The Ministry of Health and Welfare recently announced the creation of a 150 billion won "Phase 3 Clinical Trial Specialized Fund." The stated purpose is to make bold investments in new drug development companies facing a "funding cliff" at the Phase 3 clinical trial stage, where large sums of money are needed, in order to lead global new drug development. At first glance, it sounds like a robust support measure for the domestic pharmaceutical industry. However, it is necessary to examine the other side of the government's diagnosis.
Anyone with even a basic understanding of the new drug development process would find the government's explanation difficult to accept. Since the 1980s, the global new drug development market has rapidly financialized. Now, new drug development has transformed into a financial product that goes beyond pure scientific innovation and involves sophisticated financial techniques.
When a biotech venture discovers a drug candidate using public funds and shows results in Phase 1 and Phase 2 clinical trials, the common "formula" for new drug development is for a multinational pharmaceutical company to acquire the venture through M&A or purchase a license to complete the development.
A candidate that successfully passes the relatively low-success-rate early trials and demonstrates potential is warmly received by the market. In other words, if the financial market is functioning normally and the data for the drug candidate is solid, the necessary funds for Phase 3 trials flow in naturally. There is no "funding cliff" for promising companies from the start.
Of course, there are exceptions. For "orphan disease treatments" that are unlikely to be profitable even if successfully developed, the challenge of Phase 3 trials is indeed a cliff. In areas ignored by market logic, the government's role in evaluating the public good of development and providing public funds or attracting private investment is certainly important.
However, this specialized fund is designed not for public good but for profitability. Ultimately, the government is stepping in to provide seed money for drug candidates that cannot attract investment from the private financial market. This is no different from driving the public into speculative investments. But the real problem does not end here.
An Unfair Game Where the Referee Also Plays
The pharmaceutical market is inherently a regulated industry. No matter how excellent a drug is, it must receive approval from the Ministry of Food and Drug Safety to enter the market, and to be covered by health insurance, it must undergo rigorous review by the Health Insurance Review and Assessment Service and the National Health Insurance Service. In other words, even if a drug's efficacy is somewhat unclear, as long as it passes the regulatory hurdles and is listed at a high price under health insurance coverage, it can sell like hotcakes. This is why the "regulator's choice" holds absolute power over the market's choice.
Therefore, regulators must remain independent and act as "strict judges" in the drug development process more than anyone else. Moreover, it is a principle that reviewers must be excluded from deliberations if they have even the slightest conflict of interest with the company under review. But the moment the government directly injects tens of billions of won of public funds into a specific drug development, this principle collapses. If the drug they backed fails the review or fails in the market, they would have to bear the responsibility for policy failure.
In a structure where the health authorities invest in a drug, review it, decide on insurance coverage, and set the price, it is difficult to trust claims of "decisions based on scientific evidence," no matter how strongly asserted. The reason we have conflict of interest regulations is not because we distrust the morality of reviewers, but because the structure itself creates bias.
In an unfair game where the referee also plays, the financial soundness of the health insurance system and patient safety, which the government is responsible for, are inevitably pushed aside. Even foreign regulatory agencies may find it hard to accept the decisions of Korean health authorities purely. There is even a risk that the fairness of Korean regulators could come under suspicion on the international stage.
The Mirage Created by the Government's "K-Mark"
Drug development is a arduous process where only about 1 out of 100 candidates that enter clinical trials achieves commercial success. Yet in the Korean biotech stock market, news of a pharmaceutical company's "clinical trial approval" often transforms into a major positive event. Even though the Ministry of Food and Drug Safety approves clinical trials unless there are specific disqualifying reasons, the "approval" itself creates vague expectations among general investors.
What if the label "government-invested drug" is added? It would transform into a "mega positive event" stronger than any disclosure or news, blinding the market. The mere fact of government investment serves as a kind of "K-Mark" that packages even poor data as plausible innovation.
In the thick dust of a huge optical illusion, it is as clear as day that countless retail investors, chasing a dazzling mirage, will engage in blind investment. The problem is that this mirage has a short shelf life. The moment Phase 3 trials yield poor results, the bubble will burst disastrously. The outcome of the state setting the stage and encouraging speculation is likely to end with a few capitalists getting rich and innocent individual investors suffering horrific losses.
The government's responsibilities within drug development and the healthcare system are heavy and numerous: maintaining regulatory independence, supporting the development of treatments for orphan diseases, and protecting individual investors in the speculative biotech stock market.
The Ministry of Health and Welfare's creation of this Phase 3 clinical trial specialized fund is close to a farce born of immature performanceism. The government must immediately stop acting as a "drug investor" chasing profits. Doing so deceives desperate patients, the fair regulatory system, and ordinary citizens alike.
(Note: This article is also published by the Pharmaceutical Society for a Healthy Society.)
