[DEBRIEFING] Could the virus outbreak heal the medical sector?
One of the few corners of optimism in the coronavirus crisis is medicine and medical equipment. Companies that are able to develop and offer treatments, as well as those in a position to make and sell testing and protection goods, stand to gain.
Already in the United States, a number of stocks have enjoyed a bit of an outbreak bump. Gilead Sciences, which may have a treatment for the new coronavirus, is just one example. Its stock was up 22.98 percent by Friday from the beginning of the year compared with a 8.8 percent drop in the S&P 500 during the same period.
Korea has significant capacity in terms of research and manufacturing that might be helpful during the crisis. It has drug developers and drugmakers, makers of masks and other paraphernalia and tech companies that have been focused on medicine for some time.
The country as a whole is well placed for a coronavirus-related medical renaissance. It has become the preferred test bed for the answer, as it has a high number of cases and is also open, transparent and cooperative with international partners.
Key data will be generated here. Discoveries could be made. Even if it is an international company behind the breakthrough, the technology transfer and process and education opportunities would be immense as trials are conducted and rollouts commence.
For a number of years, the medical and drug business has been facing challenges. It’s been losing at both the low end and at the high end. Much of the related manufacturing has moved to China, while attempts to create new treatments have fallen flat. Too many trials have failed, and scandals are all too common. The current outbreak is a chance for Korea to win back some of the work that it lost and demonstrate its abilities to a world fast seeking a solution.
Here, we take a look at the landscape and how businesses might benefit from the outbreak. It turns out to be a mixed bag. Some companies have clearly won, and many are looking to draft off of the success of international leaders. Interestingly, some of the obvious picks don’t seem to be getting much traction. Their existing portfolios are not much help, and they are waiting by the phone for orders that don’t seem to be coming.
It certainly is. We are not quite at ground zero, but with the second-highest number of cases and a high concentration in and around Daegu, Korea is both being devastated by and effectively dealing with the disease. So on one side of the page, there is a long list of companies hit hard, with plant closings, offices being cleared out and parts shortages as the global supply chain seizes up. You name it: Samsung Electronics, Hyundai Motor, Amorepacific and many others in Korea’s who’s who.
But as this is happening, Korea is getting down to business. The management of the outbreak has quickly gone from haphazard to remarkable, with protocols being put into place at companies around the country and testing and treatment going into high-gear overnight. Institutions are evolving - with emergency regulatory approvals being handed out almost overnight - while the nimble are pivoting.
What made Korea great is very much evident again - its pragmatism, focus and intensity.
2. O.K., O.K., settle down. Before we get carried away, can you give me some specifics?
Sure. A soju company re-tasks capacity to making hand sanitizer, and a diagnostic kit maker shifts all production to Covid-19, the official name of the coronavirus, tests.
The test kit story is especially instructive. Korea can run 10 to 20 times more tests per day than any other country, the United States and China included. While the low number of tests in the United States has become a political issue, Korea is just getting on with it. The success comes down to four main manufacturers of the kits - Daejeon’s SolGent, SD Biosensor from Suwon, Gyeonggi, Kosdaq-listed Seegene and Kogene Biotech - and a bureaucracy that has been responsive. The Korea Centers for Disease Control and Prevention granted emergency approvals to the four companies for the making of diagnostic kits. Face mask manufacturers have also done well as the government, fearful of a shortage and gouging, is buying almost all the output and distributing the masks.
The truth is, it is mostly the multinationals making headway at this level. Because of the costs of rolling out potential treatments, and the huge risks, only companies with massive balance sheets can even attempt to develop these drugs. That said, Korea is in on this development. Because of its case numbers and its good working relations with the countries in which the research is happening, it will be a part of the program.
Take Gilead, for example. The Foster City, California-based biotech company, which is perhaps best known for making an effective hepatitis C treatment, is starting a global Phase 3 clinical trial program of 1,000 patients this month with remdesivir, which was originally made to cure Ebola. Of that 1,000, 195 will be in Korea: 120 patients with mild cases and 75 with severe cases. If it works, the experimental antiviral therapy could be ready by this summer. Initial results will be out by May, and approvals could then be granted within 60 days. Gilead Sciences is an almost $100 billion market capitalization company. It’s good it’s here and on the ground.
4. What about other foreign companies?
Roche, Regeneron, Johnson & Johnson, Moderna Therapeutics and Sanofi Pasteur are just a few of many global pharmaceutical companies pursuing treatments for the coronavirus. They are working with health authorities of countries affected by the outbreak to fast-track treatment development and clinical trials. But the Gilead therapeutic is the only one being tested in Korea.
“So far, the only Covid-19 treatment we authorized for Phase 3 trials is remdesivir from Gilead Sciences,” Kim Dal-hwan, a senior scientific officer at the Ministry of Food and Drug Safety, told me on Wednesday. “No other foreign company at this point submitted requests for trials or had any discussions with us to possibly start one.”
5. There must be some development locally in terms of drugs. Any advances we can cite?
I can name a few. The Ministry of Food and Drug Safety has allowed a locally-developed antiviral drug called Virus Suppressing Factor (VSF) to be used to treat Covid-19 patients. The waiver came at the request of Seoul National University Hospital. It is made by ImmuneMed, a mid-sized bio company. Institut Pasteur Korea has started developing a treatment for Covid-19 based on its previous work on other coronaviruses. It is planning to finish the initial screening and animal studies by late April.
Celltrion kicked off research for a potential drug candidate two weeks ago, but a company spokesperson said it is unclear how long it will take for the research project to come up with a drug substance for clinical trials. SK Bioscience said it is just starting on its efforts. The regulators are being remarkably open-minded. The Ministry of Food and Drug Safety said that it will allow treatments developed for other illness to be used for Covid-19 if they are found to be safe and effective, and it will expedite the approvals.
6. But, as you said, is it a matter of scale and critical mass?
It’s another dimension altogether out there - a different world. The entire biopharmaceutical and life science sector here has a capitalization of about $100 billion, roughly the same as Gilead. In 2018, the local biopharmaceutical sector logged $5.1 billion of exports, according to the Korea Biomedicine Industry Association. That is up from $2.76 billion in 2014. In 2018, New York City-based Pfizer reported $53.6 billion in revenue and more than $11 billion in net income. Basel, Switzerland-based Roche Group’s pharmaceuticals division recorded more than $45 billion in sales that year.
In this business, scale matters. So does history. The Korean sector has only been around for 20 years. It doesn’t have the massive research libraries of the competitors. Companies like Roche and Merck start dozens of new drug development projects every year, so chances are high that they have done similar projects in the past.
It’s just a different league.
7. How about a timeline in terms of vaccines?
Vaccines take time. Antivirals exist and can be re-tasked. Vaccines must usually be created specifically for each disease. Anywhere from one to five years is needed. Some claims have been made that the vaccine may already exist somewhere in the back catalog, but that is not likely. Korea might be able to get in on the process, and some headway seems to have been made. The Korea Research Institute of Chemical Technology’s fusion research group announced Wednesday that it has discovered antibodies that can neutralize Covid-19 and halt its activities in host cells, a very crucial step toward developing a cure or a vaccine.
8. What treatments are being used in Korea at the moment?
Korea has been largely relying on treatments coming from foreign companies. The Health Insurance Review and Assessment Service has recommended 35 treatments for Covid-19 utilizing Kaletra, zanamivir, ribavirin, immunoglobulin G, interferon and hydroxychloroquine. Nine of the treatments are marketed by Korean companies, but the rest are from Big Pharma such as Roche, Merck, Bayer and GlaxoSmithKline. Local patients have been mostly treated with Kaletra, an H.I.V. drug from North Chicago’s AbbVie, and hydroxychloroquine, a malaria medicine. The Ministry of Food and Drug Safety is discussing regulatory exemption for the import of Avigan, a drug made by Tokyo’s Toyama Chemical and approved for the treatment of influenza in Japan in 2014.
9. Can Korean companies play a support role for the multinationals in terms of contract manufacturing and other related functions?
That was the plan, but so far, the outlook for this sort of role is mixed. Samsung BioLogics, the largest contract manufacturing service provider globally, said it has so far received no requests and has engaged in no consultations to produce Covid-19 treatment candidates. It is likely the developers will be producing batches in-house. Gilead Sciences has no plans to expand its contract manufacturing agreements with others. A spokesperson for the Korean unit said Gilead Sciences is considering setting up a manufacturing system for remdesivir on its own to meet the rising demand.
This is a bit of a disappointment, as Korean companies have been positioning themselves for playing such a role, producing high-quality small runs on the turn of a dime for clinical trials. It’s not panning out. The most promising news for Korean biopharmaceutical companies is ImmuneMed’s VSF treatment. If that works on Covid-19, the company could be signing licensing and marketing agreements with foreign partners.
10. How about lower-value-added products? Business must be booming for masks and tests kits.
A spokesperson for Yuhan-Kimberly said mid-last month that the company already met its annual goal for face mask sales. LG Household & Health Care, Donga Pharmaceutical, Monalisa and SsangYong Paper all sell face masks, and business is indeed great. Korea also has a large number of mid-size local face mask companies as well.
The same goes for test kits. Seegene founder and CEO Chun Jong-yoon said in an interview last month that the company has been allocating all of its resources to producing and distributing its highly sought-after diagnostic solution. Its single-tube diagnostic kit, the Allplex 2019-nCoV Assay, earned emergency approval from the Ministry of Food and Drug Safety for Covid-19 diagnosis. But there’s a cost to all of this. Seegene has shifted capacity away from other types of test kits made for foreign clients. This is 82 percent of its business.
11. How about the simple manufactured medicines? The China supply chain is disrupted. Is this an opportunity for the Korean producers?
It is quite the opposite, to be honest. The collapse of Wuhan, China, has cost local drugmakers in terms of drug development and overseas sales. Wuhan is a key hub for the global biotech and pharmaceutical industry. Multiple pharmaceutical companies have established branches in the city, which is the location of China’s first biosafety Level 4 laboratory. China is also the largest and sometimes the only supplier of important medicines and medical devices.
After the outbreak started, some clinical trials came to a halt, and timelines were scrapped. Samsung Bioepis was preparing to start its first clinical trials ever in China on a biosimilar for treating breast cancer after earning the green light from the country’s health authorities in December. The problem is bigger for Celltrion, which announced in early January plans to invest more than 600 billion won ($508 million) over the next five years to build the largest biopharmaceutical manufacturing plant in China. It was to be built in Wuhan of all places. The company was planning to break ground on the project in April, but with the outbreak disrupting business activities in China, that’s not going to happen.
12. How has the stock market responded?
The coronavirus outbreak initially worked in favor of local biopharmaceutical companies, as investors seemed to expect the industry to come up with solutions or experience a surge in demand for some of its products. According to the Korea Exchange, the aggregate market capitalization of 165 Korean biopharmaceutical and life science companies rose from 119.9 trillion won at the end of January to as much as 124.9 trillion won by Feb. 12. But as it became evident that the whole Korean economy is going to experience difficulty from the continuing spread, the total value shrank to 113.9 trillion won by Feb. 28. Since then, the sector has been largely following the market trend.
There are some notable exceptions. Samsung BioLogics is up more than 13 percent from the beginning of the year, while Seegene is up 56 percent.
13. What other opportunities are there? Perhaps medical data or intellectual property related to the outbreak?
Even if local companies don’t get major approvals for their Covid-19 treatments or vaccines, the outbreak could generate considerable economic value for some. As Korea has reported the most number of cases outside China, local biopharmaceutical research institutions and companies have been diverted to the mission. Much will be learned in the process, and intellectual property will be created. Covid-19 could be with us for some time, and perhaps it will mutate. Knowledge may be banked, and that will be useful later.
BY KO JUN-TAE, RICHARD MEYER [firstname.lastname@example.org]
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