[Click eStock] "L&C Bio, Expanding Momentum with China Entry and Mega Carti"

Daishin Securities Report

[Asia Economy Reporter Minji Lee] Daishin Securities forecasted on the 21st that L&C Bio's entry into the Chinese market and the expansion of momentum for MegaCarti (a medical device for homologous cartilage treatment) will raise expectations for next year's performance.

With the completion of CICC's investment in the China JV, full-scale entry into the Chinese market is expected to become visible. The company completed an additional payment of $11 million following the initial investment of $9 million. Hyungrae Han, a researcher at Daishin Securities, said, "The second investment was somewhat delayed compared to the schedule due to the process of investing in yuan to classify the joint venture as a Chinese foreign-invested enterprise and maintaining an investment of about 3.5 billion KRW in Guanfu International Advanced Medical Device Industry Institute, a Chinese state-owned enterprise, but the risk is presumed to have been resolved with the completion of the investment payment."

The joint venture started construction in April this year and is scheduled for completion in July next year. After completion, it is expected to receive GMP medical device production approval and begin production by the end of next year. The initial production volume is estimated at 700 billion KRW. Researcher Hyungrae Han explained, "As it is a large-scale project, additional investments in the joint venture will likely include Chinese government funds at a high valuation," adding, "Direct investment by CICC in L&C Bio is also under discussion within the first quarter, and based on close interests, the entry into China will accelerate."

The last subject injection for MegaCarti was completed in January this year, and the one-year follow-up observation data will be finalized in January next year. Subsequently, medical device product approval is expected through comprehensive statistical analysis of the data. As of last year, the number of domestic degenerative arthritis patients is estimated to exceed 4 million. Assuming initial penetration of 50,000 patients among Grade 2-3 patients, who account for 64% excluding Grade 4 patients requiring artificial joint surgery, new annual sales of 75 to 100 billion KRW are expected. An operating profit margin of over 50% is also anticipated, and it is expected to act as continuous momentum in the first half of 2022.

Medical recycling of human lung fat was prohibited due to waste-related legislation but is predicted to benefit the most when the law is amended. Additionally, since most of the domestic filler market uses hyaluronic acid (HA) that does not self-organize, requiring periodic procedures, ECM collagen filler is expected to have high efficacy as more than 30% is self-organized tissue.

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