Pharmaceutical and biotech industry officials are expressing discontent over the financial regulator’s plan to tighten rules on public disclosure in the third quarter.
The Financial Supervisory Service (FSS) recently said it would push to mandate drugmakers and biotech firms to elaborate details about risks mainly coming from the nature of pharmaceutical business in their annual reports.
The regulator is seeking to apply the new rules to annual reports submitted from July and include them in the review criteria for next year’s annual reports.
The FSS’ decision came as it regarded pharmaceutical and biotech companies’ disclosures of new drug developments and licensing-out deals excessively induced stock price hikes.
FSS officials said it was difficult to check the failure of clinical trials or discontinuation of the new drug development because drugmakers and biotech firms were not obliged to disclose the failure.
Minority investors find it challenging to learn details about drugs and clinical trials, too. Even if a pharmaceutical firm succeeds to release a new drug, it is still uncertain how much revenue the company will generate.
The FSS said such uncertainty required more protection of investors in the industry, which was to strengthen disclosure regulations.
However, the pharmaceutical and biotech businesses are opposing the regulator’s stance.
Stricter disclosure rules are discrimination against the pharmaceutical industry, and such measure could discourage drugmakers to give up on developing innovative medicines, industry officials said.
The regulator’s measure ignores enormous investment risks that pharmaceutical firms take, as it usually takes more than 10 years and astronomical costs for a company to commercialize a new drug.
“If a company discovers a candidate substance, it designs a clinical study based on the result of a pre-clinical study. To win an indication, the candidate drug should prove efficacy in various trials,” said an official at a drugmaker. “The latest FSS measure is likely to discourage clinical designs. Companies will revise their studies to reduce failure risks, not trying out possibilities for better efficacy.”
Another pharmaceutical source said the government’s tightening regulation runs counter to its previous pledge that it would support the pharmaceutical and biotech sector as a future growth engine.
“In other industries, no company publicly discloses every failure of new product development,” he said.
Biotech venture startups are raising voices of complaints as well.
Conventional pharmaceutical firms can invest their profits earned from sales in research and development, but small ventures and startups are struggling to finance R&D costs. The financial regulator’s tighter rules on disclosure will exacerbate small businesses’ financial burdens, they said.
“Biotech ventures are even selling cosmetic products and functional foods to cover the R&D costs,” an official at a biotech company said. “The latest FSS decision is weighing pressure on all biotech firms not to develop any drug.”
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