[This Week's Pharma & Bio] The Unfinished Toxin War, What Is the Key to Daewoong Pharmaceutical's Stock Reversal?

Stock Decline Following First Civil Trial Loss Against Medytox
Interest in Sales Growth of New Drugs Pexuclu and Enblo

Editor's NoteDear individual investors dreaming of successful investments. How well do you know the stocks you invest in with your own money? In the online environment flooded with unrefined information, Asia Economy aims to be your hands and feet, eyes and ears, delivering accurate information about companies. Each week, we focus on companies that rank high in stock inquiries provided by the financial information provider FnGuide, delivering everything from basic information to analyses of related companies such as partners, customers, and investors. We will explain companies' financial conditions, performance status, and future value in an easy-to-understand manner. We visit you every week under the name of 'This Week's Watchlist.' This week, we analyzed Daewoong Pharmaceutical, which is embroiled in controversy due to the lawsuit with Medytox.

[Asia Economy Reporter Minji Lee] The acceptance of Daewoong Pharmaceutical's injunction suspension request has temporarily removed concerns over the Nabota business. However, investors' anxiety remains. Uncertainty over the second trial results persists, and it is expected that the first trial loss will hinder Nabota's aggressive overseas expansion.

In 2017, Medytox filed a lawsuit against Daewoong Pharmaceutical and Daewoong, claiming a prohibition on trade secret infringement. The first trial court ruled in favor of Medytox, prohibiting Daewoong Pharmaceutical and Daewoong from using manufacturing technology related to the botulinum strain and ordered the disposal of finished products containing the strain. The damages amount to 40 billion KRW. For Daewoong Pharmaceutical, which sells the botulinum product 'Nabota,' being unable to use the raw material botulinum strain is tantamount to being told not to conduct the Nabota business. In response, Daewoong Pharmaceutical immediately filed an appeal and a request for injunction suspension, which the court accepted.

◆Daewoong Pharmaceutical Stock Price Drops Over 20% in One Week

According to the Korea Exchange on the 21st, Daewoong Pharmaceutical's stock price plummeted more than 20% within a week, from 154,000 KRW to 123,000 KRW, immediately after the first trial loss verdict on the 10th. Although the court accepted Daewoong Pharmaceutical's injunction suspension request on the 18th, the stock market did not view this as positive news to boost the stock price. On the 20th, Daewoong Pharmaceutical's stock price rose by only 1.32%.

In contrast, Medytox's stock price soared. After winning the first trial, Medytox's stock price rose 53%, from 133,600 KRW to 204,500 KRW by the 17th, before the injunction suspension request was accepted. This reflects expectations that if Nabota cannot be sold in the market, Medytox's products will fill that gap.

Although Daewoong Pharmaceutical's injunction suspension request was accepted, allowing Nabota sales to continue, the market seems more anxious than optimistic. While Daewoong Pharmaceutical won the criminal lawsuit concerning industrial technology leakage against Medytox, it is evaluated to have lost weakly in the civil lawsuit. Daewoong Pharmaceutical has stated it will correct the clear misjudgment of the first trial through an appeal in the higher court, but uncertainty over the stock price is expected to increase until the final result is announced.

Already, securities firms' pharmaceutical and bio experts have unanimously lowered Daewoong Pharmaceutical's target stock price. The previous target price, which exceeded 200,000 KRW, has been lowered to the 150,000 to 180,000 KRW range. Experts agree that 'even if the injunction suspension request is accepted, investment uncertainty has expanded.'

The securities firm with the lowest target price is Kyobo Securities. It lowered the target price from 210,000 KRW to 150,000 KRW. The basis for the downgrade is that the Nabota business progress cannot be optimistic. Researcher Jeonghyun Kim of Kyobo Securities analyzed, "We expected momentum such as toxin sales approval and partner contracts in the first half of this year, but now it is uncertain whether the business will proceed properly."

◆Nabota Sales Triple in Two Years

Nabota is Daewoong Pharmaceutical's core growth engine. Among the company's product lineup, Nabota shows the steepest growth trend. Last year, Nabota's sales growth rate was about 80%, the most prominent among Daewoong Pharmaceutical's business sectors. In fact, Nabota's sales increased from 50.4 billion KRW in 2020 to 79.6 billion KRW the following year. Last year, it recorded 142.1 billion KRW, achieving a threefold sales growth in just over two years. Especially, exports accounted for 109.9 billion KRW last year, a 123% increase compared to the previous year. The domestic sector recorded 32.2 billion KRW, a 6% increase.

Since the market had focused on this year as the first year of Nabota business expansion, the disappointment is expected to be significant. With intensified toxin competition in the North American region, expanding sales to other regions is necessary. Currently, Daewoong Pharmaceutical continues product supply in the US, Europe, Australia, and Japan through Evolus, the toxin sales partner, and planned to expand sales to major European regions this year. Particularly, in China, where demand is expected to be high, the company planned to select a partner to supply products and consider sales within the first half of the year.

Researcher Taegi Ha of Sangsangin Securities pointed out, "The brand image may be somewhat damaged, and it may be disadvantaged in marketing among competitors, so the value of the Nabota business will be downgraded compared to before. Expectations for the China business were high, but obstacles regarding product approval and partner selection in China need to be confirmed."

Meanwhile, some expect that the contract with Evolus will not be affected by the lawsuit outcome. Through the 2021 final ruling and settlement by the US International Trade Commission (ITC), Evolus agreed to pay Medytox a lump sum and royalties in exchange for guaranteed rights to sell and produce Nabota. Researcher Songyi Park of Meritz Securities explained, "Through the agreement with Medytox, continuous manufacturing commercialization for Evolus is stipulated regardless of the Korean lawsuit outcome. According to the ITC agreement, Nabota exports to Evolus are expected to have little impact."

◆Focus on Sales Growth of Pexuclu and Enblo

To resolve uncertainties in the Nabota business, Daewoong Pharmaceutical plans to actively secure independent strains in regions where Evolus does not hold business rights.

Going forward, attention should be paid to whether sales of the gastroesophageal reflux disease treatment 'Pexuclu' and the diabetes treatment 'Enblo' increase. Pexuclu, launched in July last year, achieved sales of 16.7 billion KRW in six months, surpassing the target sales of 10 billion KRW. The sales target for this year is 100 billion KRW, and it is expected to grow into a major product in the domestic proton pump inhibitor (PPI) market. Furthermore, launches are planned in the Philippines and Ecuador this year, and in Brazil and Mexico next year. Researcher Hana Kang of Ebest Investment & Securities explained, "Drugs with the same formulation as Pexuclu saw a rapid increase in prescriptions from the seventh month, which raises expectations for Pexuclu's sales growth."

Regarding Enblo, an SGLT-2 inhibitor diabetes treatment, it is expected to be launched domestically in the first half of this year. The domestic SGLT-2 market is formed with about 90 billion KRW for single agents and 70 billion KRW for combination agents. Researcher Kang explained, "The target amount is 10 billion KRW by 2025, and if global launches accelerate, sales contributions will increase."