[Edaily Reporter KIM SAE-MI ] PharmaResearch(214450)is accelerating its mergers and acquisitions (M&A) and overseas business expansion, leveraging its strong earnings growth. Although some subsidiaries continue to post losses and see their book values decline, attention is focused on the future results of M&A investments, as the company has once again identified “M&A on a meaningful scale” in the medical aesthetics sector as a key growth strategy.

According to the Financial Supervisory Service’s electronic disclosure system on the 24th, Medicon, a medical device company whose management rights were acquired by PharmaResearch in 2021, was in a state of complete capital impairment as of the end of the first half of this year. With assets totaling approximately 5.5 billion won and liabilities totaling approximately 5.8 billion won, its total capital stood at -288 million won. The company also posted a net loss of approximately 2.2 billion won in the first half of this year.

PharmaResearch invested approximately 10 billion won to acquire a stake in Medicon in 2021. On PharmaResearch’s separate financial statements, the book value of its investment in Medicon fell from 700 million won at the end of last year to 0 won as of the end of June this year. This reflects an equity method loss of approximately 700 million won resulting from Medicon’s poor performance in the first half of the year.

The fact that the book value is 0 won does not mean that Medicon’s corporate value has completely disappeared or that the entire investment has been lost. However, given that the book value of the investment asset on the parent company’s separate financial statements has been depleted due to cumulative losses since the acquisition, this can be viewed as an indicator of the investment’s performance to date.

Despite this situation, PharmaResearch held a board meeting on April 13 and approved a loan to Medicoson. The actual amount lent to Medicoson in the first half of the year was 3 billion won, equivalent to 30% of the amount invested in the 2021 equity acquisition. While this is intended as additional support to normalize operations, it remains to be seen whether earnings will recover and whether the loan will be repaid.

Some Subsidiaries Continue to Post Losses… “Strategic Investments to Secure Technology and Capabilities”

Apart from Medicon, some new business subsidiaries have not yet entered the stage of generating substantial profits. The total initial acquisition cost for the four companies—Medicon, Pluto, Turing Bio, and PHARMARESEARCH SG CO., LTD.—amounts to 25.1 billion won. The combined book value of the investment shares in these companies, based on separate financial statements as of the end of the first half of this year, is approximately 2.6 billion won.

It is difficult to interpret this discrepancy as an immediate loss on investment, as book value does not reflect the current market value of the companies or the actual amount that can be recovered from the investment. PharmaResearch maintains that these investments were strategic moves aimed at securing technology and business capabilities linked to its core business, rather than mere equity investments intended to generate financial returns.

A PharmaResearch official emphasized, “We invested in Pluto to secure capabilities in developing human and animal therapeutics, in Medicon to develop medical equipment, and in Turing Bio to develop digital therapeutic devices,” adding, “We must consider not only the financial performance of individual subsidiaries but also the medium- to long-term synergies generated by integrating the technologies and personnel these companies possess into PHARMARESEARCH BIO’s business.”

The fact that all four companies posted losses in the first half of this year remains a challenge to be addressed. The total net loss amounted to 5.6 billion won, broken down as follows: △Medicoson 2.2 billion won, △Pluto 1.3 billion won, △Turing Bio 1.0 billion won, and △PharmaResearch SG CO., LTD. 1.1 billion won.

Some impairment of goodwill recognized during the M&A process also occurred. On a consolidated basis, cumulative goodwill impairment losses increased from approximately 2.6 billion won at the end of last year to 3.5 billion won as of the end of June this year. In particular, the approximately 800 million won in goodwill remaining at the end of last year related to the Singaporean healthcare service provider Alpha Omega Medical was fully impaired during the first half of this year.

Not all of PharmaResearch’s investments in subsidiaries have been lackluster. PHARMARESEARCH BIO, which operates the botulinum toxin business, and the sales subsidiary PharmaResearch Medicare, among others, are delivering solid results. Ultimately, since performance varies from investment to investment, analysts say it is necessary to monitor whether tangible results emerge for each business segment.

This Time, M&A to Strengthen Core Business… Synergy in Medical Aesthetics Is Key

The M&A initiatives PharmaResearch plans to pursue going forward differ in nature from its previous investments in new businesses. The company previously announced, as part of its plan to enhance corporate value this year, that it would review and pursue “M&A of a meaningful scale” in the domestic and international medical device and cosmetics manufacturing and distribution sectors. The focus is on strengthening production, distribution, and the product portfolio in the medical aesthetics sector, which has significant overlap with its existing businesses.

In June, the company established PharmaResearch Frontier, a wholly-owned subsidiary responsible for managing its U.S. operations, and invested 24.7 billion won in it. That same month, it also signed an agreement to acquire CG USA, a U.S. cosmetics manufacturer. The specific acquisition price for CG USA was not disclosed.

PharmaResearch has ample capacity for additional investment, holding 220.3 billion won in cash and cash equivalents alone on a consolidated basis at the end of the first half of the year. How effectively the company can utilize cash generated from its core business to strengthen its overseas distribution networks, production capacity, and product competitiveness is expected to be a key evaluation criterion for future M&A activities.

According to the company, the Pharmaresearch board’s review of internal regulations regarding fund management earlier this year was part of the process of considering how to utilize its increased cash reserves.

At the February 4 board meeting, the “Motion to Approve Regulations on Investment Operations and Risk Management” and the “Motion to Approve Asset Allocation and Investment Limits” were tabled. Both motions were rejected due to opposition from all attending directors. At the time, the board determined that “further review and refinement are needed regarding the purpose of fund management, criteria for managing risky assets, and the decision-making framework.”

The company explained that the agenda items were not directly related to the review system for M&A or investments in subsidiaries. A PharmaResearch official stated, “These items were proposed as part of the process to establish internal regulations and standards to manage the company’s funds more systematically,” adding, “Although we had considered ways to secure excess returns through fund management at the time, we have decided not to prioritize these items at present, taking into account market volatility and other factors.”

The spokesperson continued, “The proposal was rejected at the time because opinions were raised that the objectives of fund management and the decision-making framework needed to be refined in greater detail,” and added, “Since the specific investment limits and scope of risky assets constitute internal standards for fund management and risk management, it is difficult to disclose the details.”

Director Jeong Rae-seung, ‘Head of Investment Strategy’… Future M&A Performance in the Spotlight

In future M&A processes, the role of Director Jeong Rae-seung, who oversees the formulation and review of

investment strategies

, is expected to grow. Director Jeong is the son of Chairman Jeong Sang-soo, the company’s founder and largest shareholder, and joined PharmaResearch early last year.

After graduating from the Korea University Business School (MBA), Director Jeong worked as an investment analyst at Albatross Investment. He currently oversees the formulation and review of investment strategies at PharmaResearch while also serving as CEO of the gaming company Pixelity.

However, the company has made it clear that existing investments—including those in Medicon, Pluto, Turing Bio, and PharmaResearch SG CO., LTD.—were made before Director Jeong assumed responsibility for investment strategy at PharmaResearch. This is based on the premise that it is difficult to directly link the performance of these existing investments to Director Jeong’s investment decisions.

The true test of Director Jeong’s investment capabilities will be the upcoming M&A deals. Since the M&A deals currently under review by PharmaResearch are focused on strengthening its medical aesthetics capabilities—an area closely tied to its existing business—the key will be whether these efforts translate into tangible results, encompassing not only the selection of investment targets and the determination of appropriate enterprise value but also post-merger integration (PMI) and the creation of synergies with the existing Rejuran business.