Download Ilyang Pharmaceutical(007570)

7
Ilyang Pharmaceutical(007570)
2013.3.18 Mid Small-cap
Focus on new drug result and expansion of Chinese revenue
Analyst Heeseong Kim 82.2. 3772-7556
[email protected]
Possibility of technology export of Leukemia and PPI medicines
Not Rated
Current price(3/15): W33,050
Stock Data
KOSPI(3/15)
Market cap (Wbn)
# of shares outstanding(‘000shrs)
52w high/low
90-day avg transaction(W100mn)
Foreign ownership
Dividend yield(11.3)
BPS(11.3)
1986.5pt
591.4
17,895
33,150 / 20,400
43.78
4.2%
0.0%
8,695
Ilyang Pharmaceutical’s leukemia medicine ‘Supect’ has been under phase III clinical test since last
August after it was approved from five countries in May, 2011. According to the result of phase II
clinical test of Supect, evaluation of its effectiveness came out outstandingly as its 12-month effective
rate resulted much higher than 24-month effective rates of Tasigna (nilotinib) and Sprycel (dasatinib).
Supect’s side effects were proved benign or equal to current drugs. Hence, Ilyang is likely to export
Supect technology to multinational pharmaceutical companies as early as 2Q 2013. Supect is
anticipated to make significant contribution to Ilyang’s top and bottom line given leukemia’s market
size, growth potential and competitive price relative to product quality. The company is expected to see
annual revenue of over W1tn at peak if the company begins to export technology to multinational
pharmaceutical companies. In addition, the company is also under preparation of exporting
technology of PPI (Proton Pump Inhibitor) medicine ‘Noltec’. Given the market size and patent expiry
of the existing drugs, Noltec technology is likely to be licensed to global drug manufacturers.
Noltec’s domestic revenue was only W3bn last year, but it will likely to increase to W12bn this year.
Focus on expansion of Chinese revenue
Relative to KOSPI
1-month
3-month
6-month
19.0%
21.0%
25.8%
Shareholders
Jeong, Doeon and 6 others
27.8%
Ilyang Pharmaceutical currently has three Chinese subsidiaries (Tonghua Ilyang Limited, Yangzhou
Ilyang Pharmaceutical Limited, Ilyang Korea-China Trade Limited) and Chinese revenue is increasing
substantially. Chinese revenue posted W58.8bn in 2012 and it will likely to increase to W74.5bn in
2013 and W100.0bn in 2014. This is because revenue from health tonic drink ‘Wonbi-D’, which
contains extract of ginseng and box thorn, and prescription drugs, are expanding.
We expect the stock price is likely to leap given exporting technology of leukemia medicine ‘Supect’
and PPI medicine ‘Noltec’ and expanding Chinese revenue.
Stock Price
Financial Data
35,000
(pt)140
(W)
Ilyang Pharmaceutical
Relative to KOSPI
30,000
120
25,000
100
20,000
80
15,000
60
10,000
40
5,000
20
0
0
12/03
12/07
12/11
13/03
Revenue(W100mn)
Growth rate(%)
OP(W100mn)
2010.3
2011.3
2012.3
2013.3
2014.3E
1,360
18.6
42
1,385
1.9
77
1,412
1.9
38
1,502
6.4
51
1,751
16.6
120
Growth rate(%)
TB
81.2
-50.5
34.2
135.3
PIFCO(W100mn)
25
33
14
34
98
NP(W100mn)
11
21
14
22
76
EPS(W)
Growth rate(%)
PER(x)
73
128
78
124
425
TB
85.4
72.4
59.0
373.2
416.8
139.9
363.87
266.5
77.8
OP margin(%)
3.1
4.3
2.1
3.4
6.9
NP margin(%)
0.8
1.4
1.0
1.5
4.3
Note: K-GAAP stand-alone for FY10 and before and K-IFRS parent-based for FY11 and beyond
Mid Small-cap ㅣ Ilyang Pharmaceutical
Possibility exporting technology of new leukemia drug ‘Supect’ to multinational pharmaceutical companies
Ilyang began selling ‘Supect’ from September 1, 2012 after KFDA approval for secondary treatment for leukemia and
registration with the Health Insurance Review & Assessment Service. Supect is excellent in price/efficacy relative
competitiveness since the company set the price of Supect 47% lower than leading Gleevec (W10,667/100mg,
W16,000/200mg).
The company is testing phase III clinical trials for Supect against 240 patients in large hospitals of about 20 Asian countries
including Korea, India, Thailand, Philippine and Indonesia, etc. from last year with the purpose of converting Supect from
the secondary drug category to the primary drug. category.
Supect is a targeted therapy drug. Its phase I & II clinical tests were carried out by Dr. Dongwook Kim, the renown
Hematology professor of St. Mary’s Hospital of Catholic University in Seoul, on patients with high resistance against
Gleevec and other leukemia treatments drugs in nine hospitals in Korea and other hospitals in India and Thailand.
Professor Kim is an authority on hematology for leukemia treatment. He was in charge of the domestic clinical test for
world’s first chronic myelogenous leukemia drug ‘Gleevec’ and Asian first clinical tests for Novartis’ ‘Tasigna’, U.S.
Bristol-Myers Squibb’s ‘Sprycel’ and U.S. Wyeth’s ‘Bosutinib’.
According to the result of phase II clinical test of Supect, evaluation of its effectiveness came out outstandingly as
its 12-month effective rate resulted much higher than 24-month effective rates of Tasigna (nilotinib) and Sprycel
(dasatinib). Supect’s side effects were proved benign or equal to current drugs. Hence, Ilyang is highly likely to
export Supect technology to multinational pharmaceutical companies as early as in 2Q 2013. Last July Thomson
Reuters picked Supect as one of four new promising cancer drugs approved during 1Q 2012.
[Table1]
Results of phase II clinical test for Supect (effectiveness evaluation)
Clinical test for requested drug
Variables of effectiveness evaluation
Clinical test for comparative drugs
Supect (Radotinib)
Tasigna (Nilotinib)
58.00%
48%
Major cytogenetic response (Major CyR)
6-month
6-month
Complete cytogenetic response (Completed CyR)
Sprycel (Dasatinib)
45%
6-month
32.20%
31%
33%
Cytogenetic response (%)
Major CyR
64.90%
12-month
59%
24-month
Completed CyR
62%
24-month
46.80%
44%
47%
Source: Company data, Hanwha Investment & Securities Research
[Fig1]
Gleevec revenue trend
(US$100mn)
50
45
40
35
30
25
20
15
10
5
0
2001
2002
2003
2004
Source: Novartis, Hanwha Investment & Securities Research
2│Research Center
2005
2006
2007
2008
2009
2010
2011
Ilyang Pharmaceutical ㅣ Mid
Small-cap
The company is expected to see Supect sales to reach W1tn at peak if the company can successfully export Supet
of license technology to multinational pharmaceutical companies. In that case, Ilyang’s OP will likely post about
W125bn annually.
Frequency of leukemia is 13 per 100,000 people in a year. Leukemia attacks not only adults but also the children (acute).
Leukemia is also the most expensive cure; so the leukemia drug market is likely to grow sharply. About 60% of
leukemia occurs in Asia.
Gleevec, which is the world’s first leukemia treatment drug, has been growing fast after $200mn revenue in the inaugural
year. Annual average of revenue growth in past five years was 12.2% and its revenue expanded to US$4.6bn in 2011. It
was sold W16.9bn domestically in 2004, the first year of sales. Afterward, its revenue kept increasing by posting W73.3bn
in 2009, W89.0bn in 2010 and about W100.0bn in 2011 despite drug price cut.
The leukemia drugs market is currently about US$5.5bn, but it is likely to expand to over US$10.0bn given growing size
of Asian markets including China and India, etc.
Possibility of revenue expansion and technology export of reflux drug ‘Noltec’
Ilyang Pharmaceutical’s PPI(Proton Pump Inhibitor) drug ‘Noltec’ has low expectations in the market since technology
licensing agreement with TAP and other global pharmaceutical companies was terminated. However, the company
believes Noltec still has a strong revenue potential.
The patent period was extended to 2027 with new type of dosage form (crystal form). Noltec also showed excellent
results in reflux esophagitis compared to competing drugs during phase II clinical test.. Noltec is currently under
development for complex integrated drugs in addition to the existing 10mg and 20mg dosages. They are practicable to
prescribe jointly with erosive gastritis and Plavix, and they are under clinical test of indication for Helicobacter pylori.
In addition, PPI market is large even though PPI drugs are not high growth potential. Previous drugs in the PPI market
make large sales but counter with issue of patent expiration. We believe there must be a lot of needs for licensing Noltec
due to no sequential products or pipeline.
[Fig2]
(%)
100%
Ilaprazole 5mg
Ilaprazole 40mg
90%
60%
50%
(%)
Ilaprazole 20mg
Lansoprazole 30mg
82%
77%
73%
72%
80%
70%
[Fig3]
Noltec’s cure rate for reflux esophagitis
40.0%
85%84%
79%
35.0%
Noltec’s therapy effect for reflux esophagitis (severe)
Ilaprazole 5mg
Ilaprazole 40mg
Esomeprazole40mg(Fennerty)
33.6%
Ilaprazole 20mg
Esomeprazole 40mg(Castell)
77%
31.7%
29.6%
30.0%
60%
55%54%
49%
25.0%
20.0%
40%
18.4%
15.0%
30%
12.1%
9.7%
10.0%
20%
8.3% 8.3%
7.8%
4.3%
5.0%
10%
0%
0.0%
Week 2
Week 4
Note: Results of U.S. phase II clinical test (TAP)
Source: Company data, Hanwha Investment & Securities Research
Week 8
Week 4
Week 8
Note: Results of U.S. phase II clinical test (TAP)
Source: Company data, Hanwha Investment & Securities Research
Research Center│3
Mid Small-cap ㅣ Ilyang Pharmaceutical
Ilyang Pharmaceutical and J&J are jointly marketing Eisai’s Pariet (Rabeprazole) in the U.S. but Pariet’s patent is about to
be expired in May, 2013. The company does not have its sequential drugs, and patent of Astrazeneca’s Nexium will be
also expired in November, 2014. However, there is none of drugs that are under phase II clinical test. Therefore, attention is
more focused in Noltec.
We think technology export to multinational pharmaceutical companies is highly possible given patents expiration of
major products and new crystal form drugs’ U.S. patent acquisition. The company is negotiating with multinational
pharmaceutical companies about technology transfer.
The company approved new drug for reflux esophagitis in September 26, 2012 after completion of phase III clinical test in
domestic. Monthly revenue is sharply increasing after launch of reflux esophagitis drug. Noltec revenue was recorded only
W3.0bn last year, but it is expected to increase substantially to W12.0bn this year on the back of addition of indications for
Helicobacter pylori and erosive gastritis in 2H13. The company is expected to see revenue expansion of W20.0~30.0bn in
domestic.
Focus on expansion of Chinese revenue
Ilyang Pharmaceutical currently has three Chinese subsidiaries, Tonghua Ilyang Limited (45.9% equity owned),
Yangzhou Ilyang Pharmaceutical Limited (52% equity owned), Ilyang Korea-China Trade Limited (60% equity owned).
Tonghua Ilyang Limited is in charge of health tonic drink ‘Wonbi-D’ sales and Yangzhou Ilyang Pharmaceutical Limited is
selling specialized pharmaceuticals. Both companies’ revenue are increasing outstandingly.
Revenue from health tonic drink ‘Wonbi-D’, which contains extract of ginseng and box thorn, is increasing substantially
due to Chinese preference for health. Wonbi-D sales, which marked W25.0bn in 2012, are likely to increase 20% to
W30.0bn this year.
Yangzhou Ilyang Pharmaceutical Limited is even more sharply growing. FY13 revenue is expected to increase 72% to
W44.6bn.
Hence, Chinese revenue posted W58.8bn in 2012 and it will likely to increase to W74.5bn in 2013 and W100.0bn in
2014.
4│Research Center
Ilyang Pharmaceutical ㅣ Mid
Small-cap
Compliance Notice
This report has been prepared without any undue external influence or interference, and accurately reflects the views of the analyst(s) covering the company or companies herein.
(Analyst Heeseong Kim)
As of Mar 19, 2013, neither Hanwha Investment & Securities nor the covering analyst(s) owned any shares, or deb t instruments convertible into shares, of any company covered in this
report.
This report has not been distributed to any institutional investors or third parties prior to Mar 19, 2013.
During the 12 months prior to Mar 19, 2013, Hanwha Investment & Securities had not participated in any securities issuance (including DRs, CBs, and IPOs) by any of the companies
covered in this report.
As of Mar 19, 2013, Hanwha Investment & Securities’ holdings of shares and debt instruments convertible into shares of each company covered in this report would not, if such debt
instruments were converted, exceed 1% of each company’s outstanding shares.
Neither the material nor its content may be altered in any form, or by any means transmitted, copied, or distributed to an other party, without prior express written permission from
Hanwha Investment & Securities. While we have taken all reasonable care to ensure its reliability, we do not guarantee its ac curacy or completeness. This report is not intended to be an
offer, or a solicitation of any offer, to buy or sell the securities mentioned herein. Hanwha Investment & Securities shall not be liable whatsoever for any loss, direct or consequential,
arising from the use of this report or its contents.
Investment ratings (six-month based)
Company
Buy
Outperform
Marketperform
Underperform
N/R
Expected to return more than 20% vs market over next 6 months
Expected to return 10%~20% vs market over next 6 months
Expected to return -10%~+10% vs market over next 6 months
Expected to lose more than 10% vs market over next 6 months
Not rated
Industry
Overweight
Neutral
Underweight
International Sales Contacts
Head of Global Business
Richard Kim
[email protected]
Fund Placement Service
Richard Kim
[email protected]
+82 2 3772 7410 (direct)
+82 10 5281 8033 (cell)
+82 2 3772 7410 (direct)
Sales Trading
Minju Park
[email protected]
+82 2 3772 7461 (direct)
+82 10 9548 2048 (cell)
+82 10 5281 8033 (cell)
Operations
Sam Han
[email protected]
+82 2 3772 8003 (direct)
+82 10 3181 5210 (cell)
Research Coordinator
Seungeun Lee
[email protected]
+822 3772 7481 (direct)
+82 10 7454 2079 (cell)
Research Coordinator
JB Im
[email protected]
+82 2 3772 8007 (direct)
+82 10 4899 2534 (cell)
Research Center│5