[Edaily Reporter KIM SUNG-JIN ] While mergers and acquisitions (M&A) have established themselves as a core growth strategy for securing new drug pipelines and technologies in the global pharmaceutical and biotech industries, it is difficult to find major successful M&A cases in the domestic industry. This is because there are few companies capable of handling transactions worth trillions of won, and since the industry has developed primarily around generic drugs, there has been little incentive to undertake M&A, which carries high risks.

However, calls for more active M&A activity in Korea have been growing recently. The argument is that to grow the “pharmaceutical and biotech” industry—dubbed the “next semiconductor”—companies must first increase their scale. Lee Jae-guk, Vice Chairman of the Korea Pharmaceutical and Bio-Pharma Association, emphasized, “The inevitable gateway for Korea to leap forward as a global pharmaceutical and biotech powerhouse is, first and foremost, achieving economies of scale,” adding, “We must secure investment capacity through M&A.”

No Match in R&D Funding Power

An active M&A strategy is considered essential for penetrating the global pharmaceutical and biotech market. Ultimately, the industry must move beyond a generic-focused model and aggressively develop new drugs; this process requires astronomical amounts of capital, manpower, and infrastructure. Seo Dong-cheol, Professor Emeritus at the College of Pharmacy, Chung-Ang University, said, “U.S. pharmaceutical companies have been engaging in M&A since the 1980s to survive,” adding, “Most major companies, such as Pfizer and Sanofi, have taken their current forms through three or four major deals.”

In fact, when it comes to research and development (R&D) funding—the most critical factor in new drug development—the gap between domestic companies and global firms is so vast that any direct comparison is virtually meaningless. Eli Lilly, the pharmaceutical company with the highest global market capitalization, spent $13.3 billion (approximately 19 trillion won) on R&D last year, whereas South Korea’s biotech industry spent only about 2.7 trillion won on R&D in a single year (as of 2024). In other words, the total R&D spending of an entire nation’s industry amounts to only one-seventh of what a single global company spends on R&D.

The disparity is equally stark in terms of workforce. According to the “Survey on the State of the Domestic Bioindustry” conducted by the Korea Bio Association, the number of researchers employed in South Korea’s bioindustry (as of 2024) totaled 19,788. Considering that Eli Lilly employs approximately 12,000 R&D staff, this figure is about 8,000 more than the workforce of a single company.

Owner-Led

Management,

Focus on Generics, and Lack of Talent: Key Obstacles

One factor cited as hindering domestic M&A is the owner-centric management system. Analysts note that because ownership and management are not separated, there is a strong tendency to maintain existing management control. An industry official stated, “When a second-generation owner inherits a company with sales of 500 billion won or less, up to 60 billion won can be deducted from the inheritance tax base,” adding, “Given the nature of the domestic industry, which consists largely of small and medium-sized pharmaceutical companies, this system is also a factor driving companies to choose succession over M&A.”

In fact, a review of last year’s annual revenue figures for major domestic pharmaceutical and biotech companies revealed that only about 20 companies exceeded 500 billion won in revenue. For the majority of small and medium-sized enterprises that do not reach this threshold, there is essentially no need or reason to transfer management control.

Above all, a market environment where companies can survive on generic drugs alone is a major obstacle. The generic drug market is considered so profitable that industry insiders even say, “We don’t feel the need to develop new drugs.” To rectify a market structure flooded with generic drugs, the government has decided to lower the National Health Insurance drug price from 53.55% of the original drug’s price to 45%, but it remains to be seen whether this policy will actually lead to an increase in M&A activity.

Another industry official stated, “In response to the drug price cuts, major pharmaceutical companies are rushing to develop health functional foods containing ingredients comparable to those in prescription drugs,” adding, “It does not appear that lower drug prices will necessarily lead to M&A activity.”

Kim Hyun-wook, CEO of Hyun & Partners Korea, pointed out, “Even in Korea, top pharmaceutical companies should strategically merge only after building trust through long-term collaboration; however, growth-oriented M&A is rarely taking place due to strong ownership structures and an obsession with management control.”

Other obstacles cited include a lack of specialized personnel capable of properly evaluating the value of new drug assets and a lack of experience with M&A integration. Due to the nature of the pharmaceutical and biotech industries, which require an immense amount of knowledge and information, it is difficult for some company personnel to accurately assess the potential of new drugs. Furthermore, the lack of M&A experience means there is no clear direction for post-merger operational strategies, which is also cited as a problem.

Need for Policy Support… Japan Should Serve as a Model

Calls are growing for full-scale government

support

to overcome these challenges. While the government does support the pharmaceutical and biotech industries through initiatives such as the National Growth Fund—a public-private policy financing program—there is a need for more comprehensive and robust support measures.

Vice Chairman Lee Jae-guk stated, “Since South Korea is a ‘follower’ in the pharmaceutical and biotech market, exceptional support—such as tax incentives for M&A—is necessary.” Professor Seo Dong-cheol emphasized, “Policies are needed to guarantee drug prices or expand sales channels once a new drug is developed.”

In particular, there are calls for clinical support, which is essential for new drug development. An official who requested anonymity said, “Recently, there has been almost no investment in clinical development,” adding, “What the government must do is provide financial and institutional support so that promising pipelines can enter clinical trials and secure proof of concept (POC).”

Japan, which has successfully nurtured global pharmaceutical and biotech companies, serves as a model. Takeda Pharmaceutical, Otsuka Holdings, and Daiichi Sankyo all grew into global companies by leveraging large-scale mergers and acquisitions. Daiichi Sankyo took on its current form in 2005 through the management integration of Sankyo—then the second-largest pharmaceutical company in Japan—and Daiichi Pharmaceutical, which ranked sixth at the time. Takeda Pharmaceutical, meanwhile, acquired the Swiss pharmaceutical company Nycomed in 2011, propelling it instantly to 12th place globally at the time. These deals stemmed from a sense of urgency—the realization that relying solely on domestic sales had reached its limits, necessitating an expansion of scale to actively target overseas markets.

An industry insider stated, “In the past, mergers and acquisitions among Japanese pharmaceutical companies were supported by government-level assistance and incentives,” adding, “We need to push forward with a clear goal in Korea as well.”