[This Week's Controversy] Pharmaresearch Secures Cash with 'Yeoneoju-sa'... Will It Acquire CTC Bio?

Continued Domestic and International Performance Growth Amid Reopening
Expansion of Business Areas Through Hostile M&A... Management Succession Process Underway

Editor's NoteDear individual investors dreaming of successful investments. How well do you know the stocks you buy with your own money? In the unrefined and chaotic online environment filled with all kinds of 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 on the financial information provider FnGuide, providing basic information as well as analysis of related companies such as partners, clients, and investors. We will explain the financial status, performance, and future value of companies in an easy-to-understand manner. We come to you every week under the name "This Week's Watchlist," highlighting notable stocks. This week, we take a look at PharmaResearch, a beauty medical device manufacturer well known for its so-called "Salmon Injection" Rejuran Healer.

PharmaResearch is a beauty medical device manufacturer listed on the KOSDAQ market in 2015. Since its listing, it has been a solid company maintaining high operating profit margins and sales growth. Recently, the reason PharmaResearch is attracting attention in the securities industry is because it has launched a hostile takeover bid targeting CTC Bio. Amid this, the company has also started management succession preparations, and there is an issue with a tax audit by the National Tax Service, increasing interest in various ways.

Overseas Growth Accelerates... This Year's Performance Also 'Excellent'

PharmaResearch operates businesses in pharmaceuticals, medical devices, and cosmetics based on its PDRN/PN manufacturing technology, which promotes self-regeneration. PDRN/PN is a DNA fragment isolated from the reproductive cells of salmon. Chairman Jung Sang-su of PharmaResearch, a former Daewoong Pharmaceutical executive, founded the company in 2001 as a consulting firm for pharmaceutical and medical device development and approval, and developed PDRN/PN technology in collaboration with national institutions.

PharmaResearch produces PDRN pharmaceuticals such as Rejuvenex Injection, Rian Eye Drops, medical devices effective for skin improvement like Rejuran, and joint cavity injection Conjuran at its GMP-certified factory established in Gangneung in 2013. It also sells cosmetics using the Rejuran brand, including immune enhancers, botulinum toxin, and HA fillers. As of the end of last year, the sales composition was 52.4% medical devices (Rejuran, Conjuran, etc.), 23.4% pharmaceuticals, 19.7% cosmetics, and 4.5% others.

PharmaResearch's performance has shown growth every year. Last year, its consolidated sales and operating profit were 194.8 billion KRW and 65.9 billion KRW, respectively, up 26.4% and 25.5% from the previous year. By business segment, cosmetics sales recorded high growth, increasing by 41.2% to 38.4 billion KRW compared to the same period last year. The medical device segment, which accounts for more than half of total sales, also achieved sales growth of over 33%.

This growth trend is expected to continue this year. According to financial information provider FnGuide, the market consensus for PharmaResearch's sales and operating profit in the first quarter are 53.3 billion KRW and 18.4 billion KRW, respectively, representing increases of 17.7% and 21.0% year-on-year. The domestic market is experiencing high growth of 'Rejuran HB Plus,' which contains an added lidocaine ingredient, and the overseas sales proportion of the medical device segment, which was delayed due to the COVID-19 pandemic, is gradually expanding. Previously, PharmaResearch experienced a slump in overseas exports due to COVID-19 issues. With the recent end of the COVID-19 situation, overseas product approvals are actively progressing again, opening export routes.

Cosmetics exports are also analyzed to have shown high growth, centered on the Chinese online market. The pharmaceutical segment is estimated to generate stable sales in plastic surgery and dermatology clinics. The market expects that if PharmaResearch's own brand, Lientoxin, gains domestic approval, it will create sales synergy with Rejuran, potentially increasing pharmaceutical growth rates.

Jonghyun Park, a researcher at Daol Investment & Securities, analyzed, "Sales centered on the domestic home shopping channel, which had low profit contribution, are shifting towards expanding the proportion of domestic health & beauty (H&B) and overseas sales." He added, "Additional sales can also be expanded through some duty-free store channels. While Rejuran's exports were mainly to Singapore and Malaysia, since the launch seminar in Thailand last October, the sales proportion in Thailand is also expanding. With the full-scale overseas sales of Rejuran, the previously undervalued low overseas sales proportion is being resolved." He also mentioned expectations for increased medical tourism due to the rise in Chinese tourists and increased cosmetics sales through duty-free store channels.

Accordingly, the securities industry expects PharmaResearch to record sales of 232.4 billion KRW and operating profit of 81.9 billion KRW this year, representing increases of 19.3% and 24.3% year-on-year, respectively, with an operating profit margin approaching 35%.

Will Hostile M&A Targeting CTC Bio Succeed?... Succession Preparations Proceed Smoothly

PharmaResearch maintains a stable financial structure by accumulating large cash assets based on its high cash-generating ability. As of the end of last year, PharmaResearch's cash and cash equivalents and liquid financial assets amounted to approximately 184 billion KRW. Its debt ratio and reliance on borrowings are very low at 28.6% and 13.8%, respectively. With total borrowings of 65.7 billion KRW, the net borrowings after offsetting cash holdings are effectively negative.

Based on this abundant liquidity, PharmaResearch is focusing on investments. In 2017, it established the venture capital (VC) firm Suin Investment Capital together with High Vision System. Suin Investment Capital invests in various industries such as artificial intelligence (AI), bio, and logistics, including Korea Center, SJ Group, Alchera, Nexel, and Insung Data. PharmaResearch is expanding its scope by investing alongside this VC.

In 2018, PharmaResearch directly acquired a 47.5% stake in PharmaResearch Bio, which produces the botulinum toxin 'Lientox,' for 23.9 billion KRW. At the time of acquisition, PharmaResearch Bio was recording poor performance, but last year it showed high growth with sales of 12.5 billion KRW and net profit of 7.4 billion KRW.

Moreover, in August last year, PharmaResearch invested 10 billion KRW in Pluto, a company developing improved new drugs, becoming the largest shareholder with a 70% stake. Pluto was founded by former CTC Bio CEO Jeon Hong-yeol, who is known to have been a senior and junior at Chung-Ang University College of Pharmacy with Chairman Jung.

Currently, PharmaResearch is conducting a hostile merger and acquisition (M&A) of CTC Bio together with Pluto. CTC Bio is a company manufacturing animal and human pharmaceuticals. It develops products based on core technologies such as microbial fermentation, drug coating, and drug delivery technologies.

According to industry sources, Jeon Hong-yeol, former CEO of CTC Bio and founder of Pluto, formed an alliance in 2021 to acquire CTC Bio but ended up handing over management rights to current CEO Lee Min-gu and leaving. Afterwards, Jeon founded Pluto and partnered with PharmaResearch last year.

As of the 10th of this month, PharmaResearch holds 2,179,761 shares (9.01%) of CTC Bio. Since February, it has been purchasing CTC Bio shares through on-market and off-market transactions together with Pluto. PharmaResearch has announced plans to purchase CTC Bio shares up to a limit of 30 billion KRW, leaving the possibility of additional share acquisitions open.

Juwon Ahn, a researcher at DS Investment & Securities, analyzed, "CTC Bio owns GMP factories for human pharmaceuticals, vaccines/injections, and health functional foods, and also operates an animal business, which can be linked to PharmaResearch's pharmaceutical business." He added, "If business diversification becomes visible in the future, PharmaResearch's value will be re-evaluated."

While pursuing aggressive M&A, PharmaResearch is also internally preparing for management succession of Chairman Jung Sang-su. At the end of last month, PharmaResearch appointed Jung Yoo-jin, Chairman Jung's eldest daughter and head of PharmaResearch USA, as an inside director at the regular shareholders' meeting. Director Jung holds 10,013 shares of PharmaResearch. Meanwhile, PharmaResearch is also reportedly undergoing an irregular tax audit.