Korea Biomedical Review is publishing a series of articles to analyze the top 10 Korean pharmaceutical and biopharma companies with the largest market capitalizations listed on the main bourse, Kospi, and the tech-heavy Kosdaq. The series aims to reflect key industrial issues and the flow of the capital market in the Korean pharmaceutical and biopharma industry. This is the seventh installment. -- Ed.

Industry watchers are closely watching if SD Biosensor will be able to continue its growth this year.

The company has recently confirmed that its operating profit decreased by nearly 10 percent in 2022 compared to the previous year.

In a public filing on Feb. 20, SD Biosensor said it posted preliminary consolidated sales of 2.92 trillion won ($2.21 billion) in 2022, a 0.1 percent decrease from the previous year.

While the sales decline was not drastic, the company's operating profit and net profit in 2022 were 1.25 trillion and 992.6 billion won, down 9.4 and 8.8 percent year-on-year.

Although SD Biosensor managed to achieve annual sales similar to that of the previous year, the drop in operating profit signals that it is also not free from the global Covid-19 situation calming down.

Notably, the company suffered a sharp drop in operating profit in the fourth quarter of last year, recording its first loss since listing.

SD Biosensor's fourth-quarter sales were 193.8 billion won, down 56.3 percent compared to the same period in 2021. The company also reported an operating loss of 4.3 billion won, down 103.4 percent from the previous year.

Such poor performance is attributed to plunges in sales of its Covid-19 diagnostic kits, which used to be a growth driver, in the second half of 2022.

Since August last year, SD Biosensor has not had a large-scale supply contract subject to a public filing.

"Operating profit temporarily decreased in the fourth quarter due to the reflection of losses on the translation of foreign currency reserves due to the weakening of won against the dollar and the incurrence of advisory fees for the M&A of Meridian Bioscience in the U.S.," the company said.

SD Biosensor turns to M&A and Standard M10 for future growth

Despite turning to a loss for the first time in the fourth quarter, the company continued with its M&A strategy to secure future growth, with SD Biosensor recently announcing its acquisition of MIRERO Corp., an in vitro diagnostics distributor in Panama, for 11.4 billion won on Feb. 20. 

With this acquisition, SD Biosensor has secured direct sales systems in North America (Meridian Biosciences), South America (ECO Diagnóstica), and Central America (MIRERO).

SD Biosensor stressed that it believes that by accelerating its overseas expansion through M&A, it will be able to secure new growth engines and expand its portfolio by using cash assets secured during the pandemic.

The company also expects that it will Standard M10, SD Biosensor's next-generation growth engine product that maintains the high accuracy of polymerase chain reaction (PCR)  test and the convenience of rapid antigen test, will lead sales growth moving forward. 

The product reduces the inspection time from several hours to a day to less than an hour and enhances user convenience with a simple method of use.

M10 has a variety of disease test menus, including not only Covid-19 tests, flu,respiratory syncytial virus (RSV), and Covid-19 simultaneous tests, tuberculosis, cervical cancer, and enteritis, all of which have received CE certification.

Local analyst agrees on future prospects but expects hardship in 2023

A local analyst agreed.

"SD Biosensor presented the clearest post-Covid-19 strategy among diagnostic companies that benefited from Covid-19 through its M&A strategy," said Han Song-hyeop, an analyst at Daishin Securities, said. "With the company's Standard M10 reaching 30 percent of the global on-site diagnostics market share and the company's full-fledged plans to enter the U.S. diagnostics market through Meridian, I believe the company will be able to show earnings growth visibility from 2024."

However, Han stressed that he expects SD Biosensor will see negative growth this year due to the Covid-19 pandemic entering an endemic stage.

As a result, Han stressed that while his brokerage maintained a "Buy" opinion for SD Biosensor, it lowered the target price from 48,000 won to 35,000 won.