[Post-IPO] Lapas, Growth Stalled Due to COVID-19... "Diversifying Overseas Clients"

[Asia Economy Reporter Yoo Hyun-seok] Lapass's performance stagnated two years after its listing due to the impact of the novel coronavirus disease (COVID-19) and other factors. However, the company expects growth to resume next year through strengthened overseas market expansion and the resolution of litigation issues.

Lapass was established in 2006 based on microneedle technology. This technology refers to a transdermal drug delivery system in the form of a patch that delivers drugs directly into the skin barrier using microstructures thinner than a human hair.

Most of the sales come from cosmetic-related products utilizing microneedles. As of the first half of this year, original design manufacturing (ODM) accounts for 66.7% of total sales. This is followed by the company's own brand (Acropass) and prototypes, accounting for 22.3% and 0.8%, respectively. Additionally, health functional foods such as Pitkong and Tiger Nuts make up 10.2% of sales.

At the time of listing, the lead underwriter DB Financial Investment and Lapass projected 2019 sales and operating profit of KRW 19.8 billion and KRW 1.5 billion, respectively. This represented a 103.1% increase compared to 2018 sales of KRW 9.7 billion and a turnaround from an operating loss of KRW 3 billion to a profit. They also expected to achieve sales of KRW 27.4 billion and operating profit of KRW 6.2 billion in 2020. Furthermore, with pharmaceutical-related sales beginning this year, sales of KRW 48.4 billion were anticipated for next year.

The basis for sales growth last year and this year was cosmetics. At the time of listing, microneedle patches were a new type of product not yet activated in the market. The underwriters cited the continuous interest from global cosmetic companies in Lapass's microneedle patch manufacturing technology and the initiation of transactions as positive factors. They explained in the investment prospectus, "If microneedle patch products become more familiar in the market, Lapass's position, backed by its unique mass production capability and quality verification, is expected to strengthen."

However, contrary to expectations, performance did not follow suit. Last year, Lapass recorded consolidated sales of KRW 18.2 billion and an operating loss of KRW 400 million. While sales were only 8% below expectations, operating profit remained negative without turning to black. The company explained, "This was due to increased direct labor costs caused by delayed delivery of some products destined for Japan and one-time cost increases incurred during the relocation of manufacturing facilities to a new plant in the fourth quarter of last year."

This year, there is even a possibility of negative growth. Sales in the first half reached KRW 9.1 billion, a 1.03% decrease compared to the same period last year. Specifically, ODM sales decreased from KRW 7.9 billion to KRW 6.1 billion. However, sales of the company's own brand increased from KRW 900 million to KRW 2 billion, and other sales rose from KRW 400 million to KRW 900 million, which is positive. Nevertheless, operating profit turned from a KRW 500 million profit in the first half of last year to an operating loss of KRW 2 billion.

The company attributes this to the impact of COVID-19 and litigation costs. Expenses related to the US International Trade Commission (USITC) patent infringement lawsuit, new advertising costs, and bad debt write-offs affected results. A company representative said, "Although the Acropass brand grew, the reason operating profit was not achieved was due to costs related to patent disputes," adding, "Increased research and development (R&D) costs for clinical trials also had an impact."

Lapass expects uncertainty to continue in the second half, but overall anticipates similar performance to last year. While major markets such as the United States, Europe, and Japan suffered due to COVID-19, new regions have been secured. Therefore, if COVID-19 ends, high growth is expected. The representative explained, "The rising awareness of our brand domestically is a positive factor," and "Discovering new clients is also a favorable development."

In the medical field, visible results are expected next year. Although most current sales come from cosmetics, the ultimate goal is to grow into a comprehensive healthcare company through pharmaceutical development. Various clinical trials are underway to this end. Starting with approval for a Phase 1 clinical trial for an osteoporosis treatment in March, a Phase 1 clinical trial for an Alzheimer's dementia treatment patch is being conducted in collaboration with Boryung Pharmaceutical since May. Preparations are also underway to start clinical trials for an allergic immunotherapy.

Lapass explained that it expected medical sector results this year, but all schedules were delayed due to the emergence of COVID-19. The representative emphasized, "Not only us but all bio companies' attention shifted to COVID-19, causing delays," and added, "We expect this to be resolved starting next year."

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