[Edaily Reporter KIM SUNG-JIN ] SKCHEMICALS ( SKCHEMICALS(285130)), which had previously focused on importing and selling third-party pharmaceuticals, is now shifting its efforts toward new drug development, leading to significant changes in its profitability. Operating profit, which stood at around 6% last year, has dropped sharply to 2% in just one year. This reflects SKCHEMICALS’ recent business strategy to increase research and development (R&D) spending, and attention is now focused on whether this strategy—sacrificing immediate profits to invest in future growth—will prove successful.
R&D Spending Increased… Operating Profit Margin Drops from 6.5% to 2.5%According to industry sources on the 14th, SKCHEMICALS’ pharmaceutical business posted second-quarter revenue of 133.5 billion won and operating profit of 3.3 billion won this year. While revenue increased by 4.8% compared to the same period last year, operating profit actually plummeted by 60.1%. Consequently, the operating profit margin, which had stood at 6.5%, dropped by 4 percentage points (p) to 2.5%.
A source familiar with SKCHEMICALS’s internal affairs explained, “In the past, the business of distributing and selling externally sourced drugs alone generated an operating profit margin of around 10%, but as profitability has declined in recent years, the company’s strategy has shifted toward developing new drugs.” The source added, “Since last year, we have been pursuing new drug development in collaboration with external pharmaceutical companies, and this decline in profit margin is due to increased R&D spending.”
Of course, this does not mean SKCHEMICALS lacks products developed in-house. “Joins,” a treatment for osteoarthritis, is a new natural-product-based drug developed in-house by SKCHEMICALS in 2001; its cumulative sales surpassed 700 billion won in February of this year. “Ginexin,” a blood circulation enhancer based on ginkgo biloba extract, is also one of the company’s core in-house products. However, the majority of the 63 products currently sold by SKCHEMICALS consist of externally sourced pharmaceuticals.
In fact, SKCHEMICALS’ report for the first half of this year shows that since the 2020s, its business strategy has been dominated by licensing agreements rather than new drug development. The company signed an exclusive domestic sales agreement with Italian pharmaceutical firm Italpharmaco for “Teglutic,” a treatment for Lou Gehrig’s disease (amyotrophic lateral sclerosis), and also introduced the migraine medication “Suveks” through a partnership with Mirabo Healthcare. Contracts with domestic pharmaceutical companies were also actively pursued. In collaboration with Yuhan, one of Korea’s leading pharmaceutical companies, the company launched “Telamclo Tablets,” a combination hypertension treatment. In addition, the company has reportedly signed contracts with Korea United Pharm. Inc., SAM CHUN DANG PHARM CO. LTD, and DongwhaPharm, among others.
Accelerating New Drug DevelopmentSKCHEMICALS shifted its business strategy from importing external drugs to developing new drugs starting late last year. Looking at the “Other Contracts” category within the pharmaceutical business’s major R&D activities, it is reported that three joint research agreements were signed consecutively from late last year through the first half of this year.
Starting with a joint research agreement signed with Adpharma last October, the company signed a memorandum of understanding (MOU) with NextGen BioScience in February of this year to jointly identify new drug candidates. The company plans to focus its development efforts on disease areas where treatment options are limited. NextGen BioScience, established in 2018, is a biotech company developing treatments for autoimmune and fibrotic diseases.
This expansion of R&D collaboration is leading to an increase in R&D expenses. SKCHEMICALS’ R&D spending in the first half of this year totaled 24.1 billion won, a 12.6% increase from the 21.4 billion won spent in the same period last year. This trend becomes even clearer when viewed over the past five years. R&D expenses, which stood at 38.3 billion won in 2021, have risen steadily each year, reaching 48.5 billion won last year. Since these R&D expenses cover both the pharmaceutical and chemical businesses, it is not possible to isolate the specific R&D costs for the pharmaceutical division. However, given the recent increase in R&D collaborations, this trend suggests that R&D expenses are likely to continue rising.
While R&D expenses are sometimes recognized as intangible assets when they are deemed to have a high potential for future revenue generation, SKCHEMICALS is known to expense all such costs. An industry insider explained, “Companies that take a conservative view of future revenue potential often expense all R&D investments.”
Taking on the Challenge in the MASH Treatment Market
As SKCHEMICALS accelerates its in-house new drug development, attention is focusing on its future prospects for success. In particular, the results it achieves in developing a MASH treatment—which has recently garnered significant attention both domestically and internationally—are expected to have the greatest impact on its future performance.
MASH is a chronic liver disease characterized by the accumulation of fat in the liver, leading to inflammation and fibrosis. While there had been no definitive treatment until now, the entire market has heated up following the successive approvals by the U.S. Food and Drug Administration (FDA) of “Rezdipra” (rezmetirom) from Madrigal Pharmaceuticals and “Wegovy” (semaglutide) from Novo Nordisk. The number of patients worldwide is estimated at 450 million, and according to market research firm GlobalData, the market is projected to reach 36 trillion won by 2029.
However, competition is intensifying accordingly. In particular, since “Wegovy”—a GLP-1 agonist originally developed to treat obesity and diabetes—has already been approved as a MASH treatment, major pharmaceutical companies that were developing obesity drugs are now jumping into this competition.
Domestic pharmaceutical companies are also accelerating the development of MASH treatments. HanmiPharm(128940)In addition to Epinopegduotide, for which it has licensed the technology to MSD, the company is currently developing Eposipegtrutide in-house. Eposipegtrutide is a triple-action new drug that simultaneously activates the glucagon receptor—which increases the body’s energy metabolism—and the GLP-1 and gastric inhibitory peptide (GIP) receptors, which aid in insulin secretion and appetite suppression. It is currently undergoing a global Phase 2b clinical trial. In addition, Yuhan(000100), D&D Pharmatech Inc.(347850), and TRUEN Co., Ltd. are also major companies engaged in the development of MASH treatments.
The MASH treatment being developed by SKCHEMICALS is distinguished by a mechanism of action that differs from those of products currently in development by competitors. While pipelines being developed by companies such as HanmiPharm, D&D Pharmatech Inc., and Yuhan—including products like Wegovy and Mounjaro—target GLP-1 and glucagon, SKCHEMICALS’ MASH treatment candidate, J2H-1702, is a drug that inhibits 11β-HSD1, an enzyme that regulates cortisol metabolism. In short, it treats MASH by regulating cortisol overactivity. Cortisol is a hormone involved in blood glucose levels, fat breakdown, and inflammatory responses; however, it is known to promote fat accumulation when secreted in excess.
