Venture capital (VC) firms took a cautious stance in investing in the Korean biopharmaceutical industry last year, an industry report outlined.

According to Hanwha Investment & Securities’ biopharmaceutical investment analysis report, the local biopharma sector attracted 2.95 trillion won ($2.34 billion) from VCs in 2022, down 47 percent from 5.6 trillion won the previous year. The number of investment cases also decreased by almost half to 264 in 2022 from 443 in 2021.

The average investment per case in 2022, excluding initial public offerings (IPOs), was 10.9 billion won, a slight decrease from 12.4 billion won in 2021, but an increase of about 73 percent compared to the average of 6.3 billion won over the past five years, the report noted.

Compared to 2018, which saw a total of 269 investments and an average investment of 4.6 billion won per case, the figure more than doubled last year, the report added.

"This is the result of the VC industry preferring to invest in blue-chip companies rather than diversifying their investments in many small-sized companies," the report read.

The report said such a trend was visible when looking at the type of investment by stage.

Compared to the past, VC investment was concentrated in the mid-term stages -- Series B and Series C -- rather than the early stages -- Seed, Pre-A, Series-A -- last year.

In 2022, the proportion of investments executed in the early stage was 54 percent of the total, down by about 9 percentage points compared to the average of the past five years, and the proportion in the mid-stage rose to 26 percent, up 8 percentage points compared to the average of the past five years.

In terms of investment size, the proportion of early-stage investments last year recorded 18 percent, a significant decrease from the average of 43 percent over the past five years, while the proportion of mid-stage investments increased from 40 to 63 percent.

Notably, Series B investment last year amounted to 1.5 trillion won, an 89 percent increase from the previous year's 800 billion won.

The report concluded that the investor sentiment for biopharmaceutical companies in the unlisted market is expected to suffer headwinds this year.

"The pace of new drug research and development is also slow due to a lack of funds, which is expected to limit the rise in corporate value," the report said. "We believe an investment strategy centered on listed biopharmaceutical companies that have secured operating funds will be needed in 2023, rather than investment in unlisted companies."