren’t the only outcomes for Kolon Life Science and Kolon TissueGene.

Prosecutors have been investigating the two companies since the scandal erupted, as they may have known about potentially tumorous kidney cells, instead of cartilage cells, being infused in the osteoarthritis gene therapy earlier than it let on.

Invossa was granted approval for commercialization in July 2017 on the basis that it used cartilage-originated basis cells, not kidney cells. Company executives have claimed that they had no idea the kidney cells were present in the drug, only revealing the presence of the cells in early 2019.

Investigators have focused on several executives from Kolon Life Science involved in making Invossa. They are looking to verify if false information was used to earn approval for Invossa and list Kolon TissueGene on the secondary Kosdaq.

Officials are looking into whether top executives of Kolon Group, including former Kolon Group Chairman Lee Woong-yeul, are also part of the scandal. Lee has been barred from traveling overseas since June this year.

SillaJen is another company that is accused of illegal practices.

Officials are looking into whether SillaJen’s executives were aware of the disappointing outcome of the Phase 3 clinical trial for Pexa-Vec prior to it being publicly released. Shin Hyun-pil, chief science officer for the company, sold all of his 167,777 shares, gaining around 8.8 billion won ($7.6 million) right before SillaJen was expected to unveil the analysis results of the study.

Since then, the Financial Supervisory Service has been working with prosecutors to fast-track an investigation of the biopharmaceutical company. Prosecutors raided the Seoul and Busan offices of SillaJen in late August in the same probe.

Daewoong Pharmaceutical and Medytox have been going back and forth after Medytox filed a complaint against Daewoong with the U.S. International Trade Commission (ITC) earlier this year, saying Daewoong stole its botulinum toxin strain in manufacturing its own product, Nabota.

Medytox launched its botulinum toxin Medytoxin in 2006, while Daewoong launched Nabota later in 2014 and earned sales approval for the product from the FDA in 2017.

After being ordered by the commission to do analyses of their products and file the results to the commission in July, Daewoong claimed in October that it confirmed through its own tests that its botulinum toxin strain is different from that of Medytox. Medytox later disputed that.

The ITC is expected to make a preliminary ruling in June 2020 and reach a final ruling four months later.

While the probe kicked off last year, Samsung BioLogics is still in court for alleged accounting fraud. Earlier this month, the Seoul Central District Court sentenced three Samsung Electronics executives for ordering their employees to tamper with internal documents as a means to destroy evidence for the case since May this year.

Since beginning the probe in November last year, prosecutors and regulators have suspected that the Samsung Group as a whole was involved in the accounting scandal, as they believe Samsung BioLogics having greater market value was instrumental in clearing the succession path for Samsung Electronics Vice Chairman Lee Jae-yong and his control over the Samsung Group.



2019 still showed hope

But it’s not that every Korean drugmaker failed in 2019. Some achieved good results despite misfortunes of others.

Late last month, SK Biopharmaceuticals became the first Korean drug maker to officially enter the U.S. market on its own after Xcopri, its treatment for partial-onset seizures in adults, earned approval from the FDA.

Analysts expect Xcopri, which is cenobamate, to generate around 1.1 trillion won in sales per year if the drug takes 5 percent market share in the United States. According to GlobalData, the U.S. market for anti-epileptic treatments will grow 2.1 percent on average every year to grow from $4.9 billion this year to $5.9 billion by 2026.

Samsung Bioepis is expected to achieve profits for the first time since its founding in 2012. The company expects to reach 1 trillion won in product revenue this year led by biosimilar sales in Europe.

Samsung BioLogics, the parent company of Samsung Bioepis, experienced solid growth. The company said at a conference in Frankfurt, Germany, last month that it already achieved all of its goals for the year and was on track to being a globally competitive contract development and manufacturing organization.

The company applied a high-tech cell cultivation system in its third factory in Songdo, Incheon, since July, which can reduce cell production time for its clients by up to 30 percent. Ken Green, head of cell culture manufacturing at Samsung BioLogics, said during the conference that the company saw an increase in the number of clients after the technology was applied.

Daewoong Pharmaceutical has also been making substantial progress in selling Nabota in foreign markets. The company said it has so far earned sales approval for the botulinum toxin product in 50 countries, including the United States, Canada and countries in Europe.

The Korean drugmaker on Thursday earned approvals from the United Arab Emirates and Indonesia as well.

And to continue the success in the coming years, analysts say drugmakers should diversify their drug development pipelines so that they can be ready to fight unexpected setbacks and still be on track to make profits.

Industry sources generally agree that the success rate for new drug development, from the very first stage, is as low as one out of 10,000, which means that companies with comparatively advanced technologies and good funding have better chance of success.



2020 vision

Investors believe the year 2020 will be the year that local biopharmaceutical companies achieve real results rather than research and development (R&D) progress in clinical trials and technology exports.

“Even though one failure after another in global Phase 3 clinical trials weakened the overall investor sentiment, now seems like a time that stock prices are slowly recovering from those risks,” wrote Lee Myoung-sun, an analyst at Shinyoung Securities, in a report.

“Next year awaits some positive results that would allow more stable investment.”

They are already waiting to see the results of some licensing-out agreements signed and collaborative projects.

“If looking at the pattern for the past five years, biopharmaceutical companies generally saw their share prices rise after the JP Morgan Healthcare Conference done early in the year,” said Lee Tal-mi, an analyst at SK Securities, in a report.

“Most pharmaceutical companies meet global partner companies at the conference and start discussing licensing-out deals.”

The IPO for SK Biopharmaceuticals will be a major event for the sector.

As Xcopri won an FDA approval and is expected to hit the U.S. market in the second half of 2020, the momentum has been building for the SK Biopharmaceuticals’ IPO slated for early next year. It is estimated that the company can achieve a market capitalization of more than 5 trillion won, which would provide a huge boost to the aggregate value of the local sector.

“SK Biopharmaceuticals will set an example of how new drug development can be something beyond momentum and be connected to actual company earnings,” said Sun Min-jung, an analyst at Hana Investment and Securities.

“This will greatly contribute to recovering investor sentiment that has fallen from a series of negative global clinical trial results from local players.”

Continuing on with the prospect of making its first net profit this year, Samsung Bioepis is also expected to achieve better earnings and sales records next year as a result of its breast cancer treatment biosimilar Ontruzant.

The World Health Organization gave its first-ever prequalification designation to the biosimilar on Thursday, which provides an opportunity for Ontruzant to be procured by United Nations agencies and get faster sales approval in developing countries.

While the designation would bring the price of Ontruzant down a little, the company is believed to benefit from having the treatment sold to a greater number of patients on a global scale.

Biosimilars from Korean companies have been gaining in the global market as more biosimilars have been winning approval from health authorities, especially the FDA. They have been recognized in the global biopharmaceutical sector for being more cost-competitive than other biosimilars.

Celltrion has so far commercialized Truxima and Herzuma in the United States, while Samsung Bioepis earned approval for Eticovo, Ontruzant and Hadlima in the country.

Analysts believe that the success of those products could be greater in the United States next year, as the U.S. government has been working towards limiting medical inflation and lowering the cost of healthcare for U.S. residents, which will work in favor of cost-competitive Korean biosimilars.



Government role

The government is supporting the local biopharmaceutical sector so it eventually becomes one of the most profitable sectors and leads the country’s economic growth.

Korea seeks to raise its share in the global biohealth sector from 2 percent to 6 percent by 2030, and it is pouring in additional investments for better R&D capabilities while attracting other countries to do the same for local companies.

The Ministry of Science and ICT said Monday that it is earmarking 4 trillion won for R&D investment through 2025 and helping local players develop key technologies and new drugs.

It is also supporting R&D projects related to new medical appliances and treatments for dementia and other brain-related diseases that would greatly be in demand considering the globally aging population.

The Ministry of Health and Welfare is joining the cause, with a 527.8 billion won budget earmarked for biohealth R&D projects.

It plans to organize a database for bio R&D progress in collaboration with local hospitals and supply funds to assist Korean players in new drug development. The ministry added it is also going to create educational programs that would help fostering future biopharmaceutical industry talent.

BY KO JUN-TAE [ko.juntae@joongang.co.kr]

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