More domestic pharmaceutical and biotech companies are creating corporations dedicated solely to new drug research and development (R&D). The move is seen as a strategy to spread the risks of drug development and raise the odds of success through licensing out of candidate substances.
Chong Kun Dang announced on the 22nd that it has established Archela Inc, a subsidiary specializing in new drug development. Lee Ju-hee, Ph.D., formerly of Chong Kun Dang Research Institute, was appointed CEO of Archela.
Archela is a specialized company that operates in an NRDO (No Research Development Only) format, focusing only on development, not research. NRDO corporations conduct preclinical studies such as animal testing and clinical trials using new drug candidates brought in from academia, research institutes, and other corporations. The strategy is to advance the development stage to raise the value of the candidates and then transfer the technology to other companies.
According to the company, Archela will take on development of three new drug candidates that Chong Kun Dang has been working on. A Chong Kun Dang official said, "We are leaving the existing research organization and other pipelines (new drug development portfolios) within Chong Kun Dang as they are and taking only the three candidates," adding, "Rather than the concept of partitioning the existing research organization, the strategy is to peel off pipelines to focus and specialize."
The strategy is to concentrate resources on promising new drug candidates through the newly established subsidiary, speed up development, and raise the chances of exporting technology to global corporations and of development success.
Other corporations have also created separate R&D-dedicated corporations that include early-stage research. Samsung Biologics is proceeding to spin off Samsung Bioepis, its subsidiary responsible for biosimilars (copy versions of biologic drugs) and new drug R&D, and fold it into the newly established holding company Samsung Bioepis Holdings.
Samsung Biologics will remain as the surviving corporation in charge of its existing contract development and manufacturing organization (CDMO) business for biologics, while the newly established Samsung Bioepis Holdings will inherit Samsung Bioepis' equity to oversee subsidiaries and make new investments to secure future growth drivers. Trading of Samsung Biologics shares will be suspended starting on the 30th, and Samsung Biologics and Samsung Bioepis Holdings are scheduled to change list and relist on Nov. 24.
Previously, Daewoong Pharmaceutical, Dong-A Pharmaceutical Co., Ildong Pharmaceutical, and JEIL PHARMACEUTICAL set up separate subsidiaries focused on R&D. Ildong Holdoings launched Idience, a company specializing in new drug development, in May 2019, followed by the establishment of Unovia, an independent R&D corporation, in Nov. 2023. Daewoong Pharmaceutical has HANALL BIOPHARMA, acquired in 2017, and IN Therapeutics, a new drug development corporation that was the first to spin out from Daewoong Pharmaceutical in 2020, as subsidiaries.
JEIL PHARMACEUTICAL launched Onconic Therapeutics in May 2020 and transferred the rights to the gastroesophageal reflux disease drug "Ja Q Bo" to Onconic Therapeutics. Onconic Therapeutics was listed on KOSDAQ in Dec. last year. Dong-A Pharmaceutical Co. sits atop multiple affiliates under holding company Dong-A Socio Holdings, among which Dong-A ST, a subsidiary newly established in Mar. 2013 via a spin-off from Dong-A Pharmaceutical Co., is in charge of prescription drug development and overseas business.
Some analysts say pharmaceutical companies establishing or acquiring R&D corporations reflects how Korea's pharmaceutical industry is shifting from a domestic, generics-centered structure to one focused on exports and innovative drugs. Lee Gwan-soon, chair of the Future Vision Committee at the Korea Pharmaceutical and Bio-Pharma Manufacturers Association (KPBMA) and head of GI Partners, said, "New drug development is essential for Korea's pharmaceutical and biotech industry to secure competitiveness in the global market," adding, "By setting up R&D-dedicated companies, the chances of new drug success can be increased."
Financial calculus is also at play in corporations' establishment of R&D-focused subsidiaries. New drug development takes more than 10 years and entails enormous costs. Various variables such as delays and failures can arise along the development journey. According to the Biotechnology Innovation Organization in the United States, the final success rate of therapeutic candidates that entered clinical stages in the U.S. over the 10 years from 2011 to 2020 was just 7.9%. Industry officials noted that because failure in the midst of new drug development can significantly affect a corporation's share price and profitability, there is also an aim to reduce such risk exposure.
There is also a strategy to secure capacity for external fundraising through newly established unlisted corporations. The approach is to keep the newly established R&D subsidiary unlisted, bring in venture capital (VC), institutional investors, and strategic investors (SI), build up R&D performance and value, then list it separately later to attract outside capital. Regarding the possibility of separately listing Archela, Chong Kun Dang said, "It may be early to say, but from a long-term perspective it is fully possible."
An industry official said, "The existing company can focus on the sales of generics, prescription drugs, and over-the-counter drugs to maintain stable earnings growth, while the newly established subsidiary specializing in new drug development can invest more aggressively in mid- to long-term future growth drivers," adding, "This can build up corporate value."