[New Wave] Pharmaceutical and Bio Industry Must Empower Private Sector for Global Leap

Jeong Yuntaek, Director of the Pharmaceutical Industry Strategy Research Institute

Jung Yuntaek, Director of the Pharmaceutical Industry Strategy Research Institute

The pharmaceutical and bio industry holds a multifaceted policy significance. First, it provides consumers with safe and effective high-quality medicines; second, it controls the cost and price of medicines to balance the National Health Insurance finances; and lastly, it fosters industries to promote economic activities.

For South Korea to emerge as a rising power in the bio sector, the government must coordinate various stakeholders and optimally align each actor and their goals. It is crucial for the government to demonstrate leadership in rational regulation.

The pharmaceutical and bio industry is a science-based industry closely linking basic scientific research results with industrial outcomes, characterized by the commercialization of core technologies protected by a single substance patent. Furthermore, it is a high-risk, high value-added industry with a research-intensive nature. New drug development requires the integration of advanced new technologies and over ten years of development time with substantial resources, making it the industry with the highest proportion of research and development (R&D) expenses relative to sales.

The pharmaceutical and bio industry is heavily regulated by the government. The scope and duration of patent protection influence industrial development, and because medicines are verified through human clinical trials, stringent approval regulations apply. Countries like Korea with public insurance thoroughly manage and supervise drug prices to regulate the supply and demand and outlook of insurance finances.

South Korea’s pharmaceutical and bio industry, which began with the establishment of Dongwha Pharmaceutical in 1897, secured global competitiveness through the Korea-US Free Trade Agreement (FTA) in 2007. At that time, it was classified as an industry suffering alongside agriculture, leading to the announcement of the ‘Pharmaceutical Industry Competitiveness Enhancement Plan’ with a 10-year budget support of 1 trillion won, and the enactment of the Pharmaceutical Industry Promotion Act. For systematic industry development, a comprehensive five-year plan and annual priority tasks have been implemented through cross-ministerial execution plans. Currently, the ‘Second Five-Year Comprehensive Plan’ announced in 2017 serves as the basis for supporting industry development to enhance new drug development capabilities and global competitiveness.

The Pharmaceutical Industry Competitiveness Enhancement Plan and comprehensive plans have transformed the industry ecosystem. The most notable change is the shift from a domestic demand-centered industry to an export-oriented one. Since 2013, exports of high value-added finished medicines have surpassed raw materials, and despite the COVID-19 pandemic last year, the trade balance turned positive for the first time in May, August, and September, demonstrating its potential as a future growth industry. The export share of domestic pharmaceutical production, which was 1.8 trillion won out of total production in 2009, surged to 6 trillion won out of 22 trillion won in 2019. Since LG Chem’s antibiotic ‘Pactiv’ received U.S. Food and Drug Administration (FDA) approval in 2003, biosimilars and new drugs have been approved in the U.S. and Europe, further strengthening global competitiveness.

Despite these achievements, global-level industrial development remains a challenge. The world’s top 50 pharmaceutical and bio companies mostly dominate the global market with high value-added innovative new drugs. Although Korea is predicted to have about ten pharmaceutical and bio companies with annual sales exceeding 1 trillion won last year, becoming one of the world’s top 50 companies requires sales exceeding 3 trillion won. To achieve this, companies must possess blockbuster drugs with nearly 1 trillion won in annual sales.

To overcome the limitations of South Korea’s pharmaceutical and bio industry, proactively prepare for global trends, and establish a future blueprint, it seems necessary to consider major challenges and government policy tasks supporting them within a practical framework where the private sector can independently pioneer and adapt to market conditions.