"Sales Up, Profits Down": Which Drugmakers Are Failing to Cash In?

[Korea Financial Times, Yang Hyunwoo] Domestic pharmaceutical companies including Chong Kun Dang, Green Cross, and Korea United Pharm succeeded in expanding their external growth in Q3 this year but saw profitability deteriorate. Yuhan Corporation recorded poor performance with both sales and operating profit declining. Increased research and development (R&D) costs, drug price cuts, and absence of royalties are analyzed to have had an impact.

According to the industry on the 6th, Chong Kun Dang's Q3 separate basis sales increased 4.6% year-over-year to KRW 427.4 billion. However, operating profit during this period decreased 18.7% to KRW 20.5 billion.

The company explained, "Sales increased as existing products such as Godex, Telmitrend, and Imotun, along with new products including Nurapec and Stivarga, grew evenly," adding, "Operating profit decreased due to increased research and development investment."
Chong Kun Dang's cumulative sales for Q3 this year were KRW 1.256 trillion and operating profit was KRW 55.5 billion. Compared to the same period last year, sales increased 9.5% but operating profit decreased 30.9%. Additionally, the company's R&D expenses increased 23.2% year-over-year to KRW 83.1 billion as of the first half of this year.

Green Cross saw its Q3 consolidated sales increase 31.1% year-over-year to KRW 609.5 billion. This is the first time the company has recorded sales exceeding KRW 600 billion on a quarterly basis. The company analyzed that Alyglo growth and expanded prescription drug sales were key to achieving record quarterly sales.

However, operating profit during the same period fell 26.3% to KRW 29.2 billion. The company explained this was due to external environment changes for some high-margin products. Influenza vaccines switched to trivalent vaccines starting this year, and Hunterase showed a slight decrease due to concentrated overseas supply in the first half.

Despite deteriorating profitability, Hunterase's cumulative Q3 sales reached 96% of last year's annual sales. Accordingly, it is projected to achieve double-digit growth on an annual basis.

Korea United Pharm also recorded sales of KRW 74.3 billion in Q3 this year, up 4.3% year-over-year. However, operating profit decreased 16.9% year-over-year to KRW 12.5 billion. A Korea United Pharm official mentioned, "Drug price cuts and demand slowdown due to economic recession affected profitability."

Some companies saw declines in both sales and operating profit. Yuhan Corporation's Q3 sales decreased 5.8% year-over-year to KRW 551.1 billion, and operating profit fell 55.7% to KRW 24.1 billion. Yuhan Corporation cited decreased royalty income from non-small cell lung cancer treatment Lazertinib (Leclaza) as the reason for poor performance.

The company transferred Lazertinib (Leclaza)'s global commercialization rights to Janssen for KRW 1.4 trillion in 2018. Janssen developed a combination therapy using Lazertinib (Leclaza) with its own anticancer drug Rybrevant, receiving approval from the U.S. Food and Drug Administration (FDA) in August last year.

Yuhan Corporation received KRW 80 billion in Lazertinib (Leclaza) technology royalties in Q3 last year and KRW 20.7 billion in Q2 this year. However, there was no royalty inflow in Q3 this year.

While royalty income decreased, overseas business sales increased 92.7% year-over-year to KRW 135.0 billion. The company is currently strengthening its overseas business revenue structure by continuing its active pharmaceutical ingredient (API) supply contract for human immunodeficiency virus (HIV) treatments with global big pharma Gilead.
A Yuhan Corporation official stated, "We expect Q4 performance to be driven by R&D achievements including receipt of $45 million from Lazertinib (Leclaza)'s commercialization in China, and high growth in the overseas business division."

Yang Hyunwoo (yhw@fntimes.com)