Conglomerates to Start-Ups
The modernization of Korean industry had been grounded on a partnership between the government and the chaebols. This began to change with the reform government of Kim Dae Jung, which chose to stimulate small and medium enterprises.
An important new initiative is trying to bring together research institutions, companies, and regional economic development, beginning with the creation of Daedeok Science Town, which includes 80 government and private research institutes, and four universities (including KAIST and KRIBB).
Daedeok Science Town has now been expanded to four regional clusters: Seoul, Daejeon/Chungcheong, Jeonila/Jeju, and Kangwon/Gyoungsang, all of them coordinated through a Korea hub.
Each cluster emphasizes specific industrial sectors appropriate to the region, e.g., Daejeon/Chungcheong focuses on biomedicine, oriental medicines, and livestock.
The most ambitious project, so far, is the Osong Bio-Health Science Technolopolis. Essentially a new city with a population of 100,000, it will house the Korean FDA, NIH, CDC, a number of other government institutes and private companies.
Another major component of government policy is the promotion of venture capital. This type of investment was directed toward R&D and technological innovation as well as for new business models.
The government is the major source of funds for venture capital (about 31% of the total). The boom years at the end of the 1990s were marked by rapid VC growth, reaching a total of 147 in 2000, although it is estimated that there are only 30–40 active today. The total investment in 2004 was estimated at $2.24 billion with about 2.3% in biotechnology.
The combination of venture capital and the promotion of bioclusters has altered the demographics of the Korean biotech industry. The companies fall into three general categories: conglomerates (diversified groups), ~30; mid-size companies (pharmaceuticals, food), ~70, and; small new companies (R&D driven, often VC financed), more than 500. Many of the latter are associated with university laboratories.
The business environment for the industry is highly volatile, characterized by the tension between established business sectors (e.g., generic drugs, diagnostics, and fermented foods) and the introduction of new drugs and therapeutic approaches (e.g., personalized medicine and nanotechnology applications).
Two factors will put additional pressure on the industry in the coming years. The first revolves around the signing of a U.S.-Korea Fair Trade Treaty, which would phase out tariffs on pharmaceuticals and tighten up IP regulations. This would push a move from generics to prescription drugs.
The second will lead to changes in Korean venture capital. At present, the major exit strategy from VC investments is through an IPO. Aside from the high risks involved in starting a new biotechnology company, the average time for a start-up to go to an IPO is a long nine years. The Korean Venture Capital Association has expressed the need for partnerships among Korean biotechnology companies and between them and foreign firms. Such alliances, particularly with chaebols and multinational corporations, would open up new sources of financing (private equity financing) and exit routes, plus access to new technologies.
Finally, South Korea has made a concerted effort to increase its training of biotechnology specialists, and it estimates that its pool of such individuals is about 13,000. The majority of them (52%) are at universities, with another 13% at research institutes and 35% in industry.
A senior scientist has pointed out that the statistics do not fully address the real issue, which is the shortage of individuals able to act as principal investigators in either academic or industrial environments at a global standard.
A future article will examine how different kinds of Korean companies struggle with the competitive biotech environment worldwide, and the opportunities that this might provide for U.S. companies.