Pharmaceutical Stocks Suffer Heavy Losses

Pharmaceutical Stocks Continue to Decline Due to Interest Rate Impact
Could Be a Buying Opportunity at Lower Prices

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[Asia Economy Reporter Junho Hwang] Pharmaceutical stocks have been directly hit by supply and demand outflows due to interest rate hikes. However, there are perspectives in the securities industry that see this crisis as an opportunity.

According to the Korea Exchange on the 31st, the KOSDAQ pharmaceutical index has fallen 25.61% so far this year until the previous day. The proportion of pharmaceuticals in the KOSDAQ market capitalization surged to 34.5% in December 2020, when the COVID-19 bubble was at its peak, but has now returned to 25.1%, the pre-COVID-19 level. The outlook is also bleak. Developing new drugs requires maintaining cash flow over a long period, and the current period of interest rate hikes is like a harsh winter for pharmaceutical stocks. The drug price reduction measures following the enactment of the U.S. Inflation Reduction Act and the resulting reduction in technological development capacity are another cold wind for domestic pharmaceutical companies hoping for technological cooperation.

However, the crisis can be reframed as an opportunity for bargain buying. Jaekyung Park, a researcher at Hana Securities, said, "Currently, the pharmaceutical industry has more upside than downside, and it is a good time to invest in companies developing promising new drugs." However, he advised, "Domestic pharmaceutical stocks have repeatedly experienced excessive expectations followed by disappointment," and "It is necessary to assess the company's R&D stamina and corresponding business model." In particular, he emphasized the need to pay attention to companies that have passed the high technological special listing gate based on active venture capital funding before listing and are going public, naming Voronoi, Lunit, and AprilBio as promising stocks.

Seongkyung Lee, a researcher at IBK Investment & Securities, advised, "Long-term investment looking at the effects of new drug development is necessary rather than short-term investments based on favorable news." Lee pointed out the need to look at companies that can grow into global pharmaceutical firms, citing SK Biopharm, which is accelerating its global market penetration of ‘Cenobamate’; Yuhan Corporation, which licensed the 3rd generation EGFR non-small cell lung cancer treatment ‘Reclaza’ developed by Oscotec to Janssen for 1.4 trillion won; and Legochem Bio, which possesses a world-class ADC (antibody-drug conjugate) platform technology, as promising stocks.