[Listing Regulations That Crush Bio Dreams] ④ "R&D Investment Should Be Recognized as an Asset, Not an Expense"

Chronic Deficits Worsen With Continued R&D...
Accounting Standards Must Be Overhauled
"Shifting Perception From 'Investment to Asset'
Is Key to Revitalizing the Bio Ecosystem"

Editor's NoteNew drug development is a race against time and a test of patience. It often takes more than a decade and hundreds of billions of won in investment before results can be seen. However, Korean bio startups are being pushed into a high-speed race that lasts only three to five years. In reality, they have no choice but to rely on the stock market for early-stage funding. Yet, if they fail to meet short-term evaluation criteria based on simple figures such as pre-tax loss or revenue, they are delisted from the market and deprived of their future. The fact that bio startups, which entered the market with the technological capabilities to lead the future of 'K-Bio,' end up focusing on unrelated businesses and 'bookkeeping management' is a reflection of this structure. Asia Economy examines these phenomena and their causes, and proposes long-term solutions.

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[Listing Regulations That Crush Bio Dreams] ④ "R&D Investment Should Be Recognized as an Asset, Not an Expense"

"Investment in research and development (R&D) for new drug development, a future growth engine, should be recognized as an asset, not an expense, in accounting."

Lee Seunggyu, Vice Chairman of the Korea Bio Association, whom we met on June 13 at the association's office in Seongnam, Gyeonggi Province, emphasized that improving the requirements for pre-tax loss from continuing operations and revenue maintenance under the technology-based special listing system is the most urgent task for revitalizing the bio industry ecosystem.

Vice Chairman Lee completed his bachelor's, master's, and doctoral degrees at Yonsei University's College of Engineering and worked as a researcher at the Tokyo Institute of Technology in Japan. He founded and operated a new drug development bio venture for 13 years, and has overseen the Korea Bio Association's operations since 2012.

Lee Seunggyu, Vice Chairman of the Korea Bio Association, is being interviewed at the Bio Association office in Seongnam, Gyeonggi Province on the 13th. Photo by Jeong Donghoon

Chronic Deficits Increase With More R&D...Accounting Standards Must Be Overhauled

Vice Chairman Lee first pointed out, "The technology-based special listing system is premised on long-term R&D, but under the current IFRS accounting standards, most R&D expenses are treated as costs, which has worsened the pre-tax loss issue. The more consistently a company invests in R&D, the more chronic deficits it incurs, leading to the irony of innovative companies being designated as under watch or facing delisting. The current system must be fundamentally changed."

His proposed solution is to make the criteria for capitalizing R&D expenses more flexible. Vice Chairman Lee said, "In advanced countries like the United States, there are clear standards that allow R&D expenses to be capitalized under certain conditions, but Korea maintains rigid accounting standards that do not reflect reality. The system should be improved to allow for the capitalization of development expenses for projects that have been clearly evaluated for technological and business feasibility."

This pre-tax loss issue also leads to a contraction in investment across the entire bio industry. As companies listed under the technology-based special listing system face designation as under watch and risk of delisting, investment in bio ventures has plummeted, and new startups are stranded in the 'valley of death' due to an investment cliff. Vice Chairman Lee expressed concern, saying, "If this continues, the foundation of competitiveness for the entire Korean pharmaceutical industry will collapse in five to ten years."

"Shifting Perception From 'Investment → Asset' Will Revitalize the Bio Ecosystem"

He also suggested that the government should provide more active support and that private sector participation should be expanded to revitalize the bio ecosystem. He argued that funding in the bio industry is excessively concentrated on IPOs, and that diversification and risk dispersion are necessary.

Vice Chairman Lee said, "In reality, Korean bio companies have no way to recover their investment other than through IPOs. Effective incentives such as tax benefits should be provided to encourage mid-sized companies to invest in venture firms, and infrastructure and the role of investment companies should be expanded to facilitate mergers and acquisitions (M&A)." He explained that companies like Samsung Epis Holdings, which will launch in October, should be supported to actively participate in the M&A market and help bio startups build global competitiveness.

He further added, "Tax incentives should be provided so that domestic mid-sized companies can actively invest in venture firms. If companies continue to invest from a long-term perspective, a virtuous cycle can be established in the bio industry ecosystem."

Lee Seunggyu, Vice Chairman of the Korea Bio Association, is being interviewed at the Bio Association office in Seongnam, Gyeonggi Province on the 13th. Photo by Jung Donghoon

Another major approach suggested within the industry is to boldly increase R&D funding in the early stages of business to reduce the burden of failure. Vice Chairman Lee explained, "In the US and Europe, government- and large corporation-led open innovation programs support startups in new drug development. We also need to strategically utilize national R&D funds to boost private investment sentiment. For example, matching fund support for companies with promising pipelines or success-based funding to share the risk of failure."

He continued, "If a risk-sharing system between the public and private sectors is established throughout the entire cycle from startup to clinical trials to commercialization, even if investment contracts in one area, the other can compensate. The government should not stop at announcing short-term policies for the bio sector, but should act as a partner to foster private sector self-sufficiency."

What is encouraging is that the M&A environment between domestic conglomerates and bio companies is changing. Vice Chairman Lee said, "To activate M&A in the bio industry, it is essential to build infrastructure such as inter-company technology evaluation capabilities and global clinical trial capacity. I expect that large and mid-sized companies will play a role in growing domestic and international bio companies by actively participating in the investment and M&A markets."

Vice Chairman Lee actively proposed that the government establish a strong control tower for the sustainable development of the bio industry. He stressed, "Currently, bio and new drug development policies are dispersed across multiple ministries, which undermines their effectiveness. A cross-ministerial committee centered on industry experts should be established directly under the president to ensure policy consistency and effectively reflect voices from the field."

He also said, "Now is a decisive opportunity for the bio industry to leap forward as a global leader. Only if the government sufficiently reflects the opinions of the industry and establishes concrete and effective policies for regulatory reform and funding solutions will it be possible to secure the global competitiveness of the bio industry."