Pipelines to Further Expand
The author is an analyst of NH Investment & Securities. He can be reached at pk.park@nhqv.co. -- Ed.
In 2H21, Xcopri prescriptions should further expand in line with a resumption in marketing activities amid an easing in the Covid-19 crisis. We note that promotions bundling Xcopri with other neurological drugs will likely lead to a streamlining in SG&A expenses, which in turn should bolster operating leverage effects. Also positive, additional licensing out deals are to be signed in various countries across the world.
Xcopri to sustain healthy growth
We initiate coverage on SK Biopharm with a Buy rating and TP of W140,000. Of note, our SOTP-derived TP is based on EV of W10,764.5bn, which reflects the value of Xcopri in the US (US$7,857.4bn), Europe (licensed out to Arvelle; W2,075.6bn), and Japan (licensed out to Ono Pharmaceutical; W467.9bn), as well as the value of Sunosi (licensed out to Jazz Pharmaceuticals). In 2021, SK Biopharm is projected to book consolidated sales of W237.1bn (+912% y-y)and an operating loss of W4.4bn (RR y-y).
We note that Xcopri’s US prescriptions rose 33% q-q in 1Q21, showing relatively stronger performance than competing drugs even amid Covid-19. We expect sales in the US to reach W80.6bn this year, helped by: 1) solid clinical trial results, with 21% of patients having experienced zero seizures; and 2) a normalization in marketing activities in line with a likely decrease in Covid-19 cases in 2H21. With competing drugs becoming available in generic forms, Xcopri’s differentiated efficacy is likely to be greater highlighted amid marketing promotions.
Planning to venture into China this year, SK Biopharm is seeking to engage in a strategic platform partnership with a local pharma that should allow for continuous sales of its central nervous system (CNS) drugs, rather than signing a conventional licensing out deal. As for other regions (including Canada, South America, Middle East, and Asia), the firm is progressing with additional licensing out deals.
Needs to expand neurological drug lineup to achieve stronger operating leverage effects
In 2020, SK Biopharm’s SG&A expenses totaled W263.5bn, including labor costs of W63.3bn and advertising costs of W24.7bn, which were mainly directed towards marketing activities targeting neurologists. We expect the firm’s SG&A expenses to further rise this year, believing that marketing promotions will increase in line with an easing in the pandemic in 2H21. We note that cost streamlining could be achieved if Xcopri is sold bundled with other neurological drugs. SK Biopharm is currently developing carisbamate, a pipeline that is likely to soon enter phase III trials. We believe that M&A deals and licensing deals are needed for the firm to greater secure drugs that are ready to enter the market.
Having raised W652.3bn via its IPO last year, SK Biopharm possesses ample cash holdings. To bolster growth at its US subsidiary SK Life Science, the firm will likely have to increase investment to secure additional neurological drugs, which should lead to greater operating leverage effects and EV expansion. Deals to secure small molecule drugs and brain tumor treatments also appear to be in the cards.
