Ildong Pharmaceutical's 'High-Intensity Restructuring' Seen Through 3 Major Keywords

IlDong Pharmaceutical's high-intensity restructuring can be summarized with three key points. Operating expenses, including labor costs, will be reduced; research and development (R&D) will follow a 'selection and concentration' strategy; and new drug efforts will focus on technology exports of the pipeline.

Front view of Ildong Pharmaceutical headquarters. [Photo by Ildong Pharmaceutical]

According to industry sources on the 25th, IlDong Pharmaceutical Group plans to cut 20% of executives at IlDong Pharmaceutical and IlDong Holdings to reduce operating expenses. As of the first quarter, the total number of executives excluding outside directors and auditors is 35 (26 at IlDong Pharmaceutical and 9 at IlDong Holdings), and the plan is to reduce this by 7. Remaining executives will also return 20% of their salaries. Voluntary retirement applications will be accepted from employees at the manager level or higher. In sales and marketing, products with weak profit structures will be eliminated, and cost burdens will be reduced through safe inventory management. A representative from IlDong Holdings explained, "This voluntary renewal aims to minimize financial risks and accelerate the achievement of our vision."

In R&D, the focus is on license-out (L/O), granting rights to technologies, patents, products, and substances to other companies. Having secured a pipeline through R&D investments over recent years, the goal is to achieve visible results through efficient cost execution based on selection and concentration.

IlDong Pharmaceutical's expanded R&D investment reflects the intentions of Vice Chairman Yoon Woong-seop, the third-generation owner. Yoon was appointed CEO of IlDong Pharmaceutical, newly established as a split-off under the holding company system of IlDong Pharmaceutical Group in August 2016. R&D expenses, which were 21.2 billion KRW in 2016, more than doubled to 48.3 billion KRW the year after Yoon took office. Since then, R&D spending has steadily increased, reaching 125 billion KRW last year and 27.4 billion KRW in the first quarter of this year.

There have been achievements as well. In 2017, the launch of Vesibo, a chronic hepatitis B treatment, marked IlDong Pharmaceutical's first new drug in its 76-year history. Subsequently, the company succeeded in entering Phase 1 clinical trials for treatments of type 2 diabetes and non-alcoholic steatohepatitis (NASH), and currently has five pipelines under preclinical research.

However, after Vesibo, the company has not produced significant new drug launches or license-out successes, leading to a red light on performance. Despite operating losses, R&D expenses have continued to increase. In 2021, when operating losses reached 55.5 billion KRW, R&D investment was 108.2 billion KRW, with the proportion of R&D expenses to sales increasing by more than 5 percentage points from the previous year to 19.3%. Last year, the R&D-to-sales ratio was 19.7%. Considering that major domestic traditional pharmaceutical companies invest around 10% of sales in R&D, this is a relatively high figure.

Last year, IlDong Pharmaceutical recorded an operating loss of 73.5 billion KRW on a consolidated basis, marking two consecutive years of operating losses. The deficit widened by 32% compared to the previous year. When announcing provisional results last year, IlDong Pharmaceutical cited increased R&D expenses as the reason for the expanded operating loss. In the first quarter of this year, the company posted an operating loss of 9.4 billion KRW.

The delayed launch of the oral COVID-19 treatment 'Jokova' also acted as a negative factor. Jokova, jointly developed by IlDong Pharmaceutical and Japan's Shionogi & Co., attracted attention for its therapeutic effects and versatility regardless of patient severity. However, the Ministry of Food and Drug Safety rejected emergency use approval in December last year, halting its domestic launch. IlDong Pharmaceutical is currently pursuing formal product approval for Jokova. Meanwhile, as the domestic COVID-19 wave subsides and the transition to endemic status is formalized, it remains uncertain how much success Jokova will achieve domestically even if approved.

IlDong Pharmaceutical is currently conducting clinical trials for treatments of diabetes, non-alcoholic steatohepatitis (NASH), and gastroesophageal reflux disease (GERD). The type 2 diabetes drug candidate 'IDG16177' is undergoing Phase 1 clinical trials in Germany. The NASH drug candidate 'ID119031166M' received IND approval from the U.S. Food and Drug Administration (FDA) in July last year and is currently in clinical trials in the Los Angeles (LA) area. The potassium-competitive acid blocker (P-CAB) class GERD drug candidate 'ID120040002' has entered Phase 1 clinical trials domestically.

At the shareholders' meeting in March, CEO Yoon Woong-seop stated, "This year, we will focus on increasing profitability through rational resource allocation and productivity improvement," but also emphasized, "Without new growth engines, the future cannot be guaranteed. We plan to continue investing in new drug R&D and concentrate company-wide capabilities."

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