South Korean pharmaceutical and biotech firms are shutting down overseas units one after another, targeting those with weak profitability or diminished strategic value. After competing to expand their overseas footprint to overcome the limits of the domestic market, the companies have now begun overhauling those operations. The move follows rising cost burdens from local clinical trials and labor, and is seen as a selection-and-concentration strategy — winding down low-performing units and channeling resources into promising markets.
According to the Financial Supervisory Service's electronic disclosure system, Yuhan Corporation completed the liquidation of its Hong Kong unit, Yuhan Hong Kong Limited, and its Australian unit, Yuhan ANZ Pty Ltd., in the first half of this year, the company said on the 20th. The Hong Kong unit was established in late 2018 and the Australian unit in 2019, meaning both closed after about seven years. During the liquidation, Yuhan recovered about 660 million won from the Hong Kong unit and about 100 million won from the Australian unit.
This is not the first time Yuhan has wound down an overseas unit. Last year, it liquidated an Uzbekistan unit that had been set up with an investment of about 1 billion won. That means the company has closed three overseas units in just two years. As a result, Yuhan is left with only two overseas units: Yuhan USA in Boston and Liuxin (Qingdao) Health Co. in China.
Profitability appears to have been the criterion for the liquidations. The Hong Kong unit posted a net loss of about 1.9 billion won last year, and the Australian unit's net profit was effectively zero. By contrast, the surviving China and U.S. units posted net profits of 300 million won and 5.4 billion won, respectively, in the first half of this year. A Yuhan official said the company decided to liquidate the units "because their strategic value declined amid changes in the business structure and market environment." The explanation is that the move reflects an overhaul of overseas bases for greater operational efficiency, rather than a retreat from overseas business.
The move to prune overseas units is emerging across the pharmaceutical and biotech industry. Hans Biomed is in the process of liquidating its European unit. The CHA Biotech group also closed two units in Singapore related to women's health and fertility medicine in March.
Cases of winding down overseas research and development (R&D) bases set up to develop new drugs are also continuing. In February, Pharos iBio completed the liquidation of its U.S. drug R&D subsidiary, Pharos Therapeutics, and recovered $690,211. Instead, it kept its Australian R&D unit as it reshaped its overseas R&D footprint. Intron Biotechnology also dissolved its U.S. drug R&D subsidiary, INtODEWORLD, in the first quarter of this year. Ilyang Pharmaceutical likewise completed this year the long-running liquidation of its Chinese joint venture, Tonghua Ilyang Health Products Co.
The industry views these moves as a reshaping of overseas bases weighed against profitability and prospects for success, rather than a contraction of overseas business itself. Running an overseas unit generates continuous fixed costs, such as local labor and office operations. In particular, conducting local clinical trials to develop new drugs requires substantial spending, and even if a trial succeeds, actual sales can only follow after clearing the approval threshold of local regulators. The recent weakness of the won, which has increased the won-denominated burden of overseas spending, is also cited as a factor eroding the profitability of overseas units.
One pharmaceutical industry executive said it is natural for companies to try to expand abroad given the limits of the domestic market, but that "landing successfully in an overseas market is, in truth, as difficult as developing a new drug," adding that "even when clinical trials are run locally, the costs are considerable and companies have to get past local regulators." An official at another traditional pharmaceutical company said, "Each company will pursue selection and concentration, focusing on the overseas units where they see a chance to make a profit."
