Korea's pharmaceutical R&D ecosystem faces challenges as government R&D budget fluctuates

Korea's pharmaceutical research and development ecosystem is facing significant headwinds following substantial cuts to government R&D funding in 2024.

Recent data from the Korea Drug Development Fund (KDDF) revealed that only 78 of the 607 submitted projects (12.8 percent) were selected for funding last year, a notable decrease from the 17.8-22.1 percent selection rates between 2021 and 2023.

The KDDF supports the development of new drugs in various fields, including chemically synthesized drugs, cell and gene therapies (CGTs), antibodies, and natural product medicines. The program funds projects across different R&D stages, such as active substance identification, lead compound development, candidate substance discovery, preclinical trials, and phase 1 and 2 clinical trials.

Projects in dementia, infectious diseases, and vaccine development are excluded from KDDF selection as they receive support through other programs under the Ministry of Health and Welfare and the Korea Disease Control and Prevention Agency (KDCA).

The increased competition reflects growing interest from pharmaceutical companies amid challenging private funding conditions and a dip in the government R&D budget. The government R&D budget saw a 9.5 percent decrease in 2024, which fell to 26.5 trillion won ($18.2 billion) from 29.3 trillion won in 2023.

This has led to many Korean biotech firms scrambling to raise sales.

"The reduced R&D support funding has forced many companies to seek alternative financing through less favorable methods, such as capital increases and third-party allotments," said a biotech CEO who wished to remain anonymous. "These financing methods are negatively impacting our current shareholders' stock value and diluting share prices, but we have little choice given the current funding environment."

Another biotech CEO agreed.

"Many early-stage biotechs traditionally relied on government R&D grants to sustain operations while developing their research pipeline,” he said. “The sudden disappearance of this funding has put numerous startups in a difficult position.”

Even companies with promising drug candidates are forced to explore unrelated business ventures like cosmetics or health functional foods to make revenue to meet the threshold for listing criteria, he added.

The CEO further stressed that some companies have to reluctantly dilute their ownership by bringing in larger companies under the guise of collaboration, simply because generating revenue in early development stages is challenging.

Signs of recovery?

However, 2025 brings signs of recovery. The KDDF has announced expanded funding plans, with the national R&D budget, which includes pharmaceuticals, increased by 11.8 percent from 26.5 trillion won to 29.7 trillion won.

The KDDF aims to support 128 projects this year, a significant increase from the 78 projects selected in 2024.

The KDDF has been providing funding of up to 1.2 billion won for active substance development, 800 million won for lead compound development, and 1.2 billion won for candidate substance discovery.

For clinical projects, the KDDF had provided up to 2 billion won for preclinical trial, 3.6 billion won for phase 1 and 7 billion won for phase 2.

However, starting this year, funding for clinical trials has been increased by 30 percent, raising support for phase 1 trials to approximately 4.55 billion won and for phase 2 trials to around 9.1 billion won.

The KDDF plans to accept and evaluate project submissions in two rounds this year—one in the first half and another in the second half. The first round will open for submissions at the end of January, with evaluations conducted from February to the end of March, and research is expected to begin in April. The second round will begin accepting submissions in early July, with evaluations running from June to the end of August, and research starting in October.

Despite increased funds, industry insiders expect a harsher competition environment than before.

"With private funding becoming increasingly difficult to secure, more companies are turning to national projects for R&D funding," said a biotech industry official. “With government project selection becoming a main revenue source for early biotech companies, not to mention the selection working as a key indicator for its technological capabilities, we expect competition to become even more intense in the future."