Handok is so desperate to stop the continued sales decline that the drugmaker is reselling an erectile dysfunction treatment that the company had once dropped three years ago, industry sources said.
The pharmaceutical firm recently said in a public filing that its sales would go down 10.69 percent to 91.89 billion won ($86.3 million) in the fourth quarter, compared with 102.89 billion won a year earlier, based on the company’s preliminary estimates. On a quarter-to-quarter basis, the revenue would fall 18.18 percent in the fourth quarter, the company said.
Handok’s operating profit has also been on a downward trend in the second half last year.
The drugmaker posted 1.9 billion won in operating profit in the fourth quarter of 2016. However, a 2.5 billion won operating profit in the third quarter last year turned to an operating loss of 2.77 billion won in the fourth quarter.
In other words, the company had a profit of 5 won per sales of 1,000 won. In the fourth quarter last year, it lost 30 won per 1,000 won sales.
The operating loss amounted to 1.87 billion won last year, with an operating loss rate of 0.44 percent on 417.9 billion won sales.
Since the fourth quarter of 2015 when the contract fee for the licensing-out deal with Genexine was reflected on the balance sheet, Handok’s operating profit margin has remained low at around 0-1 percent.
In contrast, ST Pharm topped the operating profit margin with 38.3 percent, and Kyungnam Pharm ranked 10th with 15.9 percent, in 2016.
In the same year, Handok’s operating profit margin was 1.4 percent. Last year, the company had an operating loss. The company ranks lower than 70th among local drugmakers in operating profit margin alone.
Handok’s underperformance in earnings might negatively affect investments in its subsidiary Genexine, a research and development base for Handok.
Although Genexine has improved in profit structure through technology exports, the company still needs continued investment by Handok to keep its intense R&D activities. Usually, R&D costs are covered by operating profits.
As Handok is suffering operating losses, its R&D expenses could shrink, observers said. Handok is the largest stakeholder of Genexine, owning about a 22 percent stake.
To overcome operating losses, the drugmaker is trying to diversify drug items.
For example, the company last month announced that it signed a strategic partnership agreement with Lilly Korea to market Cialis, a treatment for erectile dysfunction exclusively.
However, some pharmaceutical industry watchers question why Handok tries to resell Cialis, which the company had stopped selling in 2015. Cialis does not even sell well now, they say.
Cialis used to be one of the two primary erectile dysfunction treatments along with Viagra by Pfizer. Since patents of the two drugs expired, however, Cialis does not sell well due to competition against cheaper generic copies.
Cialis’ accumulated sales posted 6.49 billion won until the third quarter last year, down 12.69 percent from 7.43 billion won a year earlier.
For five years from 2010, Handok sold Cialis under a joint sales agreement with Lilly Korea.
“Although Handok recently tried out various businesses, the company’s performance has been poor, except for a few prescription drugs such as antidiabetics and over-the-counter drugs like Ketotop,” a pharmaceutical source said. “The company needs a distinctive idea to escape from low operating profit margins.”
Another official at a drugmaker said Handok does not focus on generic business.
“As the company’s main focus is on the development of new drugs and incrementally modified drugs, poor earnings will make the company cut R&D expenses and more aggressively concentrate on drug sales,” he said. “After all, new drug development will be put on the back burner, and the company’s business structure will be stuck in selling existing drugs. This is not a good sign for Handok.”
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