After the series of failures of new-drug projects, the case firms, finally succeeded in developing their own NCEs for the first time. As noted, analysing the first successful projects helped identify the obstacles to latecomers’ exploratory learning and the possibility of overcoming these obstacles, especially as the projects show the entire process of new-drug development, from drug discovery to commercialisation. The key barriers to understand are those faced by the case firms when, as latecomers, they rose to the challenge of new-drug development, a high-value market segment dominated by Big Pharma.
145 Other firms - Hanmi: launched a new drug R&D project from the late 1990s, GC: biological products based company, LGLS: not identified as a research unit of LG Chemical in the 1990s.
In total, seven NCEs were developed by the case firms. Among them, four projects will be examined in this analysis: Factive (an antibiotic drug by LGLS), Revanex (an anti-gastric ulcer drug by Yuhan), Noltec (an anti-anti-gastric ulcer drug by Ilyang) and Zydena (an erectile dysfunction drug by Dong-a). These projects were selected because they have some salient features of new-drug development and could therefore help characterise the challenges and possibilities of exploratory learning in the latecomer context.
Factive is the only NCE that acquired an NDA in the US before 2014, implying entry to the global market. Revanex is the only first-in-class NCE, although it competes with an established class of proton pump inhibitors (PPIs). Noltec was developed over the longest R&D period (21 years). Of these drugs, Zydena was the only successful drug in the domestic market. All four projects were started prior to the market launch of their rival first-in-class NCEs (Figure 6.1). They were all out-licensed to Big Pharma, aiming at the global market.
Korean followers Time gap to project launch/market First movers
*TAP: Takeda-Abbott Pharmaceuticals in the US, WCRX: Warner Chilcott in the US, L/O: License-out
Figure 6.1: Catch-up pace between the first NCE and follow-up NCEs
Source: Author’s own elaboration from various data about companies
To begin with, the first three projects, Factive, Revanex and Noltec, are presented as cases of commercial failure (Sub-sections 6.3.2.1, 6.3.2.2 and 6.3.2.3), whereas the fourth project, Zydena, was an exceptional case of commercial success (Sub-section 6.3.2.4). The following subsections identify common obstacles of the latecomer firms’
exploratory learning, mainly by looking at the first three project cases. It also presents the possibility of overcoming these obstacles in the case of Zydena. Each project case
2/4 years
Losec/Nexium by Astra Zeneca (Project launch in 1972)
(NDA in 1989, upgraded Nexium) No competitors in the APA class, but the PPI drugs
is described across the three phases of R&D: product strategy and drug discovery, clinical development including preclinical and clinical trials, and market penetration.
6.3.2.1 Commercial failure 1 – The first global-level drug: Factive by LG
Gemifloxacin (brand name: Factive), a recent generation (i.e., fourth generation) quinolone class antibiotic, has been referred to as the only Korean drug approved by the US FDA (as of 2012). Its NDA from the US FDA was acquired in 2003 after 13 years of R&D. However, global and domestic marketing of the drug largely failed (Interviews 33 and 36 (DBF)).146 This case in particular reveals the barriers that must be overcome when a local latecomer firm takes up the challenge to develop a new drug targeting the global market (primarily the US and EU markets).
1) Product strategy and drug discovery
The Factive project was launched under the strategic focus on antibiotics. Antibiotics generally require continuous improvement due to drug resistance. Thus, in many cases the development of new antibiotics is attempted based on a known lead compound; and this implies less risk of cost and technology than the development of innovative NCEs.147 Because of that, not only LGLS but also other case firms such as JW and Dongwha focused on antibiotics in the early 1990s.
Figure 6.2: Ciprofloxacin (by Bayer) and its formula modification to Gemifloxacin (Factive)
Source: Left picture is from Wikipedia and right picture is from Hong (2001)
Derivation of the final drug candidate took four years. In the upstream stage, two research teams operated; this was the organisational set-up for competition and complementation, as it helped speed up drug identification (Lee and Kim 2001). The research teams were led by researchers scouted from outside, mostly in the US. One of
146 Interviewees: the former heads of the new drug research centre of LGLS.
147 Thus, it is easier to identify any commercial possibility in the early clinical trials (i.e., the ease of detecting side effects and efficacy and performing pharmacokinetic tests) compared with the other indications of disease. Comment: Dr In-chol Kim, the former CEO of LGLS (Medipharms Today, 9/4/2003).
them, Dr Hong, played a major role in deriving the final drug candidate.148 The teams derived the drug candidate, LB20304a, by modifying the second generation of Ciprofloxacin in 1994 (Figure 6.2).
2) Clinical development
The preclinical trial was conducted overseas due to the deficiency of technological capability in middle-stage research for validation. After the clinical phase I trial in the UK, LGLS licensed out LB20304 to SmithKline Beecham (SB, now GSK) for co-development in 1997.149 This decision was made for two reasons. One was the firm’s limited capability to operate large-scale clinical trials as a latecomer firm inexperienced in multinational clinical development and suffering from financial insufficiency. The other was the time pressure of development against a competing project by Bayer, Moxifloxacin (brand name: Avelox, Avalox and Avelon), which was far ahead of LB20304a (Figure 6.1) (Interview 36 (DBF)).
SB carried out large-scale multinational clinical trials to cut down the drug’s lead-time.
Clinical trial phases II and III were consecutively conducted in 1,500 clinical centres in 40 countries involving more than 8,000 patients. Finally, in December 1999, SB filed an NDA with the US FDA. The full-scale commitment to development in such a short time, and the prompt NDA, showed that SB was desperately trying to overtake Bayer’s competitive pipeline. Bayer's moxifloxacin was already approved by the US FDA in 1999 when SB completed its clinical trials.
While LG Chemical was certain of approval of its NDA, it was rejected by the US FDA in 2000 on the grounds of an imperfect toxicity study; the FDA demanded a more in-depth study.150 As a result, SB renounced the reapplication of the NDA in April 2002, and returned all rights and clinical documents to LG Chemical.
From the perspective of SB, dropping the project allowed the company to avoid potential additional losses, which could have been enormous if it continued developing the drug, which had already cost around US$300 million.151 In addition, SB had merged with Glaxo Wellcome, which had already experienced a suspension of marketing of its own
148 See Lee and Kim (2001) for the explanation of drug identification in detail.
149 LG Chemical exported LB20304a to SB with a US$37 million upfront payment and US$30 million of running guarantees for 20 years after its launch in 1997. The company also acquired the exclusive right to supply the API of Factive to SB.
150 A rash had been expressed in 8% of fertile women in the clinical trial (Interview 36 (DBF)).
151 SB input about US$300 million into the clinical trial phases II and III. LGLS invested approximately US$60 million for R&D, recording 29.4% of R&D intensity (R&D expenditure/total sales) in 2005 as the most R&D-intensive domestic pharmaceutical company.
quinolone antibiotic, Grepafloxacin (brand name: Raxar), in 1999 due to a series of toxicity accidents. In the end, GSK was sceptical of the possibility of successful marketing due to a few incumbent quinolone antibiotics already on the market (Interviews 33 and 36 (DBF)).
Therefore, the time had arrived for LG Chemical to decide whether to continue the project.
For them, it was the first NCE they had put a lot of investment into, and they were confident of the technological superiority of the drug to the rival drug on the market (Interview 36 (DBF)).152 In the end, they decided to continue the project by looking for a new overseas partner to complement the preclinical and clinical data, and to co-market after the NDA. Finally, in November 2002, LG Chemical entered into a contract with GeneSoft (now Oscient Pharmaceuticals, bankrupted in 2009), a biotechnology start-up in the US.153 No better choice existed for LGLS because its NDA had failed once before and competing products were already popularised in the market (Interviews 33 and 36 (DBF)). This imposed practical constraints on partnering with another Big Pharma company.
3) Market penetration
LGLS and GeneSoft obtained approval as a Class 2 prescription medication in the US in April 2003.154 However, the scope of indications was narrowed in the second attempt at NDA from four to two indications.155 In the end, the scope-down of indications and approval for a Class 2 rather than a Class 1 drug led to severe restrictions on marketing activity and re-licensing out to Big Pharma (Interview 35 (DBF)).156 Moreover, the drug had missed the most competitive time window (Interview 36 DBF)). As a result, its market performance remained under the expectations of LGLS, leading to the contraction of subsequent innovative R&D.
LGLS’s present alternative strategy for marketing Factive appears to focus on the developing world, which is relatively easy to enter due to low levels of regulation. This makes local companies marketing easier. Globally, Factive has acquired approval in more than 28 countries. Interestingly, Factive was the top fluoroquinolone-class antibiotic
152 At that time, an NDA of Factive from New Zealand was already under approval (December 2001).
153 LGLS received US$40 million as a down payment and 14% share in GeneSoft. This meant that GeneSoft also anticipated the commercial success of Factive.
154 AECB (acute bacterial exacerbations of chronic bronchitis) and CAP (community-acquired pneumonia).
155 SB originally applied for approval for four indications in the first NDA application including ABS (acute bacterial sinusitis) and UTI (urinary tract infection).
156 Factive was prescribed more than one million times, creating US$16 million in sales in the US in 2008.
Oscient went bankrupt in 2009 and its promotion rights were transferred to several companies, depending on the region. A small pharmaceutical company specialising in respiratory system diseases, Cornerstone Therapeutics, started to market Factive in the US.
in Jordan in 2010, although the country’s market is small in absolute terms. The drug was marketed in Jordan by Hikma, the largest pharmaceutical company in the country.
This underscores the possibility of exploiting emerging markets for the sale of new drugs.
4) Summary
In conclusion, the case of Factive was the first full completion of new-drug R&D among Korean latecomer firms. In the process from local drug discovery to global marketing in the US, LGLS encountered a series of challenges. The first challenge was the company’s weak upstream research capability to derive drug candidates. The second barrier was the absolute reliance on Big Pharma for global development, which caused a delay in further development. The last hurdle was the difficulty in penetrating both domestic and global markets due to the cumulative effect of the former two reasons and the domination of the targeted market by Big Pharma.
While LGLS finally reached the global marketing stage, overcoming the barriers in R&D, it was by virtue of the company’s relative wealth as an affiliate of Chaebol. However, development success by no means always leads to marketing success. The following two cases more vividly reveal the difficulties that small latecomer firms commonly encounter in the three dimensions of new-drug R&D.
6.3.2.2 Commercial failure 2 – The most innovative drug: Revanex by Yuhan
Two further examples of new-drug development, Revanex by Yuhan (Sub-section 6.3.2.2) and Noltec by Ilyang (Sub-section 6.3.2.3), are analysed in this section with consideration of the replication logic (in case study) of the identified barriers, as well as in the complementary approach for identifying other barriers unrecognised in the Factive case.