“Successful corporations in the pharmaceutical and bio sectors have an otaku (core enthusiast) ownership. When conducting clinical trials, numerous problems arise. To make accurate decisions during this process, executives need to have the passion and expertise to understand and manage every aspect.”
The success rate of clinical pipelines for Korean pharmaceutical corporations and bio companies is assessed at less than 1%. Despite this extremely low probability, what commonality can be found among the 1% of corporations that eventually succeed? Over the past 40 years, a specialist analyst at Sangsangin Investment & Securities, Ha Tae-gi, has found the secret in ‘otaku ownership.’
For a long time, Ha has noted that the owners of successful corporations he analyzed gave smooth answers to any questions regarding new drug platform technologies or pipelines during investor relations (IR) meetings.
Researcher Ha stated, “Developing new drugs is a continuous decision-making process involving repeated investments of hundreds of millions of won in businesses with a very low probability of success. In the Korean managerial environment, large-scale investment decisions that carry such heavy responsibilities must ultimately be made by the owner,” adding that “Corporations that successfully developed new drugs commonly had ‘otaku’ ownership.”
Researcher Ha, who stepped into the securities field in 1987, worked at the economic research institute, the pre-cursor to the research center at securities firms, before the concept of ‘analyst’ even emerged. When he first took charge of the pharmaceutical sector, it was regarded as a lesser field within the securities firms, often treated like a speculative stock.
The turning point came in the early 1990s when he went for training at Daiwa Securities in Japan. There, he witnessed the vision of analysts and the global competitiveness of Japanese pharmaceutical companies. “I developed a vague conviction that one day, the pharmaceutical and bio fields in our country would shine,” he said. Following that, he handled various roles in the cosmetics and aesthetics sectors, watching over the pharmaceutical and bio industries for nearly 40 years.
The following is a Q&A with researcher Ha Tae-gi.
─Having been in the industry for a long time, is there a corporation that stands out to you?
“The market for clinics rapidly expanded after the division of labor in the 1990s (between doctors and pharmacists). During that time, the late Lim Sung-ki, founder of Hanmi Pharmaceutical, recognized this change and boldly invested in generic drugs. Subsequently, Hanmi Pharmaceutical focused on new drug development in the 2010s, elevating the company from a position around 20th in the early 1990s to the number one in the industry in a short period.
In 2015, it signed a license agreement worth 5 trillion won with a multinational pharmaceutical company, sparking a bio boom in Korea. I witnessed firsthand that the decisive actions of an owner who reads the future of the industry can change the fate of a corporation.”
─What is key when selecting pharmaceutical and bio companies worth investing in?
“It is the development of new drugs that can generate revenue in the global market. One must carefully examine the clinical process from the search for candidate substances capable of developing new drugs to the clinical phase 3 and obtaining product approvals from health authorities such as the Korean Ministry of Food and Drug Safety or the U.S. Food and Drug Administration (FDA).
Recently, the stock market has been giving higher valuations to corporations that present realizable visions in the global market. In contrast, corporations that are complacent with the development and marketing of traditional pharmaceuticals, particularly generic drugs, have been assigned relatively lower valuations. I believe it is a time to focus more on global results rather than domestic performance.”
─Recently, the growth trends of Alteogen and LigaChem Biosciences have been remarkable.
“These companies share the commonality of engaging in relatively less risky platform (technology that rapidly delivers drugs to the desired sites) businesses. In simple terms, platform technology is a ‘hen,’ while new drug development is an ‘egg.’ The egg is finished once it breaks; however, the hen keeps laying eggs. While the value of platform technology isn't necessarily higher than that of new drugs, having a platform enables the potential to lay multiple eggs, increasing business stability.
Currently, Alteogen possesses platform technology that converts intravenous injections to subcutaneous injections, while LigaChem Biosciences has an antibody-drug conjugate (ADC) platform. Both companies recently succeeded in large-scale technology exports, contributing to writing the history of Korean bio companies.”
─Recently, there have been cases where small and mid-sized bio companies announced clinical suspensions or failures, resulting in sharp declines in their stock prices.
“This is an unavoidable structural limitation in the pharmaceutical and bio industry. Since there is no revenue, the market can only view pipelines as the total corporate value. Even the developers do not know whether the development of new drugs will succeed or fail. Evaluating corporate value is that much more difficult.
In the U.S., there are cases where stock prices plummet by 70% the day after the release of clinical results. Our country still lacks advanced technology at the level of developed countries, and the absence of big pharma (global large pharmaceutical companies) nearby further decreases the probability of success.
So far, the stock prices of Korean bio companies have been excessively formed like a ‘kimchi premium.’ While there are controversies surrounding special listings based on technology, it is necessary to clearly delineate corporations that have genuinely reached their limits while maintaining an ecosystem that allows for retrying after failures.”
─How should individual investors approach the ‘diamond and pebble identification’ in bio companies?
“That’s a difficult question. One must continuously show interest in their favorite corporations. Bio stocks are especially uncertain and highly volatile investment options. Individual investors lacking expertise are advised to diversify investments in promising bio corporations. Another method is to invest after gaining professional knowledge or join bio-focused funds.
If you want to build professional knowledge, pay attention to the new drug pipelines being developed by bio corporations. Understand at which stage the new drug pipeline is, whether it’s in preclinical, clinical phases 1-3, or in the process of obtaining licensing. During this process, you can refer to expert evaluations, and the values of the pipeline can also be assessed based on joint development with big pharma, the existence of technology exports, and their content. Additionally, since bio corporations have no revenue and spend hundreds of millions of won annually, it’s essential to stay informed about their financial conditions.”