Korean Biotech Industry in 2004 - Past, Now, & Future -

1. Korean Biotech Industry in 2004 - Past, Now, & Future - March 2004

2. Notice These slides are only for the presentation at the 8th Nomura Bio Conference Asia Pacific 2004, written by Byong Seung Cho, an investment associate at Korea Technology Investment Corp. All the information in this material is subject to change without any notice. Anybody should check the reality and take his(or her) own responsibility for it. For more information, please contact the following. Byong Seung Cho: e-mail: snu21@dreamwiz.com

3. I. Presenter’s Background • Business consultant/developer • Clients: Medy-Tox, LabGenomics, Elpis-Biotech, Neurogenex, and others • Work experience • Investment associate(Biotechnology), Korea Technology Investment Corp.(KTIC) • System programmer, Zeeon Info Corp. • Education • Techno-MBA(Venture Management Track), 2000-2002, Korea Advanced Institute of Science & Technology(KAIST) • MS/BS(Molecular Biology), 1991-1997, Seoul National University Korea Technology Investment Corp.(KTIC) Established in 1986 2nd largest VC in Korea Total asset under management: USD 350 millions Biotech portfolio: 9% in dollar value, 20 companies 4 Biotech IPOs: Macrogen, Isotechnika, Cell Biotech, Eco Solution (Total 59 IPOs)

4. II. Biotech Ventures in Korea • About 600 biotech ventures have been established. • Steady status in terms of the number of companies since 2002. <Number of Korean Bio-ventures> Source: Korea Bioventure Association, Presenter’s estimates

5. III-1. Money Flow into R&D • Since 1999, R&D investment has increased rapidly. • Government has provided about 65% of funds. • 9% of the total R&D support from the Korean government <R&D investment> (Unit: KRW Billions) Non-Government includes pharmaceutical, food, and medical industries. Source: Korean Biotech Industry 2003, Ministry of Science & Technology, Presenter’s estimates

6. III-2. Money Flow From Venture Capital • VC has funded around USD 200 millions during the last 4 years. • However, the current investment activity is very low. • The major money source for early stage biotech is the “government”. • Some traditional & food companies contributed about USD 200 millions. <VC Bio Funds> (Unit: KRW Billions) Source: KTB, Presenter’s estimates

7. IV-1. Major Listed Biotech Companies • 15+ biotech companies have been listed on the KOSDAQ market. • The “First Biotech Boom” burst in 2002. <Major Listed Biotech Companies> (As of 2004/02/26)

8. IV-2. Major Unlisted Biotech Companies(1) • Bio-ventures with strong biz model are growing steadily and catching investors’ eyes.

9. IV-2. Major Unlisted Biotech Companies(2)

10. V. KOSDAQ market & Survival Strategy for Bio-Ventures • The guidelines of the KOSDAQ market are very tough & conservative. • The positive EPS is required almost absolutely despite the industry’s early status. • Virtual hurdle  Revenue: USD 5 million +, NI: 10%+ • It is very difficult to raise money through the public market. • In 2003, only 2 biotech companies were listed. • Estech pharma, JoongAng vaccine • In 2004, 1~2 companies are expected to be on the KOSDAQ market. • Most investors are oriented toward “Large Caps” in IT. • Korean preference to IT makes biotech smaller. • “New drug companies” are almost impossible to be listed at the present. • They must change strategies or business models. Some companies have a hybrid biz model of “functional food”, “research reagent”, “research service”, and “new drug” for their survivals.

11. VI-1. Korean Pharmaceutical Market/Industry • Market size: USD 5.6 billions(3rd largest in Asia, 1.4% of the world) • Market growth: CAGR 9.0% from 1997 to 2007(USD 7.9 billions) • ETC(Prescription): 60%(Generics-17%), OTC: 40% • The enactment of the “Separation of Prescription & Dispensing Act” in 2000 • Pharmacy: 66%, Hospital: 27%, Others: 7% Source: UBS

12. VI-2. Korean Pharmaceutical Market/Industry • Highly fragmented with 250+ players including 35+ MNCs • After the SPD enactment, MNCs’ share expanded from 17% to 30% in 2002. • Medical community has favored brands. • The Top 10 companies has 34% market share. • The domestic top 10 companies have only 3.7% market share. • The market will be consolidated in the near future. Source: UBS

13. VI-3. Behavior of Korean Pharmaceutical Companies • Until 1990s, most companies had been focused on in-licensing and generics. • Just acting as channels to Korean pharma market • Little investment for building R&D infrastructure and value chain • After MNCs established their own offices in Korea, R&D activity has increased. • The first US FDA-approved drug, Factive from LG Life Science, came out in 2003 after over 10-year R&D. • But, still below 10% compared with revenue • During early 2000s, pharma started to provide money and collaborate with bio-ventures to fill their pipelines. • Focuses on API (Active Pharmaceutical Ingredients) & generics • During the last decade, some companies succeeded in launching APIs & generics. • Yuhan corp.: 5 import certificates (US DMF), Supply contract for Gilead’s HIV drug • Hanmi pharmaceutical: Cephalosporin APIs • Chong Kun Dang, Boryung, Choongwae Pharma Corp, and CJ Corp: Targeting EU API market • General attitudes toward Korean bio-ventures • Still, want to be the 1st Korean licensee of the blockbusters or technologies for short-term profit. • Low level of favor to native biotechs due to their low credits • The 2 group must make a lot of communication to understand each other.

14. VII-1. Biotech Human Resource in Korea • 10,000+ people are working in the biotech industry in Korea as of 2002. • Only in the R&D and manufacturing fields • 60%+ are in universities or non-for-profits, but moving into industry gradually. • 80%+ have advanced degree education. • By 2003, the number is expected to grow to 30,000. University & Institute 5,895 (62.8%) PhD 4,427 (47.2%) MS 3,431 (36.5%) Total: 9,392 Company 3,497 (37.2%) BS 1,534 (16.3%) Source: Ministry of Commerce, Industry, and Energy(2002)

15. VII-2. Technology Development – Paper Publication • The number of the scientific journal publication(Scientific Citation Index) has been increased steadily for the last 5 years. <Number of paper publication by Korean Biologists> Source: Korean Biotech Industry 2003, Ministry of Science & Technology

16. Biology & Biochemistry Microbiology Molecular Biology & Genetics VII-3. Technology Development – Paper Publication • The number of the scientific journal publication(Scientific Citation Index) has been increased remarkably for the last 20 years. <Number of paper publication by Korean Biologists> Source: Korean Biotech Industry 2003, Ministry of Science & Technology

17. Biology & Biochemistry Microbiology Molecular Biology & Genetics VII-4. Technology Development – Paper Publication • Korea’ share of the paper publication is about 1.4% compared with the total world publication. <Number of paper publication by country, 1998-2002> US JP UK DE FR CN KR Source: Korean Biotech Industry 2003, Ministry of Science & Technology

18. VII-5. Biotech Intellectual Properites • The number of PCT patent applications by Korea has been very low. • Around 1% of the world PCT number • Nonetheless, it has been growing steadily. <No. of Patent Application (Category: C12N)> US Germany Japan Korea Source: Korean Biotech Industry 2003, Ministry of Science & Technology

19. VIII. Competitive Edges of Korean Bio-Ventures • The overall biotech industry is at early stage and has a long way to go. • Excellent frontiers must accelerate the progress. Positives Negatives People Very strong entrepreneurship A lot of young & capable scientists Mostly First-time CEOs 50% researchers, 40% professors Little biz-experience Technology A few world-class ventures Strong chemistry, fermentation, stem cell Approval of Factive by US FDA(11th nation) Gaps along pharmaceutical R&D chain Low level of clinical trials No US GMP facility Biz-Opportunity Relatively big pharma/food market Proximity to Japanese pharma maket High preference to functional foods No multi-national pharma Largely generics market Low alliance activity

20. IX. Nutraceuticals & Bio-Ventures in Korea • Market size: USD 3 billion (as of 2003) • Market growth: CAGR 20% expected until 2007 • Market drivers • Aging population: 65+ old people  over 10% in 2003 • Well-being culture: promotion of Korean consumers’ buying • GDP per capita: USD 10,000+ as a critical threshold (like in US & Japan) • New regulation: The enactment of the “Health & Functional Food Act” in 2004 • New player’s entry: Big biz groups, pharmaceutical companies, and bio-ventures • Bio-ventures’ strategy in the functional food market • Big enough • Short-term profit • Bridge to new drug development • Contract research organization’s growth • Experience about clinical trials

21. X. Problems to Be Solved Bio-ventures *Critical mass *New niche market & product development *Customer-driven strategy Investors *7 year+ VC fund *Co-investment with big foreign VCs *Facilitating cross border co-work Pharmaceutical companies *More R&D for new products *Co-work with bio-ventures for education *Consolidation Government *Investment into Bio-infrastructure(GMP/GLP) *Korea FDA’s expansion & level-up *More funds for biotech products

22. Japan US Korea Biotech Pharma Class 1 Worldwide Market Pharma Biotech Class 2 Asian Market Biotech XI. What is the Realistic Model for the Asian Bio-Ventures? • Most Korean biotechs have been approaching US & EU pharmas so far.  However, the efforts have not been successful due to the lack of credits. • The model proposed by Mr. Morita is an excellent idea.  Korean biotechs must give more consideration to the 2nd largest market & Asia.  If some modification is added, Korean biotechs can use two-fold strategy according to their technology & products. Class 1: Biotechs targeting worldwide market and blockbusters Class 2: Biotechs targeting Asian market and niche drugs  Asian-specific and(or) genetic diseases

23. Thank you! Q & A