[Edaily Reporter NA EUN-KYUNG ] The government is pushing forward with a plan to designate key raw materials and components necessary for the production of biopharmaceuticals and vaccines as strategic goods and to provide tax credits to domestic manufacturers. This measure aims to reduce reliance on overseas sources, which was exposed by the COVID-19 pandemic and global supply chain disruptions. Industry analysts predict that, in the short term, Contract Development and Manufacturing Organizations (CDMOs) with large-scale production facilities will benefit the most economically. They also agree that follow-up support for quality verification and establishing a track record of actual deliveries must be provided in parallel to enhance the competitiveness of the entire biopharmaceutical raw materials ecosystem.

“Supply Chains Under Threat from Pandemic and War”… Government Pushes for Localization

According to the pharmaceutical and biotech industry on the 21st, the government’s push for this policy stems from supply chain risks identified during the COVID-19 pandemic, the Russia-Ukraine war, and conflicts in the Middle East. Since a significant portion of the key raw materials and components required for the production of biopharmaceuticals and vaccines relies on overseas companies, disruptions in the global supply chain have consistently impacted the production of domestic firms.

According to the Korea Bio Association, a series of crises has led to unstable supplies of items such as single-use bags, chromatography columns and filters for purification, solvents for pharmaceutical manufacturing, and prefilled syringes—causing difficulties for major biotech companies in managing their raw material and component inventories. Even now, the supply of most of these items relies heavily on imports.

An official from a vaccine developer emphasized, “We are highly dependent on overseas sources for single-use process consumables and some key raw materials used in vaccine manufacturing,” adding, “In particular, for single-use bags, tubing assemblies—which are sterile tube sets used to transfer culture media and other substances during the biopharmaceutical manufacturing process—and filters, we need to expand our domestic production base to ensure stable procurement and cost competitiveness.”

Raw Material Companies Expect Tax Credits; CDMOs Anticipate Cost Savings

Companies investing in production facilities for biopharmaceutical raw materials and components are expected to be the direct beneficiaries of this policy. This is because the government has included biopharmaceutical raw materials and components—for which supply chain stability is essential—in the scope of tax incentives for national strategic technologies, thereby focusing the policy on expanding the domestic production base for key raw materials and components such as filters, culture media, restriction enzymes, and buffers (buffer solutions used in biopharmaceutical purification and manufacturing processes). Among domestic companies, Xcell Therapeutics Inc. (cell culture medium production) and Micro Digital Co., Ltd.(305090)(single-use cell culture systems and single-use bags) are examples of companies that qualify.

An official from the Industry Policy Division of the Korea Bio Association explained, “Companies that own biopharmaceutical production facilities as well as production facilities for raw materials and components—such as filters, culture media, restriction enzymes, and buffers—will be the first to benefit.” The official added, “There are still many categories of raw materials and components that are in the stage of achieving technological self-reliance but do not yet have production facilities; for these items, tax credits alone have limited effectiveness in accelerating commercialization and domestic production.”

At the same time, biopharmaceutical manufacturers are also expected to benefit indirectly from the expansion of domestic production of raw materials and components. This is because expanding the domestic production base for raw materials and components will enable more stable procurement of key materials that are highly dependent on imports; in the long term, this is expected to reduce procurement costs and logistics burdens while enhancing supply chain stability. While the direct benefits of the policy will go to raw material and component manufacturers, the actual economic impact is expected to be greatest for CDMOs and vaccine manufacturers that use these materials in large quantities.

An industry official stated, “Companies with large-scale facility investments that engage in contract manufacturing (CMO) are most likely to benefit the most from the tax credit,” adding, “This is because the larger a company’s production scale, the greater the cost-saving effects resulting from the increased use of domestically produced raw materials and components.”

The industry anticipates that CDMO companies—such as SAMSUNG BIOLOGICS(207940), which operates large-scale biopharmaceutical production facilities, and Lotte Biologics, which is pursuing an expansion of its production capacity—will be the first to experience the benefits of these supply chain improvements.

Vaccine companies are also cited as prime candidates for indirect benefits. Companies such as SK BIOSCIENCE(302440), GCGreen Cross Corporation(006280), and EuBiologics Co., Ltd.(206650) use raw materials and components—including specialized culture media and adjuvants (substances that enhance the immune response to vaccines)—that are highly dependent on overseas sources in their commercial production processes. It is expected that as the production of domestic raw materials and components expands and their quality competitiveness is secured, these companies will be able to reduce supply chain risks while establishing more stable production plans.

An official from a domestic vaccine developer stated, “Expanding domestic production of related items and providing tax incentives will help reduce procurement risks associated with overseas supply chain variables and shorten lead times,” adding, “In the long term, we believe this will alleviate logistics costs and inventory burdens and have a positive impact on improving the technological and quality competitiveness of domestic raw material and component manufacturers.”

“Tax Credits Alone Are Not Enough”… An Ecosystem to Build a Track Record Is Needed

However, industry experts point out that tax credits alone have limitations in accelerating the localization of biopharmaceutical raw materials and components. They argue that follow-up support must be provided in parallel—not only for investment in production facilities but also to facilitate actual mass production, commercialization, and the securing of initial reference cases. In particular, they suggested that an environment is needed where domestic companies can secure initial markets through integration with global supply chains and support for overseas expansion.

In particular, culture media and purification materials are still cited as items with low domestic production rates; the issue lies not so much with the technology itself as with reliability and certification. This is because biopharmaceutical manufacturers must undergo additional testing and obtain change approvals from regulatory authorities when switching raw materials, making it difficult for them to readily adopt unverified domestic products.

An official from a domestic biotech materials, parts, and equipment (MPE) company noted, “Although policy interest in biotech MPE has grown since the COVID-19 pandemic, I still feel it falls short compared to the lithium-ion battery or semiconductor industries,” adding, “Efforts are needed—starting with government educational institutions—to actively use products from domestic biotech MPE companies so that the field can become familiar with them.”

There are also calls for R&D support to shift its focus from mere technology development to commercialization. This involves expanding collaboration between foreign-invested companies operating in Korea and end-user companies, as well as linking industry-academia-research cooperation with diverse sectors—such as artificial intelligence (AI), robotics, and semiconductors—to commercialization (R&BD).

An official from the Industry Policy Division of the Korea Bio Association emphasized, “Since the bioindustry is built on trust, the barriers to entry in the materials, parts, and components market are high. This is because developing companies seek to minimize the risks that can arise from development through to sales.” The official added, “Along with tax credits, we must support domestic materials, parts, and components companies in building a track record through measures such as establishing testbeds, providing incentives to end-user companies, and offering consulting on equivalence verification and quality control.”

He continued, “Additional institutional support is absolutely necessary to ensure that domestically produced raw materials and components achieve a level of competitiveness that makes them viable for adoption. If support for R&D and production infrastructure is provided in tandem, leading to the accumulation of a track record, product production and delivery will increase, and the policy impact of tax credits will also be further amplified.”