[Edaily Reporter KIM SAE-MI ] Caregen Co.,LTD.(214370)has recently announced a series of overseas supply contracts worth hundreds of billions of won. However, given that many of its past major supply contracts ended with low fulfillment rates upon expiration, some observers point out that it is necessary to examine how much of the recent contracts will actually translate into revenue. In particular, a supply contract with Saudi Arabia worth 240 billion won—which still has time remaining—has shown a fulfillment rate of only around 1 percent, even nine years after it was signed.

Fulfillment Rate for Terminated Contracts at 42.8%… Only 1.2% Fulfilled for Ongoing Contracts

Farm E-Daily reviewed Caregen Co.,LTD.’s disclosures on overseas supply contracts from 2016 through last month and found that out of 39 supply contracts, 16—or approximately 41%—were terminated. While the total initial contract value of the terminated contracts was 128.8 billion won, the actual amount fulfilled was only 4 billion won, or 3.1%.

There were also cases where the contract amount was revised, even if the contract itself was not terminated. When combining all contracts that were concluded—including those with fulfillment rates exceeding 100%—153.6 billion won out of a total contract value of 358.5 billion won was actually fulfilled. This brings the overall fulfillment rate to just 42.8%.

The problem is that this low fulfillment rate is not limited to past contracts that have already ended.

In July 2017, Caregen Co.,LTD. signed a 10-year exclusive supply contract worth 241.1 billion won with Saudi Arabia’s Saudi Centre for Pharmaceuticals (hereinafter RONESCA) for the blood sugar-regulating food Deglusterol, as well as skincare and haircare products. The contract term runs until July 31 of next year. At the time, the contract value amounted to 514.7% of the company’s consolidated revenue for 2016. It is also noteworthy that Deglusterol, one of Caregen Co.,LTD.’s core products, is included in this contract.

According to the semi-annual report, the cumulative amount fulfilled under this contract amounted to only 2.9 billion won. The fulfillment rate stands at 1.2% of the original contract value, meaning 98.8%—amounting to 238.2 billion won—remains unfilled. Considering that only about 10 months remain until the contract expires, it is uncertain whether the company will be able to fulfill the majority of the contract value within the remaining period.

Consequently, there have been repeated instances leading to sanctions for inadequate disclosure. The company has been designated as a company with inadequate disclosure (9 cases) or received a notice of such designation (1 case) due to the termination of supply contracts or significant changes to contract amounts. On June 29, the Korea Exchange designated Caregen Co.,LTD. as a company with inadequate disclosure for these reasons and imposed three penalty points on the company.

Among Caregen Co.,LTD.’s supply contracts, at least 17 cases had a final fulfillment rate of less than 50%, and at least 13 cases had a fulfillment rate of less than 10%. This means that a significant number of past large-scale overseas supply contracts did not translate into actual sales.

Extending Terms and Expanding Regions Despite Low Fulfillment Rates… Insisting on Non-Binding Contracts

The grounds for contract termination were mostly the counterparty’s failure to fulfill its obligations. The company has consistently maintained that Caregen Co.,LTD. was not at fault and suffered no losses whenever a contract was terminated. However, there were instances where, even after low fulfillment rates were confirmed, the company extended contract terms or expanded sales regions with certain partners.

For example, in the case of MSLP QUADRIFOGLIO S.A., despite a fulfillment rate of only 0.28%, the sales territory was expanded from Argentina and Uruguay to include Chile, and the contract term was extended by five years until the end of 2026. Caregen Co.,LTD. subsequently terminated the contract last May due to the counterparty’s failure to fulfill major contractual obligations. The final fulfillment rate stood at just 0.35%.

Caregen Co.,LTD.’s low fulfillment rates on supply contracts have long been cited as a chronic problem. Nevertheless, Caregen Co.,LTD. continues to enter into long-term, exclusive regional distribution agreements for overseas supply contracts—which feature minimum order quantities (MoQ)—while adhering to a non-binding contract structure that lacks legal enforceability.

The company maintains that the low fulfillment rates in past contracts were not due to the non-binding nature of the agreements, but rather to the failure to secure local product registration and sales conditions.

A Caregen Co.,LTD. official explained, “In a situation where local registration has not been secured or the conditions for sales have not been established, it is difficult for actual transactions to occur, even if the cooperative relationship between the two companies is strengthened,” adding, “In almost all cases where the transaction amount fell short, it was because local registration was not secured or the necessary conditions were not met.”

The official continued, “Since peptides are substances that are unfamiliar to the market, and many countries view them as entirely new substances, we encountered significant difficulties when first attempting product registration and sales.” He added, “Once registration proceeds smoothly, there is no reason we cannot supply the products.”

Critics point out that even this explanation is unlikely to serve as a valid defense. A medical device industry official noted, “Handling local product registration and regulatory approvals is a core risk in exclusive overseas supply contracts,” and emphasized, “I believe it is the company’s responsibility to verify whether the contracting party has the capacity for registration and can navigate regulatory requirements.”

Given the nature of non-binding contracts—which make it difficult to legally compel the other party to purchase—actual fulfillment inevitably depends heavily on the local partner’s registration progress, sales capabilities, and willingness to place orders. Regarding its partner verification process, Caregen Co.,LTD. responded, “We verify companies directly through in-person meetings on-site and proceed to contract signing through follow-up meetings,” adding, “We also hold video calls regularly.”

Non-binding Contracts:

Announced via Press Releases

Instead of Filings… Verifying Actual Fulfillment Rates Is ‘Daunting’

In fact, there has recently been an increase in cases where non-binding supply contracts are announced solely via press releases without

regulatory filings

, on the grounds that they are not subject to mandatory disclosure. A Caregen Co.,LTD. official stated, “The supply contracts recently announced via press releases are non-binding contracts,” adding, “We can only disclose details such as the amount within the scope permitted by the company.”

While this has reduced the risk of penalties for inadequate disclosures, it has made it more difficult for investors to verify actual fulfillment rates and whether sales have been recognized after the fact. Given the precedent of many large supply contracts in the past ending with low fulfillment rates, it is necessary to examine whether recent supply contracts worth hundreds of billions of won have resulted in actual orders, shipments, and revenue conversion—rather than simply focusing on the total contract value. The fact that these announcements are made via press releases rather than stock exchange disclosures makes it harder to verify the substance of the contracts, which is another concern for investors.

A relatively positive development is the recent increase in revenue from the health functional food business. Caregen Co.,LTD.’s consolidated revenue for the second quarter of this year was 18.8 billion won, of which health functional food sales accounted for 5.5 billion won. This represents a significant increase compared to the 300 million won in health functional food sales recorded in the same period last year. However, this may not necessarily indicate a high fulfillment rate for large-scale, long-term contracts.

It is also worth examining whether sales are actually translating into cash collections. Caregen Co.,LTD. set aside 2.7 billion won in bad debt provisions during the second quarter to reflect geopolitical risks in the Middle East. The company stated that this was not due to a deterioration in the payment capacity of its business partners and reported that it had collected accounts receivable totaling $430,000 (approximately 600 million won) in August.

A representative of Caregen Co.,LTD. emphasized, “Just because it’s a non-binding agreement doesn’t mean it’s meaningless as a supply contract,” adding, “We will communicate as soon as possible once (tangible) results emerge.”