[Click eStock] "Medytox, Performance Improvement Expected After ITC Lawsuit Resolution... Q3 Turnaround Forecast"

[Asia Economy Reporter Oh Ju-yeon] Hana Financial Investment analyzed on the 5th that the toxin and filler sectors, which can be considered almost the only B2C (business-to-consumer) segments within the pharmaceutical bio sector affected by the novel coronavirus infection (COVID-19), are expected to be directly hit, potentially impacting Medytox's performance in the first quarter of this year. However, it is anticipated that the litigation costs related to the U.S. International Trade Commission (ITC) lawsuit, which burdened the earnings, will be resolved once the preliminary ruling is announced, enabling a clear earnings turnaround from the third quarter onward.

Medytox recorded sales of 58.3 billion KRW and an operating loss of 4.6 billion KRW in the fourth quarter of last year. The pre-tax loss was 5.9 billion KRW, and the net loss was 1 billion KRW.

Researcher Sun Min-jung explained, "Due to the relaxation of the Daigong regulations in China in the fourth quarter, toxin exports increased by approximately 114% year-on-year to 19.5 billion KRW, marking the best toxin export performance during the quarter. However, litigation costs of 16.3 billion KRW incurred from the ITC lawsuit caused selling and administrative expenses to rise by 187% compared to the previous year, making it impossible to avoid losses at the profit level."

The outlook for the first quarter of this year is also not favorable. Hana Financial Investment cited customs data showing that toxin export data for January and February, excluding shipments to the U.S., decreased by 45% and 50% year-on-year, respectively, with exports to China dropping by 61% and 89% in January and February, respectively.

Researcher Sun predicted, "Despite the baseline effect from the Daigong market regulations in the first quarter of 2019, a decline in the topline seems inevitable."

The earnings turnaround is expected to be possible from the third quarter.

Researcher Sun stated, "Once the ITC lawsuit preliminary ruling is announced on June 5, no further litigation costs will occur, enabling a definite earnings turnaround."

In May 2019, various noises began when all Medytox employees reported allegations of 'Medytox's manipulation of Meditoxin manufacturing and quality data' to the Anti-Corruption and Civil Rights Commission, causing Medytox's stock price to fall by about 50% in 2019. Continuing this noise, on March 2, the prosecution conducted an additional search of CEO Cho Jun, which heightened concerns that the approval for Meditoxin could be revoked, leading to a sharp stock price drop of approximately 15.7% in a single day.

Researcher Sun assessed, "Although uncertainty may increase due to the prosecution's search, linking the prosecution's investigation directly to the revocation of drug approval seems somewhat excessive anxiety." She explained that the institution that ultimately decides on drug approval cancellation is not the prosecution but the Ministry of Food and Drug Safety.

Researcher Sun also noted, "The origin of this noise was the strain controversy that began in January 2019 when Allergan and Medytox filed a lawsuit with the ITC against Daewoong Pharmaceutical's Nabota." She added, "Currently, the two companies are in a tense standoff through press releases, with the trial at the ITC taking place between February 4 and 7, and the preliminary ruling expected on June 5. This long-standing dispute is now gradually approaching its conclusion." She continued, "Although the outcome is uncertain, once the ITC lawsuit concludes, it can be seen as the resolution of the greatest uncertainty for Medytox. Additionally, once the lawsuit ends, no further earnings deterioration due to litigation costs is expected, so earnings improvement can also be anticipated."

However, due to the COVID-19 virus causing a sharp decline in toxin customs clearance volumes in January and February, the 2020 earnings forecast and the target stock price have been revised downward to 470,000 KRW. Nevertheless, considering the potential for a sharp stock price surge after the ITC lawsuit concludes and uncertainty is resolved, it is emphasized that now is an opportunity for bottom-fishing purchases.

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