Can open innovation, R&D tax support produce Korea’s next blockbuster drug?

Collaboration has been a key strategy for biopharmaceutical companies to drive innovation for some time, but in recent years this trend has gained even more momentum. Examples of more recent open innovation projects include partnerships between Roche and KoreaBIO, Amgen and Korea Health Industry Development Institute, as well as collaborations involving Celltrion, Daewoong Pharmaceutical, and JW Pharm, all of whom have announced open innovation initiatives this year.

The Korea Drug Development Foundation will support 227 new R&D drug pipelines for the 2020 to 2030 period. (Credit: KDDF)

Open innovation signifies a way for corporations to engage the help and know-how of those outside of the company which can range from small start-ups to larger enterprises or, private or public entities.

Perhaps the most popular case of open innovation came from the Covid-19 pandemic. Both Moderna and BioNTech benefited from open innovation first from virus sequencing. Subsequently, BioNTech formed partnerships with Pfizer’s global supply chain and likewise, Moderna joined hands with the U.S. government through Operation Warp Speed. This helped them get over the finish line after manufacturing to accelerate clinical trials, receive quick regulatory approval, and establish a global supply chain.

Acknowledging these benefits, the Korean government is aiming to do the same to spur the development of innovative new drugs. In light of this, the government recently announced that it will invest 2.2 trillion won ($2 billion) through the National New Drug Development Project until 2030, to actively support open innovation between bio-ventures and multinational pharmaceutical companies.

How is open innovation helping?

The Korea Institute of Science & Technology Evaluation and Planning (KISTEP) recently released a report stating that government R&D tax support is a policy tool used to promote and support corporate innovation activities.

As such, governments including South Korea, have implemented a variety of support policies including R&D grants, procurement, and tax support to promote the R&D activities of private companies.

Corporate R&D activities contribute to economic growth by increasing overall productivity. Furthermore, it serves as a way to lower the risk for corporate firms in high-risk but high-reward R&D projects.

Additionally, previous studies have shown that government R&D tax support is positively related to private firms' innovation performance.

How does Korea's Corporate R&D tax credit policy compare?

Korea's R&D tax incentive program for companies is operated in three types which include general research and manpower development, original technology, and national strategic technology tax credit.

On the other hand, the U.S. corporate R&D tax credit is a tax credit that instead operates like a subsidy that allows companies to deduct a portion of their R&D expenses from their income taxes. Similarly, both Japan and China operate similar corporate R&D tax incentives but just like Korea differential tax credit rates are applied depending on the size of the company.

How to continue promoting corporate innovation

The Korea Drug Development Fund (KDDF) invested $300 million in 2011 and 2022 and one drug was approved by the FDA and three by the MFDS. Pushing to better this performance, the KDDF now has a $2 billion budget to manage 1234 projects by 2030.

In April, the KDDF selected 227 new support projects of which oncology occupies more than half of the list with 80 drug candidates in the discovery stage, 27 in pre-clinical, 11 in phase 1, and one in phase 2. In other therapeutic areas, the drug candidates follow a similar pattern with the bulk of them sitting in the discovery stage. Overall, 21 drug candidates were in phase 1 and 2 clinical trials.

Among the newly selected projects, two phase-1 clinical assets were selected from JD Bioscience and Wellmarker Bio. Another two phase-2 clinical assets were selected from Future Chem and Bridge Biotherapeutics.

The report highlighted the need to expand R&D tax credits to cover the Ministry of Science and ICT's 12 national strategic technologies, beyond the Ministry of Economy and Finance’s three priority areas (semiconductors, secondary batteries, and vaccines).

This expanded scope includes semiconductors, displays, secondary batteries, next-generation nuclear power, advanced mobility, marine, aerospace, advanced bio, cybersecurity, hydrogen, quantum, next-generation communication, advanced robotics and manufacturing, and artificial intelligence.

Additionally, the report went on to note that differential tax credit rates should be increased based on company size to increase the effect of tax deductions in terms of innovative performance. Moreover, a policy providing both tax credits and subsidies was also suggested. Also, a tax reward system for companies with high technology levels and an expansion of tax support for companies performing open innovation were highlighted in the report as ways to boost corporate R&D innovation.