Withus Pharm, Focused on Geriatric and Chronic Diseases 'Stable'... Sales Stagnate Despite Increased R&D

Bio companies are heating up the stock market. After a long period of suppression due to accounting issues, stock prices have entered a revival phase driven by expectations for the technological capabilities of domestic companies. As market sentiment rapidly improves, initial public offerings (IPOs) of bio companies, which had quieted down due to the spread of the novel coronavirus infection (COVID-19), have resumed. The listing of SK Biopharm, a bio affiliate of SK Group, has emerged as a major event in the stock market. Withus Pharm is also in the process of entering the KOSDAQ. What kind of story will these two new faces in the stock market write?

[Asia Economy Reporter Jang Hyowon] Withus Pharm, a generic drug manufacturer and contract manufacturing organization (CMO) company, is knocking on the door of the KOSDAQ market. Withus Pharm maintains stable performance but has relatively low growth potential. Attention is focused on whether it can overcome sluggish sales growth after listing.

◆Sales Stagnation... Operating Profit Margin Declines

Founded in 2004, Withus Pharm mainly produces circulatory system specialty drugs (ETC) used for geriatric disease groups. As of the third quarter of last year (July 1, 2019 ? March 31, 2020, fiscal year ending in June), it recorded cumulative sales of 38.2 billion KRW, operating profit of 6.7 billion KRW, and net profit of 5.2 billion KRW. The sales composition of Withus Pharm is 26.6% circulatory agents, 10.6% musculoskeletal agents, 12.6% gastrointestinal agents, 8.7% antibiotics, 22.4% other prescription drugs, 18.9% contract manufacturing (CMO), and 0.1% rental income. Most of the sales come from generic drug manufacturing.

Withus Pharm’s sales have been stagnant. Since its main products are specialty drugs related to geriatric or chronic diseases, demand changes are minimal. Sales were 49.5 billion KRW in 2016, 50.9 billion KRW in 2017, and 51.7 billion KRW in 2018. The sales growth rate sharply declined from 7.9% in 2016 to 2.9% in 2017 and 1.6% in 2018. Sales for last year are expected to remain around 51.6 billion KRW.

The operating profit margin is also on a downward trend. Until 2018, Withus Pharm consistently recorded operating profit margins in the 20% range. Considering that the average operating profit margin of other pharmaceutical companies is in the 10% range, this is relatively high. However, from 2018, due to increased selling and administrative expenses such as research and development costs, the profit margin is expected to fall to around 17%.

Withus Pharm did not spend on research and development until 2017 but began spending about 500 million KRW from 2018. Minhee Lee, a researcher at IBK Investment & Securities, analyzed, “It is regrettable that sales growth is stagnant and profitability is under pressure due to increased costs such as R&D investment.”

◆Goal to Expand Bioequivalence Product Portfolio

Withus Pharm plans to raise 22.4 billion KRW based on the lower end of the desired price in this public offering. Of this, 8.4 billion KRW will come from secondary share sales, and 14 billion KRW is expected to be newly raised. Among the 605,585 shares for secondary sales, about 430,000 shares belong to CEO Sung Daeyoung, and the rest are from venture capital (VC) and others.

With the newly raised 10 billion KRW, Withus Pharm plans to expand the cephalosporin antibiotic production line and general production line, purchase equipment, and repair and expand the finished product warehouse. Currently, Withus Pharm holds about a 45% market share in the cephalosporin CMO market, and this is interpreted as a strategy to expand this segment.

The remaining 4 billion KRW will be used for synthetic new drug pipelines and research and development of improved combination drugs. Combination drugs are pharmaceuticals containing two or more active ingredients mixed together, made as a single tablet by dividing each drug into halves to prevent mixing.

Going forward, Withus Pharm’s challenge is to expand market share after the implementation of the stepwise price reduction system for generics. The Ministry of Health and Welfare decided that from July, companies must conduct their own bioequivalence (BE) tests and use registered raw materials to maintain 53.5% of the original drug price as before.

As of 2018, Withus Pharm’s own bioequivalence products accounted for 73% of total sales. A company official said, “How many bioequivalence products we secure will become important,” adding, “We plan to expand the proportion of bioequivalence products to the 90% range by 2023.”

Additionally, as a mid- to long-term strategy, Withus Pharm has contracted with Inventi Labs for contract manufacturing of hair loss treatment injections. Inventi Labs plans to start phase 1 clinical trials for the hair loss treatment injection this year. Withus Pharm stated that it will produce products worth about 10 billion KRW once the clinical trials are completed in 2023.

Meanwhile, Withus Pharm plans to conduct demand forecasting on the 18th and 19th, public subscription on the 25th and 26th, and list on the KOSDAQ market in July. The desired public offering price is around 13,900 to 15,900 KRW per share. The lead underwriters are NH Investment & Securities and Samsung Securities.

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