Pharma and Biotech Industries on Edge as US-Iran War Drags On

Rising Oil Prices Drive Up Freight Rates and Spark Investment Concerns

As the military conflict between the United States and Israel versus Iran shows signs of becoming prolonged, a sense of crisis is mounting within the domestic pharmaceutical and biotech industries. In the early days of the war, the pharmaceutical and biotech sector was viewed as a defensive industry that would be relatively less affected by shocks. However, as more than 10 days have passed since the outbreak of the war, the negative impact—such as soaring logistics costs and deteriorating investor sentiment—is gradually becoming a reality.

The most notable blow to the pharmaceutical and biotech industries is being felt in the areas of logistics and cost. Geopolitical tensions in the Middle East have caused air freight rates to surge, and even cold chain (temperature-controlled logistics), which is essential for pharmaceutical transport, has seen a significant increase in costs. As a result, companies are facing mounting logistics expenses. On top of this, a sharp rise in oil prices has intensified concerns over higher prices for active pharmaceutical ingredients (APIs), which are the foundation of synthetic drugs. Under these circumstances, diversifying supply chains has emerged as an essential task for industry survival.

Jung Yuntaek, President of the Pharmaceutical Industry Strategy Research Institute, said on March 10, "When national security becomes an issue, as we saw with COVID-19, international supply chains can collapse, leading to imbalances in pharmaceutical supply and demand. In this context, if the situation drags on, there will be significant difficulties in the supply of essential and shortage medicines." He further pointed out, "From an export perspective as well, pharmaceutical exports to the Middle East have been growing recently, but with trade routes now blocked, there may be a negative impact." According to the Korea Health Industry Development Institute, Korea’s pharmaceutical exports to the Middle East and Africa in 2024 amounted to 380 million dollars (about 550 billion won), and medical device exports reached 471 million dollars (about 690 billion won).

Macroeconomic instability is also weighing heavily on the pharmaceutical and biotech sectors. The prolonged war has rekindled global inflationary pressures, which has in turn put the brakes on central banks' plans around the world to cut interest rates. This is a fatal setback for venture companies that require massive upfront capital for new drug development. As investors such as venture capital (VC) firms increasingly prefer safe assets, the flow of funds into the high-risk, high-return bio sector has sharply declined. With funding drying up, venture companies are now likely to halt early-stage pipeline research that cannot yield immediate results, and may be forced into restructuring or mergers and acquisitions (M&A) for survival. Lee Seungkyu, Vice Chairman of the Korea Biotechnology Industry Organization, expressed concern, saying, "The situation in the Middle East is becoming more unstable, and if it persists, issues may arise with importing active pharmaceutical ingredients, while investment sentiment toward the relatively unstable pharmaceutical and biotech sectors could deteriorate."

Nevertheless, there are still potential opportunities amid the crisis. As the strong dollar trend continues, large contract development and manufacturing organizations (CDMOs) and biosimilar export companies that receive payments in U.S. dollars are expected to benefit from foreign exchange effects, improving their profitability.

This content was produced with the assistance of AI translation services.