Among Korea’s major pharmaceutical companies, three – Hanmi Pharm, Dong-A ST, and Handok – recorded steepest falls in operating profits last year. Given that Hanmi Pharm showed amazing performances in 2015 thanks to its large-scale technology export, Dong-A ST and Handok suffered severest profit drops.

These are part of the results of analyses made by this newspaper, based on required public notices posted by 98 bio and pharmaceutical companies whose sales or profit structures have registered the changes of 30 percent or more (or 15 percent for large corporations) as of March 3.

Among the 98 pharmaceutical companies, 18 recorded the turnover of 300 billion won ($262 million), including those of their parent groups. They were, in the order of sales amount, Samyang Holdings, Green Cross Holdings, Green Cross, Daewoong, Daewoong Pharmaceutical, Hanmi Pharm, Chong Kun Dang Pharmaceutical, Dong-A Socio Holdings, JW Holdings, Hanmi Science, Dong-A ST, JW Pharmaceutical, CHA Biotech, Boryung Pharmaceutical, Chong Kun Dang Holdings, Korea Kolmar Holdings, and Dongkook Pharmaceutical.

Eight of them registered increases in operating profits while 10 saw theirs fall last year.

Hanmi Pharm and Hanmi Science marked the steepest year-to-year drops in operating profits in 2016. Their operating profits last year plunged 87.4 percent and 86.8 percent, respectively, from 2015 to remain at 26.7billion won and 28.6billion won.

Hanmi Pharm’s operating profits surged more than 500 percent in 2015 thanks to its technology export. The operating profit of its parent company, Hanmi Science, even rocketed far steeper than that, registering the growth 198.9 billion won, or 1,138.7 percent, year-on-year increase. It owed in part to the allocation of profits from the tech export and to the equity method income, which reflects subsidiary firm’s profit-loss ratio on parent company’s bottom lines in proportion to its equity share.

Dong-A ST recorded second biggest drop in operating profit. Hit by the sales fall of its gastritis treatment, Stillen Tab, the company, saw its 2016 operating profit plummet 40.5 billion won, or 73.2 percent, from the previous year.

Stillen Tab accounted for more than 5 percent of Dong-A ST’s total turnover, but its sales last year was estimated to drop about 25 percent from 2015 to 27 billion won because of the expiry of its patent right in mid-2015. The patent expiration also pushed down the drug’s price to 112 won a tablet in the third quarter of last year, compared with 231 won in 2014 and 162 won in 2015.

Coming next was Handok, which registered 41.5-percent drop in operating profit. The company’s continuing income and loss before income taxes last year -- revenue and loss generated from a company’s continuous business activities and ancillary activities – dived a hefty 1,262.8 percent from 2015, the biggest decrease among high-ranking pharmaceutical companies in sales list. Net profits also dropped 301 percent from 2015.

As the reason for such disappointing performance, Handok cited the plunge in its net profit resulting from subsidiary firms’ profit-loss and affiliated companies’ equity method. Handok’s subsidiary company, Handok Kalos Medical engaged in research and development of medical equipment, recorded a loss of more than 1.5 billion won in the third quarter of last year alone.

Among Handok’s affiliates are TEVA Handok, a joint company established in 2013 with Israeli pharmaceutical company TEVA, and Genexine, 25 percent of whose equity is owned by Handok.

Handok took over the equity of Genexine to strengthen its R&D capability. It is a bio company aimed at transferring its technology after completing phase-2 clinical trials. The R&D-oriented affiliate is currently developing a dwarfism treatment codenamed GX-H9, along with its Korean parent company as well as GX-E2, an anti-anemic drug, together with Green Cross. Genexine said cost increase resulting from clinical trials was one reason for its deficits last year.

Some analysts, however, point out TEVA Handok’s business style change has caused deficits, saying the company shifted its focus to enhanced marketing of generic drugs from long-term growth, which pushed up its marketing and management cost. According to Pharmscore, an analyzer of the healthcare and medical market, TEVA HANDOK’s sale management cost stood at 151.7 percent of its sales in 2015, the largest such ratio among 30 multinational companies operating in Korea.

On the other hand, Cha Biotech, a subsidiary company of Cha Medical Group that develops cell therapy, recorded the biggest sales growth last year. The company, which was on the lips of people as an alleged beneficiary of the Park Geun-hye administration’s stem cell project, recorded the steepest operating profit growth rate of 137.9 percent. Its net profits and counting income and loss before income taxes also turned around from deficits to surpluses.

The operating profit of Cha Biotech increased to 41.9 billion won last year compared with 24.3billion won in 2015. Its sales also grew 14.8 percent to 452.2billion won.

Cha Biotech’s operating profits increased 6.7 billion won from domestic corporations, including subsidiary firms, and 17.6 billion won from foreign offshoots, the company said. Its subsidiary companies include CMG Pharm, a supplier of medicines and medical equipment, Cha Healthcare that develops and operate foreign hospitals, and Cha Meditech which also deals with drugs and medical devices. Its foreign offshoot is Cheongra Healthcare, a real estate and medical consulting business, invested by Cha Healthcare.

The operating profits of Chong Kun Dang and Dongkook Pharmaceutical increased 43.4 percent and 40.3 percent from a year earlier, respectively.

The operating profit of Chong Kun Dang grew from 42.7billion won to 61.2billion won. The company took over the sales rights of five profitable products, including Januvia to treat diabetes, Gliatilin to improve brain function, and Vytorin and Atozet to treat hyperlipidemia, from Daewoong Pharmaceutical. As a result, the latter’s operating profit decreased 39.6 percent to 17.2 billion won.

Dongkook Pharmaceutical joined the list of pharmaceutical companies with more than 300billion won in sales by recording 18.5 billion in sales last year, up 19.1 percent from 2015. The company attributed its improved business performance to new business and profit increase from prescribed medicine sector.

Notably, Dongkook’s “Cosmestical” (cosmetic and pharmaceutical) business strategy has contributed significantly to its sales growth, along with its generic and prescribed drugs. The prescribed drugs include anti-cancer treatment Lorelin Depot and Bellast etc.

hwz@docdocdoc.co.kr

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