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 fifteenth installment. -- Ed.

ST Pharm has recently emerged as a core affiliate of Dong-A Socio Holdings thanks to its production of oligonucleotide active pharmaceutical ingredients (APIs) and mRNA technology.

Just five years ago, ST Pharm was a minor player. In 2018, the company posted sales of 97.3 billion won ($74.8 million), and an operating loss of 15.1 billion won. The company suffered a slump because orders from contract manufacturing organizations (CMOs) for raw materials fell.

However, in just over five years, ST Pharm became a major player in the Dong-A Socio Holdings group.

In 2022, the company posted the highest net profit among Dong-A Socio Holdings' affiliates which even surpassed that of Dong-A ST, the group's pharmaceutical unit.

ST Pharm’s sales and operating income totaled 209.27 billion won and 17.85 billion won in 2022, up 50.4 percent and 219.6 percent compared to the previous year, respectively.

The key to ST Pharm's turnaround is its ability to produce oligonucleotide APIs as a contract development and manufacturing organization (CDMO).

In 2018, ST Pharm entered the oligonucleotide API business by constructing a four-story plant in Ansan, Gyeonggi Province.

Through the plant, ST Pharm created a foothold for growth by supplying APIs to global pharmaceutical companies.

For example, the company supplied thymidine, which occupies an important position in the synthesis pathway of DNA, to GSK and BMS, and zidovudine, used for HIV/AIDS drug to GSK.

ST Pharm also supplied APIs for chronic hepatitis B treatment to Novartis, and APIs for the treatment of hepatitis C to Roche.

ST Pharm aims to become the world’s largest oligonucleotide API manufacturer by 2026.

The company is steadily ramping up its oligonucleotide production capacity, which is expected to reach at least 10.2 mole in 2024 and at least 14.0 mole in 2026.

The 14 moles of oligo is equivalent to a minimum of 2.3 tons and a maximum of 7 tons in kilograms.

Revenue growth expected through mRNA proprietary platforms

ST Pharm said it would expand its revenue through its mRNA platform.

Regarding mRNA, the company has developed a few proprietary technologies, such as SMARTCAP and SMARTLNP.

SMARTLNP shows high efficacy, low immune system stimulation, and low liver toxicity compared to Pfizer and Moderna, the company said.

Lipid nanoparticles (LNP) are a key element in mRNA technology.

LNPs are a challenging technology because they protect the mRNA from degradation by small environmental changes and enzymes and help it cross the cell membrane.

Overseas institutions and companies are also paying attention to ST Pharm.

On March 10, ST Pharm's U.S. subsidiary Vernagen signed an agreement with the U.S. Centers for Disease Control and Prevention (CDC) to jointly research and develop a vaccine to prevent the heartland virus.

Symptoms of the heartland virus infection mainly include fever, fatigue, and muscle and joint pain. Some people die from organ failure due to loss of white blood cells and platelets, and the fatality rate is 11 to 13 percent.

Currently, most people do not have antibodies to the heartland virus, and the problem is that there is no vaccine or cure for the heartland virus despite the high risk of infection.

ST Pharm also signed a 17.7 billion won contract with a U.S. biotech to supply lipids, a key raw material for the construction of mRNA-LNPs.

12 securities firms issue ‘buy’ for ST Pharm

Analysts are also optimistic about ST Pharm's future.

In May alone, 12 securities firms issued buy ratings on the stock, with prices ranging from 110,000 won to 120,000 won.

On Wednesday, the company’s shares closed at 76,800 won, down 1.16 percent from the previous day.

All analysts at the 12 brokerages noted that while the company's first-quarter business report was below consensus, the company's prospect was bright.

"St Phram's first quarter consolidated sales and operating profit was 50.6 billion and 3.7 billion won, an increase of 37 percent and 591.2 percent compared to the previous year, which was both below consensus," said Kang Ha-na, an eBest Investment & Securities analyst. "The main drivers of the missed expectations were higher losses from consolidated subsidiaries and higher R&D expenses."

However, the key takeaway from the first quarter results is that the company has already achieved 81 percent of its 2022 annualized revenue with its first quarter order, Kang added.

Kang also stressed that she expects that sales of LNP and mRNA, the main components of the mRNA platform, will increase in earnest.

Kiwoom Securities analyst Huh Hye-min agreed.

"The first-quarter results were slightly below expectations due to weak performance of consolidated subsidiaries and higher selling, general and administrative expense (SG&A) and R&D expenses at ST Pharm, but it is positive that the high-margin oligonucleotide manufacturing business and mRNA divisions continued to perform well," Huh said.

In the first quarter alone, the company recorded oligonucleotide orders totaling 118.3 billion won, of which the estimated production value is about 75 billion won this year and about 43 billion won next year, Huh added.

Huh stressed that she expects ST Pharm's sales and operating profit for 2023 will reach 291.6 billion won and 30.3 billion won, a 17 percent and 70 percent increase from this year.

Daol Investment & Securities also commented on ST Pharm, saying, "The growth of ST Pharm's main business has been confirmed, and expectations for the second half of the year have been generated."

This year, the brokerage expects oligonucleotide sales growth and mRNA production growth due to increased new contracts and progress in the clinical stages of existing pipelines, said analyst Lee Ji-su.

The analyst forecasted sales and operating profit of 275.7 billion won and 27.5 billion won for 2023.