Investors should pay attention to the fact that Daewoong Pharmaceutical is strengthening its R&D capabilities and showing results, an analyst said Tuesday.

Kwon Hae-soon, a Eugene Investment analyst, noted that Daewoong's corporate value had been discounted in the stock market due to its lack of ability to develop new drugs and its relatively weaker R&D pipeline among Korea's top traditional pharmaceutical companies.

However, Daewoong has recently bolstered its R&D, Kwon said.

"The company has succeeded in developing the Fexuclue (fexuprazan), a treatment for gastroesophageal reflux disease (GERD), and Enavogliflozin, a diabetes treatment with an SGLT-2 inhibitor mechanism," Kwon said. "Notably, the company is also developing an idiopathic pulmonary fibrosis (IPF) therapy, DWN12088."

IPF is a lung disease that gradually hardens the lungs and weakens their function due to excessive fibrous tissue. It is a rare and intractable disease with a five-year survival rate of less than 40 percent after diagnosis.

According to Research and Markets, a drug market research institute, the IPF treatment market is expected to reach $6.1 billion by 2030.

Kwon stressed that if the company secures meaningful efficacy data for DWN12088 in the global phase 2 clinical trial planned for September in the U.S. and Korea, it will have an opportunity to receive recognition for its ability to develop new drugs.

"DWN12088 is an oral drug that inhibits the action of Prolyl-tRNA Synthetase (PRS), related to fibrosis, and is known as the first drug developed using this mechanism," Kwon said. "The drug has received U.S. Food and Drug Administration’s fast-track designation on July 19, and the FDA orphan drug designation (ODD) in treating IPF and systemic sclerosis."

The FDA gives fast-track status to speed up the development of important new drugs that could treat severe illnesses and satisfy unmet patients' needs. The fast-track designation allows a company to apply for a license based on completed sections rather than waiting until the FDA's review ends. In addition, it cuts the agency's priority review period from 10 months to six months.

"Based on phase 1 clinical data, completed in Australia in January 2021, the company seems to have secured the safety and tolerability data for the treatment," Kwon said. "The company will likely secure efficacy-related data in the global phase 2 clinical trial and aim to sign a technology transfer during the phase 2 clinical trial."

The analyst noted that if the company licenses out the drug, it may enter the U.S. IPF market, where only two approved drugs exist.

“Two FDA-approved treatments are Ofev from Boehringer Ingelheim and Esbriet from Roche, launched in 2014,” Kwon said. "The two drugs are blockbuster drugs with sales of the two drugs reaching about 3.3 trillion won, and 1.3 trillion won in 2021."

However, side effects include diarrhea, vomiting, and hepatotoxicity, and the treatments do not eliminate the root cause. Kwon added that there is a high unmet medical demand in the IPF treatment market.

Taken together, the analyst said his brokerage maintained a "buy" opinion and target price of Daewoong's shares at 230,000 won.