'Korean biotech startups face tough road ahead without early investment'

In Korea’s biotech sector, securing early-stage funding has supposedly become crucial for survival, with companies that attract investments and demonstrate strong technology poised to lead the market.

“As competition intensifies and market conditions shift, companies that fail to secure early investments or keep up with technological advancements risk being left behind,” Woo Jung-gyu, senior manager of the venture capital (VC) division of bio-healthcare at Yuanta Investment, said during a press seminar hosted by Korea Pharmaceutical and Bio-Pharma Manufacturers Association (KPBMA) on Wednesday. 

With traditional development pathways becoming less relevant, Woo said, biotech companies now face growing pressure to innovate and maintain new product pipelines, even as overall venture capital funding in the sector declines.

“In today’s climate, it’s not enough to have just an idea; companies need a clear, compelling concept," Woo said.

Drug development, once a trial-and-error process of screening substances, has evolved into a competitive race to target specific diseases. And while this streamlined approach promises quicker market entry, it also comes with a significant financial burden: companies must secure funding for scaling, clinical validation, and post-market monitoring.

In Korea, securing funding remains a challenge, especially as technologies rapidly advance. “What is considered valid today could be obsolete tomorrow,” Woo said, noting that companies must constantly generate new data to stay competitive.

To keep development costs manageable, many companies in Korea benchmark their drug candidates against existing studies. Open innovation efforts may have helped reduce these costs, but the opportunity cost for drug development has dropped from around 3 to 5 trillion won ($2.14 to 3.57 billion) to between 1 to 2 trillion won with the rise of AI and data-driven clinical predictions. 

“Despite these advances, many in Korea’s biotech sector are frustrated by the disparity in company valuations between Korea and the U.S.,” Woo said. While some companies in the U.S. are valued at 1 trillion won, their counterparts in Korea often receive valuations of 700 to 800 billion won. Woo added that this discrepancy reflects challenges in the Korean market, where limited access to funding forces companies to rely on licensing deals.

VC continues to drive investment in Korea’s biotech sector, but the volume of funding has declined from previous years. Although the first half of this year saw stable VC funds raised compared to last year, Woo said it is unlikely to match the levels seen in 2021 or 2023.

Biotech’s share of total investment has also decreased, from 28 percent in 2020 to just 15-17 percent in the first half of 2024.

The rapid growth of biotech startups between 2020 and 2021 has added to the sector’s challenges. In the biotech boom of 2020, 546 biotech startups were founded, but Woo said only about 10 percent are expected to succeed. “Without enough VC investment,” he warned, “many will struggle to secure the clinical licensing deals they need.”

Biotech development costs are significantly higher than for chemical drugs, often up to 10 times more. In Korea, a single clinical trial can cost between 2 to 3 billion won, while advancing a drug to phase 1 trials in the U.S. may require 6 to 7 billion won. And if a company aimed for a phase 2 trial, they’d need to raise around 20 billion won just to keep up.

“Pharmaceutical companies are now in ‘survival mode,’ aggressively seeking new drug candidates to stay competitive,” Woo said. With regulatory restrictions eased, allowing direct investment in startups, corporate venture capital has also become increasingly important. “Open innovation is now essential for future growth,” he added.