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South Korea drugmakers seek to scale next coronavirus mountain

Samsung and SK units among pack of companies working on vaccines and treatments

South Korean President Moon Jae-in is encouraging the country's pharmaceutical companies to develop vaccines and treatments for COVID-19. (Photo courtesy of president's office) 

SEOUL -- President Moon Jae-in was upbeat in March when he visited Seegene's headquarters in Seoul. He applauded the drugmaker's researchers and employees for developing and producing the coronavirus test kits that had helped the country swiftly contain the COVID-19 outbreak.

"You are at the front line of fighting the virus... We were able to make achievements in controlling the epidemic because you took the first action by developing test kits quickly," Moon said. 

The country has conducted 1.4 million tests since January, with a 1% positive rate. In February, a government-supported research team developed the most rapid form of testing, which can provide results in just six hours.

The quick response drew global praise, with leaders and celebrities from President Donald Trump to Bono of U2 asking South Korea for test kits. Seegene and its local peers export most of their kits.

Riding high on that success, those companies are now setting their sights on an even bigger challenge: developing coronavirus vaccines and treatments.

In June, the government announced its plan to support such development, including more than 100 billion won ($83 million) in emergency R&D funding for biopharmaceutical companies to start clinical trials this year.

"Treatments and vaccines are mountains that we must conquer," said Moon, himself an amateur climber, in a meeting with government officers and medical researchers in April. "We should finish developing treatments and vaccines no matter what it costs."

But that mountain is steep. Developing treatments or vaccines for the virus is both expensive and time-consuming -- and South Korean companies are lagging behind internationally.

The country's Ministry of Food and Drug Safety acknowledged as much last month. Leading the race for a vaccine, it said, is Oxford University, which has already started phase 2 and 3 trials of AZD1222, a potential COVID-19 vaccine, with 10,000 adult volunteers.

The agency gave other examples: Moderna, a biotech startup based in Massachusetts, will begin phase 2 clinical tests involving 30,000 people this month, while a Chinese company is also in phase 2 clinical trials.

By contrast, South Korean drugmaker Genexine only received approval to begin phase 1 and 2a clinical tests simultaneously for its vaccine on June 11.

The difference, experts say, is due to foreign companies having greater experience in such trials with their own infrastructure for vaccine development. 

"Moderna has its own platform based on mRNA and has experienced such clinical testing many times," said Jeong Kyung-tae, a director at the National Institute of Health, a research arm of the Korea Centers for Disease Control and Prevention. "But we are now gearing up to develop vaccines."

At least one South Korean drugmaker has received a vote of confidence from international backers. SK Bioscience, a drugmaking affiliate of SK Chemical, said in May that it will receive $3.6 million from the Bill & Melinda Gates Foundation to develop a material for a COVID-19 vaccine.

"I am pleased that we are cooperating with the Gates Foundation, following having previously worked together in pediatric gastroenteritis and typhoid fever vaccines," said SK Bioscience CEO Ahn Jae-yong. "It means that our world-class technology is recognized. We will develop a COVID-19 vaccine out of a responsibility to help humanity."

SK Bioscience has already developed vaccines for pediatric gastroenteritis, typhoid fever and cervical cancer. Developing a COVID-19 vaccine would boost the company's reputation on the global stage.

"We expect SK Bioscience will start clinical trials of a COVID-19 vaccine quickly, using its experience in developing a cervical cancer vaccine," said Seo Keun-hee, an analyst at Samsung Securities.

On the treatment front, too, South Korean companies lag behind global stage, where many companies are conducting research on how to use existing treatments to treat COVID-19. Gilead Sciences of the U.S., for example, has advanced to phase 3 clinical trials for remdesivir, an Ebola treatment, and is testing it on coronavirus patients.

South Korea's Celltrion, meanwhile, announced in early June that it succeeded in the first phase of animal tests for a COVID-19 antibody treatment. The pre-clinical study was conducted in collaboration with Chungbuk National University College of Medicine, the company said.

Among South Korean companies, Celltrion is the furthest ahead in this race, said Lee Tal-mi, an analyst at SK Securities. Celltrion plans to invest 300 billion won in the project in cooperation with the KCDC.

"It is possible for the company to start clinical trials for people in late July or early August," Lee said. "We need to pay attention to the results, which may come within this year."

Other companies, deterred by the time and costs involved in developing new treatments, have chosen instead to focus on manufacturing drugs for their overseas companies. Samsung Biologics, controlled by Samsung C&T and Samsung Electronics, said in April that it signed a $362 million contract to produce a COVID-19 treatment for Vir Biotechnology, a U.S. pharmaceutical company.

SK Biopharmaceuticals, a pioneer in original neurological drugs, showed the growth potential of South Korea's bio sector by successfully completing its $800 million initial public offering this month. It was the biggest share offering in the country for three years, and in the run-up to the listing the company talked up its pipeline of new drugs that include a brain cancer treatment.

SK Biopharm's shares closed at 205,500 won on Friday, after touching the daily price limit gain of 30% for three consecutive days since its debut on July 2. The stock's offering price was 49,000 won and it debuted at 98,000 won. The surge pushed SK Biopharm to a market capitalization of 16.6 trillion won, putting it among the 20 most valuable companies on the benchmark Kospi index. SK Holdings still controls the company with a 75% stake.

Shares in SK Biopharmaceuticals have surged since its $800 million initial public offering this month. (Photo courtesy of SK Biopharmaceuticals) 

Analysts say SK Biopharm has changed the model for South Korea's biopharmaceutical industry. Domestic companies that develop their own drugs generally sell them to bigger global peers once they reach the early stages of clinical trials, reducing the risks related to failure late in the testing process. SK Biopharm, by contrast, sees its drugs all the way through to market.

"SK Biopharmaceuticals has turned the formula for pharmaceutical companies' global strategy upside down," said Sun Min-jung, an analyst at Hana Financial Investment. "It was unimaginable in the past, when the sector was regarded as a generic industry for the domestic market. A re-rating of their valuations would be reasonable, as the industry has been restructured."

As South Korean drugmakers gear up to tackle their next coronavirus challenge, most are doing so from a position of financial stability, thanks to parent companies willing to back them until they can stand on their own. SK Holdings has supported the loss-making SK Biopharmaceuticals for nine years since its establishment in 2011, while Samsung Biologics has enjoyed strong support from Samsung C&T and Samsung Electronics.

Rosy expectations for biopharma companies, moreover, have driven their market values skyward this year. The pharmaceutical sector topped the Kospi in terms of growth in the first half of this year, soaring 55.2%.

Shares of Samsung Biologics jumped 80.4% for the first six months, followed by Celltrion at 66.3%. Shares in Seegene, which is listed on the minor Kosdaq board, rose 268%.

But some analysts are tempering their expectations for coronavirus vaccine and treatment success.

"Competition is heating up as more than 200 COVID-19-related projects are underway. It is hard to say that a company embarking on development will result in profitability," said Heo Hye-min, an analyst at Kiwoom Securities.

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