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 ninth installment. -- Ed.

Chong Kun Dang is one of Korea's traditional pharmaceutical companies that have been posting solid earnings in recent years.

In 2020, the company reported a steep sales growth of 20.7 percent when its revenue hit 1.3 trillion won ($1 billion). Its operating profit was 123.9 billion won, making it the only traditional Korean pharmaceutical company to break the 100 billion won mark in that year.

Last year's earnings were also record-breaking, with sales and operating profit posting 1.5 trillion won and 109.9 billion won, respectively, up 10.8 percent and 16 percent from the previous year.

In particular, the company’s 2022 earnings were robust despite the fact that the company had invested more than 181.4 billion won in R&D last year, industry watchers said. 

Chong Kun Dang said it planned to increase its corporate value through new drug R&D investment.

The company has 25 drugs in its pipeline, including incrementally modified drugs (IMDs).

Among them, treatments such as CKD-510 (Charcot-Marie-Tooth treatment), CKD-506 (idiopathic pulmonary fibrosis treatment), CKD-508 (dyslipidemia treatment), and CKD-702 (non-small cell lung cancer treatment) are receiving attention from the market.

The company is also expanding its pipeline for biosimilars. The company exports Nesbell, its first biosimilar for treating anemia, in Southeast Asia and the Middle East.

The company scored the regulatory nod for CKD-701, a Lucentis biosimilar, which treats various ophthalmic diseases, in October 2022. It plans to launch the treatment in Southeast Asia and the Middle East markets soon.

Despite spending big on R&D, Chong Kun Dang was able to report strong earnings thanks to an uptick in its prescription drug business, analysts said.

Notably, in the fourth quarter of last year, the company posted sales and operating profits of 397.1 billion won and 18.6 billion won, up 9.7 percent and 165 percent from the same period in 2021.

Co-marketed products such as HK inno. N's K-CAB, a gastroesophageal reflux drug, and Amgen's Prolia, an osteoporosis drug, helped drive growth.

Sales of K-CAB and Prolia recorded 32.5 billion won, and 23.9 billion won in the fourth quarter, up 4 percent and 8 percent from the same period in 2021.

Also, the company's own treatments, such as neurodegenerative and vascular disease treatment Gliatirin (22.2 billion won), hypertension drug Dilatrend (13.3 billion won), immunosuppressant Tacrobell (11.3 billion won), and cardiovascular disease treatment Lipilou (6.7 billion won) also contributed to the company's growth.

However, Januvia, MSD's diabetes drug that Chong Kun Dang co-markets, did not perform well. Its sales in 2022 reached 33.6 billion won, down 15.4 percent from last year.

This is because MSD Korea voluntarily reduced the price of 15 drugs, including Januvia (down 6 percent), to expand the coverage of the Keytruda, resulting in a decrease in the demand for distribution inventory and lower sales than last year.

Meanwhile, Chong Kun Dang's sales for 2023 are expected to reach 1.6 trillion won, up 7.6 percent from last year, and operating profit is expected to reach 120 billion won, up 9 percent, according to an analyst at Kiwoon Securities. 

Analysts show mixed expectations for Chong Kun Dang's growth this year

Kiwoom Securities raised its target price on Chong Kun Dang’s stock as it believed that the company's pipeline was still relatively undervalued, while KB Securities lowered its target price with a downward revision to future earnings estimates.

Kiwoom Securities analyst Huh Hye-min said her brokerage maintained a "Buy" opinion on the company and raised the target price from 95,000 won to 110,000 won.

"While the company is a large domestic pharmaceutical company with an operating income of more than KRW100 billion, it is valued as a small- and medium-sized pharmaceutical company due to less R&D momentum," Huh said. "The stock is undervalued relative to its R&D pipeline, including the domestic launch of indigenous Lucentis similar, phase 1b of dual anti-cancer antibody CKD-702, and preclinical development of antibody-drug conjugates (ADCs)."

The full revenue contribution from new products, such as the highly profitable G-Tec, an acute and chronic gastritis treatment, will be reflected from next year, Huh added.

In contrast, KB Securities, while maintaining a "Buy" opinion, slightly lowered its price target on Chong Kun Dang from 115,000 won to 110,000 won.

"We changed our equity risk premium and the risk-free rate of return for 2023 to 5.41 percent and 3.32 percent, respectively, and lowered our future earnings estimates," said Kim Tae-hee, an analyst at KB Securities. "More meaningful R&D performance is needed to increase the company's value."