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 fourteenth installment. -- Ed.

Medytox, one of Korea’s leading botulinum toxin makers, once enjoyed a large market capitalization five years ago -- with its market cap exceeding 4 trillion won ($3 billion) at one point in 2018. 

However, the company's stock price has been sluggish for a long time due to fierce domestic competition, licensing issues, and a protracted legal dispute with Daewoong Pharmaceutical.

During that time, the company's operating profit margin, which was once 60 percent, was reduced to half due to market share competition from competitors in the domestic market.

In 2020, the company posted an operating loss of 36 billion won, and its market cap plunged below 500 billion won.

Early this year, however, the company began to show new momentum with overseas expansion, which has led to doubling its market cap from 912.7 billion won on Jan. 16 to 1.795 trillion won on Wednesday.

This increase in market cap is partially attributed to the company's moves to expand into international markets.

In January, the company signed a memorandum of understanding (MOU) with Dubai Science Park, owned by Tecom Group, a state-run company in Dubai, to build a factory for finished BTX products in Dubai.

If the deal is finalized, Medytox will become the first Korean company to build a BTX finished product factory overseas.

The company has been upgrading its manufacturing facility in preparation for a U.S. FDA filing for a new drug application for MT10109L, a non-animal liquid formulation of botulinum toxin, later this year. 

MT101091 is a non-animal liquid toxin formulation developed by Medytox. Its competitive advantage is that it resolves safety and dosing issues of powdered products, which currently occupy most of the market.

Series of victories in legal battles

However, the company's biggest news is that it has won back-to-back lawsuits against Daewoong Pharmaceutical.

First, the U.S. International Trade Commission (ITC) case against Daewoong, spanning over five years, reached a settlement last year.

The company had been spending tens of billions of won a year on legal fees for ITC proceedings, which had taken a toll on the company's performance. However, as the case was decided in Medytox's favor, Medytox decided to grant Evolus the right to continue selling and distributing Nabota (U.S. product name: Jeuveau) in the U.S. in exchange for a certain amount of cash and stocks.

It also agreed to receive royalties on international sales of Nabota.

Following this victory, Medytox also recently won a civil lawsuit against Daewoong in Korea.

In February, the lowest court ruled in favor of Medytox in a civil lawsuit involving Medytox and Daewoong regarding the source of the latter's BTX strain.

The Seoul Central District Court ruled in favor of Medytox in the lawsuit filed by Medytox against Daewoong Pharmaceutical and Daewoong Co., including the prohibition of infringement of trade secrets, and ordered Daewoong to compensate for damages of 40 billion won ($31.6 million), turn over Daewoong's BTX strain to Medytox, and discard all finished BTX products made with the strain.

Although the verdict is not yet finalized, as Daewoong has decided to appeal, industry observers believe Medytox is well-positioned in the litigation battle with back-to-back victories.

Separate from the Daewoong case, Medytox is currently pursuing a case at the U.S. ITC against the origin of Hugel's strain.

In this case, however, Medytox has retained law firm Quinn Emanuel Urquhart & Sullivan LLP, an investment firm specializing in global litigation and dispute resolution.

Medytox stands to benefit from the arrangement as the investment firm specializing in global litigation and dispute resolution will cover the litigation expenses on behalf of the involved parties. In the event of a successful outcome, the firm will receive a percentage of the awarded amount, relieving Medytox of any financial burden and positively impacting the company's performance.

Still, some litigation concerns remain.

Gentix Limited, a subsidiary of its Chinese business partner Bloomage Biotechnology, had filed a claim for damages against Medytox for contract violation with the Singapore International Arbitration Center (SIAC) in January.

Gentix claimed that there were problems with the terms of the joint venture contract and filed a claim for 118.8 billion won in damages.

Medytox established Medibloom China, a joint venture with Bloomage Biotechnology, in 2016. Medytox, which invested 7.2 billion won, believes that there are no violations of the contract and is responding through its legal representatives.

Enhancing cosmetics portfolio for diversification

Medytox is focusing on diversifying its business.

In March, Medytox entered the derma-cosmetics market by significantly strengthening the new product lineup of its derma-cosmetics brand Neuraderm.

Neuraderm is a cosmetics brand based on M.Biome, a technology developed by Medytox researchers. It was launched in 2020 to improve the sales structure that was biased toward Meditoxin, the company's BTX product.

Despite the lack of significant results from its cosmetic lineup thus far, Medytox has taken proactive steps to capitalize on the expanding derma cosmetics market. 

In July last year, Medytox established a new “biobeauty” division to strengthen its new business and hired Kim Mi-sung, a cosmetics expert who has worked at Estée Lauder and Yuhan-Kimberly, as the division head.

Since then, Medytox has significantly strengthened its new product lineup to grow sales, and in March, it launched a major renewal of its Clinic Derma lineup, which consists of products exclusively for hospitals and clinics, and the Basic Derma lineup, a basic cosmetic product that minimizes irritating skin ingredients for daily skincare.

Medytox plans to continue to strengthen its product lineup and target the global derma beauty market with Neuraderm. It has set sales targets of 50 billion won in five years and 100 billion won in seven years.

However, as the derma-cosmetics market has fierce competition, industry watchers believe it may be difficult for Medytox to achieve results as a latecomer.

"While Medytox has been trying to diversify its revenue, as botulinum toxin drugs and fillers such as Medytoxin account for 87 percent of its sales, its performance has been minimal, with zero sales in the three years since its launch,” an industry watcher told Korea Biomedical Review. “As a result, it remains to be seen if the company will be able to achieve any significant results through its restructuring process.”

Analyst maintains 'strong buy' for Medytox despite plunge in Q1 operating profit

Medytox worried investors in May when it reported first-quarter earnings that fell short of market expectations, even though its market cap increased significantly from January.

Medytox reported consolidated revenue of 42.7 billion won for the first quarter of 2023, a 7.3 percent increase from the same period a year earlier.

Also, the company's domestic and overseas filler business increased by more than 20 percent compared to the last quarter, and sales of Coretox, a BTX preparation that began full-scale mass production last year, also expanded.

However, operating profit declined significantly in the first quarter to 1.8 billion won, down 67.7 percent compared to the previous quarter.

The company said the decrease in operating profit was due to the fact that it has been upgrading its manufacturing facility to apply for a new product license for MT10109L to the FDA this year and a one-time fee regarding the recent domestic lawsuit with Daewoong.

The decline in operating profit was also attributed to an increase in selling, general and administrative expenses from 19.2 billion won to 22.5 billion won as the company actively engaged in marketing to expand new businesses such as derma cosmetics.

However, rather than focusing on the significant drop in operating profit, an analyst strongly recommended Medytox stock, saying that the drop in profitability is the result of one-time payment and preemptive measures to secure mid to long-term growth.

"The issues of increased commission and routine maintenance at plant 3, which contributed to weaker profitability in the first quarter, have been resolved," said Lee Dong-gun, an analyst at SK Securitas. "In addition, as domestic Coretox sales continue to grow stronger every month, the operating leverage effect of sales growth can be expected."

Although the first quarter results were disappointing, SK Securities believe that earnings concerns are unnecessary as most of the reasons for the weakness in profitability are one-off issues, he added.

Lee said that, on the contrary, his brokerage maintains a positive view as important investment points have not changed, such as the launch of Newlux, the company's newest BTX product, in Korea in the second half of the year and commercialization possibility of BTX products in China, the U.S., and the Middle East continue to remain.

Against this backdrop, Lee said that his brokerage maintains its Buy rating and a price target of 410,000 won for Medytox.