SEOUL - Pricing pressure and increased government oversight of irregular business activities could prompt Korean pharmaceutical companies to focus on new growth strategies for 2011 such as cooperative deals with multinational companies and exports into new emerging markets like China, according to Korean analysts.

By doing so, Korean pharmas would be emulating the actions of leading Japanese pharmas like Takeda, which in the last decade has expanded overseas in the face of a tough regulatory and pricing environment at home, to the point where 53% of Takeda sales in 2009 were from overseas markets, notes Mirae Asset Securities in a recent note to investors.

Challenges in Korea include a new anti-rebate law, meant to curtail gifts from pharmaceutical companies to healthcare professionals (Also see "South Korea's Health Ministry Unveils Provisions For November's Anti-rebate Law" - Scrip, 5 October, 2010.), and a major pharmaceutical reform focused on transparent pricing that provides medical institutes with incentives to save costs via several measures, including purchasing drugs below preset upper limits (Also see "New Pricing System Could Deal A Blow To South Korea's Generic-Dependent Companies" - Scrip, 19 February, 2010.).

"In a business environment similar to Korea's, Japanese pharmaceutical companies were able to improve profitability dramatically overseas," said Mirae analyst Shin Ji-Won, noting that exports currently account for only 15% of Korean pharmaceutical company sales.

However, unlike Takeda, which set its sights on the U.S., establishing a subsidiary in 1998 to sell products like Actos and Prevacid, Shin recommends that Korean pharmas focus on a closer large market, China, which is seeing rapid growth as the government implements major healthcare reforms.

Hanmi, Green Cross Look To China For New Growth

Korean companies looking to expand in China include several market leaders such as Hanmi Pharmaceutical and Green Cross.

"A series of regulatory issues in the domestic Korean market have reminded the Korean pharmaceutical companies of the importance of export competitiveness," Shin said.

"Since Hanmi and Green Cross set up business units in China in the early 1990s, they are expected to expand their current business in China while Yuhan will move to take advantage of the presence in China of its sister company Yuhan-Kimberly, which is selling diapers, feminine and adult hygiene and skin care products in China now."

In addition to China expansion, regulatory challenges at home are likely to encourage Korea pharmas to partner with multinationals.

"At a time when global pharmaceutical companies are accelerating their M&A moves, Korean players are also highly likely to seek a variety of strategic partnerships to secure a biopharmaceutical profit model," said Shin, referencing Dong-A's recent tie up with GlaxoSmithKline (Also see "GSK Expands In Korea With Purchase Of 9.9 Percent Equity Stake In Dong-A Pharma" - Scrip, 12 May, 2010.).

Other large Korea pharmas including Hanmi, Green Cross, Daewoong, and LG Life Sciences are also in the hunt for alliances with MNCs (Also see "South Korean Pharmas Clamber For Partnerships To Survive Rapidly Changing Environment" - Scrip, 15 June, 2010.).

Celltrion Is A Company To Watch

Like many Korea analysts, Shin's top pick for 2011 is Celltrion, which has a pipeline of late-stage biosimilar products - including a biosimilar of Roche's Herceptin in Phase III trials - and is focusing on growth in emerging markets.

"The recently growing attractiveness of biopharmaceutical companies will peak in the first half of 2011 when biosimilar products are expected to be launched. Among biopharmaceutical companies, our top pick is Celltrion, armed with a comparative edge in facilities and R&D pipeline," Shin said.

Fueled by breezy optimism toward its stocks, Celltrion shares rose to a high of KRW 34,100 ($29.60) on Korea's second-tier KOSDAQ biotech and IT stock market Dec. 23, compared to 14,000 ($12.12) on Dec. 9, 2009.

Shin's overall positive view toward Celltrion's performance for 2011 is generally shared by Lee Jungyup with Shinhan Investment Corp., who cited the pharma's well-established global distribution network and clinical trials now underway globally (Also see "Optimism Building For Korea's Celltrion Amid Expectations For Biosimilars" - Scrip, 1 December, 2010.).

"In order to make a successful biosimilar company, a drug maker needs to acquire a complete technology solution and run production facilities that will secure price competitiveness, and a distribution sales network should be established for global sales, " Lee told PharmAsia News. "Celltrion is a leading biosimilar company armed with development process know-how based on CMO experience and a 50,000-liter production facility."

Celltrion's ongoing clinical trials will keep drawing industry attention in 2011, Lee predicted (Also see "Korea's Celltrion Completes Phase I Clinical Trials For Biosimilars Based On Roche And Johnson & Johnson Products" - Scrip, 29 September, 2010.).

Other Korean firms also are trying to generate momentum overseas, Lee noted. Products to watch in 2011 include exports of Green Cross' flu vaccine to South America; exports of Yuhan's gastritis drug Revanex to India; Hanmi's pending approval in the U.S. for Esomezol (a modified generic version of AstraZeneca's Nexium); Dong-A's current clinical trials for erectile dysfunction product Zydena in the U.S. and Europe, which are in Phase III in the U.S. and Phase II in Europe; and LG Life Sciences' pending approval in the U.S. for a sustained-release recombinant human growth hormone (Also see "Korean LG Life Sciences Plans BLA Submission For Biosimilar Somatropin To U.S. FDA" - Scrip, 27 March, 2009.).

Clinical Trials On Stem Cell Therapy Under Way

Noting that a total of 17 clinical trials for stem cell therapies are underway in Korea, Lee also said Korean stem cell players such as CHA Bio and Medipost could draw investors' attention this year because of price competitiveness over overseas peers including Geron and Osiris, the leaders of the global stem cell treatment market.

"Domestic stem cell players including CHA Bio and Medipost have turned in better share price performance than overseas peers including Geron and Osiris, which indicates a heightened interest in stem cell companies in the domestic market," Lee said.

Local companies conducting clinical testing of stem cell therapies in Korea include FCB-Pharmicell, RNL Bio, Medipost and Anterogen, according to Lee.

Uncertainties Still Linger

Although 2011 is unlikely to see the far-reaching regulatory changes of 2010, uncertainties still linger for the Korean market.

Noting that a key problem facing the domestic Korean pharmaceutical industry is the excessive number of small- and medium-sized pharmas, which depend heavily on generic drugs, analysts note that any easing of government policy may end up delaying voluntary restructuring of Korean pharmas, including mergers and acquisitions.

"Domestic companies are making no such big efforts because they don't see synergy from M&As with each other," Shinhan's Lee said, adding that government's policies serve to artificially extend the life of weak local companies.

While some local pharmas remain reluctant to reshape themselves through restructuring, Choi Minha with Korea Investment & Securities noted that the new rebate laws, which punish both givers and recipients of rebates, will eventually help major players including MNCs to tighten their grip on the market because of their competitiveness and brand power.

"Foreign MNCs have not been badly hurt by the anti-rebate law because of their brand power, and subsequent preference for original products by doctors and hospitals, [and] I believe that trend will continue in 2011," Choi told PharmAsia News.

The new anti-rebate law, which took effect in November, will also help major local Korean pharmas regain ground, Choi said, even though some lost some market share to mid- and bottom-tier players in the initial stage.

Noting that Japan experienced sector consolidation after introducing similar anti-rebate laws, Choi expects to see consolidation in Korea as well, although the pace of change could differ because of Korea's market conditions.

- Peter Chang (p.chang@elsevier.com)

2011 Preview: Will Korean Pharmas Follow Japanese Pharmas Lead To Survive Harsh Environment At Home?

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