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By Choi Sung-jin
The past year was a banner year for Korea's pharmaceutical companies that rolled on with a series of new drugs and export contracts.
Now the sector is facing a headwind. Export contracts have been canceled and clinical tests are being suspended, aggravating corporate profitability and weakening investor sentiment.
As of 1:07 p.m. Friday, the shares of major drug makers were being traded at prices between 2.06 percent and 16.63 percent lower than their opening prices, and down between 0.34 percent and 15.25 percent from their previous-day prices, according to stock traders.
The first signal of this downturn came from Hanmi Pharmaceutical, which opened a boom year for the industry. On Sept. 30, the company announced that the right to develop a new lung cancer drug that it had exported to Boehringer Ingelheim of Germany in July 2015 has been returned. The cancellation of the technology export contract worth 850 billion won ($748 million) dampened investors' enthusiasm about new drug development and overall probability of success.
The way Hanmi's leaked the information and its massive short selling have combined to pull down the price of its stock sharply, inviting the prosecution to probe its activity and causing investor trust to hit another rock bottom.
On Oct. 13, Green Cross said it was suspending the stage 3 clinical test of its new treatment for hemophilia because progress was too slow in gathering patients willing to serve as test subjects to sharply weaken its commercial viability, compared with other new drugs.
After trading was over on Thursday, Yuhan also gave notice that it is suspending the clinical test of its drug to cure degenerative slipped disc, acknowledging it has failed to prove statistically significant effects in differentiation from the placebo.
As a result, the industry's third-quarter performance remains in the doldrums. Hanmi Pharmaceutical's sales in the July-Sept. period dropped 18.1 percent from a year ago to 219.72 billion won and its operating profit plunged 61.5 percent to 13.76 billion won. Yuhan and Green Cross also saw their operating profits drop 28 percent and 83 percent, respectively, to 15.94 billion and 4.61 billion won.
Domestic brokerages have readjusted their target prices for drug firms. Five out of the six securities companies that issued price reports Friday pulled down their target prices for Hanmi, and five out seven also did so against Green Cross.
Market watchers do not paint their mid-term business outlooks bright, either. "The pharmaceutical firms are expected to make efforts in the form of reducing various costs, but frankly speaking, I can't see any breakthroughs until the end of this year," said an analyst wanting to remain anonymous. "The gloomy climate will likely change only when there is news of more export contracts or progresses in major clinical tests."
