The South Korean companies Daewoong, Dong-A, Hanmi, and Ildong have announced financial results for the first quarter of 2014, with all companies registering sales growth.
IHS Life Sciences perspective | |
Significance | Mid-sized South Korean pharmaceutical companies Daewoong, Dong-A, Hanmi, and Ildong have announced financial results for the first quarter of 2014 showing sales growth. |
Implications | Despite strong sales growth two of the companies' operating incomes decreased on higher R&D and other costs. |
Outlook | The South Korean companies included in the reports appear to have bounced back from cost-containment measures since 2013. South Korean pharma companies are also likely to benefit in the future from a number of high-profile patent expiries, although profits may be affected by costs of meeting new quality requirements. |
Four mid-sized South Korean pharmaceutical companies have reported financial results for the second quarter of 2014, all showing an increase in revenues.
Select South Korean pharmaceutical companies' Q2 2014 financials | ||||
Company | Sales Q2 2014 | % y/y sales growth* | Operating income | % y/y operating income growth* |
Hanmi | 186,300 | 3.7 | 8,400 | -26 |
Daewoong | 182,000 | 15 | 17,800 | -17.5 |
Dong-A | 147,900 | n/r | 11,300 | 11 |
Ildong | 98,200 | 12.7 | 3,600 | n/r |
Source: English Dailypharm News * English Dailypharm did not stipulate if growth rates are against the same quarter of the previous year, i.e. year on year, or against another time period. IHS has therefore assumed that these growth rates refer to y/y growth. | ||||
Hanmi
Hanmi's sales reached KRW186.3 billion (USD180.2 million) for the quarter. Hanmi's sales in China were especially strong at 10.2% y/y growth, with sales from this territory totalling KRW231.5 million. Despite increasing sales, Hanmi's operating income fell 26% to KRW8.4 billion. Hanmi attributed this decline to increasing research and development (R&D) expenses linked to the launch of a new drug and what it considers to be strategically timed R&D expenses. Hanmi launched a generic version of Eli Lilly (US)'s attention deficit hyperactive disorder (ADHD) drug Strattera (atomoxetine) in South Korea during the quarter, although it did so alongside a number of competitors raising the potential of significant competition in this space (see South Korea: 10 June 2014: Generic versions of Strattera launched in South Korea).
Daewoong
Daewoong's results showed sales totalling KRW182 billion for the quarter, up 15% y/y. Despite this increase in sales the company reported a 17.5% decrease in operating income, which totalled KRW17.8 billion for the quarter. This factor was put forward by Daewoong in a broker report published on its website (available here) which suggested the company's cost of goods sold ratio would increase. However, the report does not provide an indication as to the exact source of this increased ratio. Over the full year the company anticipates a small 1.1% operating profit growth.
Dong-A
Dong-A ST, the prescription drug arm of Dong-A, reported sales of KRW147.9 billion for the second quarter. This, the source suggests, was an increase, although it does not provide clarification as to how large this increase was. Dong-A's operating income increased 11% y/y to total KRW11.3 billion.
A 6.1% y/y decline in sales of Dong-A's gastrointestinal drug Stillen (Artemisia extract) were offset in the quarter by sales of Motiliton (API not known), which grew 24.8% y/y, and Dong-A's erectile dysfunction drug Zydena (udenafil), which increased 14.7% y/y. The reports do not provide a reason for the declining sales of Stillen, however IHS believes this might be attributed to the South Korean Ministry of Health and Welfare (MoHW)'s decision to end insurance coverage of Stillen in the prevention of gastric ulcers due to non-steroid anti-inflammatory drugs (NDAIDs) (see South Korea: 20 May 2014: Dong-A to challenge South Korean MoHW's decision to end insurance coverage for Stillen antiulcerant).
The quarter also saw Dong-A venture into new markets with the signing of a licensing agreement with Turkey-based Biofarma (see Turkey - South Korea: 21 May 2014: Biofarma, Dong-A sign Turkey licensing agreement). The licensing agreement and technology transfer will result in Biofarma manufacturing and marketing a number of Dong-A's drugs in Turkey.
Ildong
The smallest of the companies mentioned in the reports experienced a sales increase of 12.7% y/y to KRW98.2 billion for the quarter. Operating income totalled KRW3.6 billion, a tripling of income, according to the source.
Outlook and implications
Although only representing a small number of South Korean companies, the results may provide an indication as to the market conditions in the country, suggesting good news for the companies. Especially when considering that over the full year 2013 the majority of mid-sized South Korean pharmaceutical companies' sales declined for prescription drugs due to government cost-containment measures.
The future outlook for South Korean pharmaceutical companies is somewhat mixed. On a positive note South Korean companies are anticipated to cash in on the patent expiry of a number of top-selling international drugs, although competition among generics companies is anticipated to be fierce. On a negative note, companies may need to invest in upgrading systems ahead of a tightening of drug quality monitoring, and the industry may see declining sales in response to a toughening of restrictions against illegal rebates to doctors.
Related articles
- South Korea: 12 February 2013: South Korea's medium-sized firms suffer 4.5% fall in prescription drug sales during 2013
- South Korea: 21 July 2014: Generic manufacturers in South Korea prepare for imminent patent expiries of Nexium, Cymbalta, and Zyvox
- South Korea: 17 April 2014: South Korea to tighten drug quality monitoring
- South Korea: 17 June 2014: Drug companies in South Korea allegedly offer illegal rebates to doctors in advance of tougher sanctions