The pharmaceutical industry is leading the Bio Tech (BT) sector, driving economic growth in the 21st century. The size of the global pharmaceutical industry in 2012 was KRW 1,140 trillion, larger than the semiconductor industry (KRW 370 trillion) and the aerospace industry (KRW 648 trillion) combined. In particular, as Korea needs to discover a new growth engine that can drive growth in the decades to come—in addition to previous growth drivers such as the semiconductor, automobile, and shipbuilding industries—the importance of the pharmaceutical industry is only to grow.
Above all, the pharmaceutical industry functions as a social security net, responsible for the health and lives of the people. 80 percent of all pharmaceutical supplies is made by domestic companies, which equates to the protection of people’s rights for health and the reduction of social costs. Also, the self-sufficiency rate of vaccines which are vital for health, is as high as 61.1 percent.
In addition, the pharmaceutical industry acts as a growth engine for advanced countries, in that it creates added-value and quality jobs. QuintilesIMS, a global health consultant, forecasts Korea’s pharmaceutical industry to grow consistently at 3 to 6 percent by 2021. From the business management side, the industry creates long-term high profits based on patented technologies, keeps the share of youth employment (45.5 percent) high, and its employment growth rate at more than twice that of other manufacturing sectors (employment growth rate of the pharmaceutical manufacturing industry is 3.9 percent, compared to 1.6 percent of the entire manufacturing sector).
Market Size of Korea’s Pharmaceutical Industry
The market size of Korea’s pharmaceutical industry (including synthesized/bio/botanical, etc. drugs) in 2017 was KRW 22.0632 trillion, accounting for 1.8 percent of the global market. It rose 1.5 percent from the previous year, displaying an annual growth rate of 2.8 percent over the past six years. An annual growth rate of pharmaceutical product exports also has been maintained at 14.5 percent on average. As a result, it has emerged as the promising export industry for the next generation, following in the footsteps of the semiconductor industry.
< Table 1> Size of Korea’s Medicine Market (2012-2017)
Market Size = Production – Export + Import
Source: Ministry of Food and Drug Safety (MFDS), KPMBA
If only the bio medicine market is considered, it is worth KRW 2.223 trillion, accounting for 10.1 percent of the entire medicine market in Korea. However, the growth rate of the bio medicine market is higher than the entire medicine market. In particular, the export growth rate of the bio medicine market was 35.6 percent over the past five years, while its production growth rate also recorded 8.7 percent, much higher than the annual growth rate of the entire medicine production (5.3 percent).
< Table 2> Size of Korea’s Bio Medicine Market (2013-2017)
Market Size = Production – Export+ Import
Source: MFDS, KPMBA
R&D and Achievements of Korea’s Pharmaceutical Industry
The share of R&D investment by Korean pharmaceutical companies appears relatively high in consideration of their revenue. A look into Korea’s 43 Innovative Pharmaceutical Companies (selected by the government for its R&D capabilities and potential to go global) in 2018 reveals that they invested KRW 1.4315 trillion, equivalent to 11.8 percent of the total revenue of KRW 12.1033 trillion. Innovative Pharmaceutical Companies also plan to invest KRW 1.7617 trillion in new drug R&D in 2019, 23.1 percent up from the previous year.
Also, with an increasing interest in bio medicine R&D, 40 percent of total drug development expenses went into bio medicine research in 2015.
Korea’s technological prowess in the pharmaceutical industry is increasingly being acknowledged in the global market. As global companies have their eyes on the competitiveness of new Korean-made drugs, the amount of technology export contracts has continued to grow every year. The amount of technology exports was merely KRW 620 billion in 2014, but skyrocketed to KRW 5.3706 trillion in 2018, increasing more than 8 times in just five years. This shows that the level of Korea’s pharmaceutical technology has garnered the recognition as high added-value.
< Table 3> Technology Exports by Major Korean Drug Makers (2013-2018)
|Amount of Technology Export
(Major drug makers)
Note: Amount of technology exports = down payment + milestone payment
Source: MOHW “Achievement of Innovative Pharmaceutical Companies”, Press release, etc.
Besides the technology exports of candidate substances, research activities to develop new drugs domestically have been underway unceasingly. Since the approval of SK Chemical’s Sunpla Injection, a gastric cancer treatment, 29 new drugs have been developed in Korea. Of them, four have turned out to be blockbusters, generating more than KRW 10 billion in revenue. Also, Korea’s pharmaceutical companies have about 1,000 new candidate substances, including those in the pipeline for future research. By continuously taking on challenges in R&D, they aim to develop new drugs worth KRW 1 trillion in revenue in Korea by 2025.
The Fourth Industrial Revolution and the Pharmaceutical Industry
The Fourth Industrial Revolution is affecting the Korean pharmaceutical industry greatly. Global pharmaceutical companies are introducing and applying cutting-edge technologies linked with the Fourth Industrial Revolution—i.e., artificial intelligence (AI), Internet of Things (IoT) and Big Data—to reduce the costs and time for new drug development. Against this backdrop, the Korean government and pharmaceutical companies are riding on the wave of the Fourth Industrial Revolution.
The Ministry of Health and Welfare (MOHW) announced in 2018 that it will invest KRW 7.5 billion, jointly with the Ministry of Science and ICT, in establishing an AI-based drug design platform by 2021. Accordingly, they are planning to push for such programs as pilot projects of technology development by Korean drug makers, the collection of information on AI, and the establishment of mid- to long-term plans for AI implementation.
In March 2019, the Korean Pharmaceutical and Bio-Pharma Manufacturers Association (KPBMA) and the Korean Health Industry Development Institute (KHIDI) jointly built a Center for AI-based New Drug Development Facilitation. This center will support pharmaceutical companies develop new drugs using AI. Also, the Center plans to develop an open AI-based platform for new drug development—allowing pharmaceutical companies to safely and quickly develop new drugs—as well as provide consultation and training tailored to foster experts.
In addition, more and more companies are adopting IoT in production facilities. Hanmi Pharmaceutical’s Global Smart Factory applies high-tech ICT based on Radio-Frequency Identification (RFID), while Daewoong Pharmaceutical’s Osong Smart Factory operates nine kinds of IT systems and around-the-clock automated production lines. As an increasing number of production facilities are adopting cutting-edge technologies, it could become possible to produce quality pharmaceuticals in mass quantities within a short period of time.
Prospects of Korea’s Pharmaceutical Industry
As illustrated above, the Korean pharmaceutical industry has produced tangible results, raising hope for high growth going forward.
The Korean government has also displayed strong will to foster the pharmaceutical industry. In its 100 National Initiatives announced in 2017, the pharmaceutical industry was included in a plan to “identify and foster future new industries that create high added-value.” Moreover, it announced a strategic investment plan for innovative growth in 2018 that invests KRW 5 trillion in three strategic investment areas and eight leading industries (smart factory, smart farm, fintech, energy new industry, smart city, drone, future vehicle, and bio health). Once again in 2019, the presidential office and the government selected three new key industries to focus its resources on: non-memory semiconductor, next-generation automotive technology and bio. In May this year, the government declared bio-health as a national vision, aiming to capture 6 percent of the global pharmaceutical and medical device market, increase related exports to USD 50 billion, and foster bio-health as one of the nation’s five mainstay export industries by 2030. It centers on establishing five major big data platforms to develop new innovative drugs and create an ecology of innovation in which small and mid-sized firms and startups can stand tall as the driving force of the industry.
Domestic pharmaceutical companies are overcoming challenges in the development of new drugs through active and open innovation. Case in point is Yuhan’s investment and participation in “Lasertinib” research, a new material for lung cancer, by bio startup Oscotec in 2015, which led to a KRW 1.4 trillion technology transfer to Janssen Biotech in 2018. An open innovation model facilitated through industry-academia-research collaboration, or cooperation between companies has taken root in Korea’s new drug R&D. Small-scale Korean pharmaceutical companies are expected to develop into small but strong companies by reducing development risks and overcoming limits.
By Sang-Eun Yi (email@example.com)
Deputy DirectorInformation & Research Team, Planning Department
Korea Pharmaceutical and Bio-Pharma Manufacturers Association (KPBMA)
< **The opinions expressed in this article are the author’s own and do not reflect the views of KOTRA. >
Introduction and Achievements of Innovative Pharmaceutical Companies (MOHW, 2018)
Survey on the Status of Pharmaceutical Industry, KHIDI
Directory of Korean Pharmaceutical Industry, KPBMA
Outlook for Global Medicines through 2021, QuintilesIMS