The author is an analyst with NH Investment & Securities. He can be contacted at [email protected] – Ed.
In 2H21, Xcopri’s prescriptions should increase further in line with a resumption of marketing activities in a context of appeasement of the Covid-19 crisis. We note that promotions bundling Xcopri with other neurological drugs will likely lead to a rationalization of selling and administration costs, which in turn should increase operating leverage. Another positive point, additional license agreements must be signed in various countries around the world.
Xcopri to support healthy growth
We are initiating coverage on SK Biopharm with a buy rating and TP of 140,000 W. It should be noted that our SOTP derivative TP is based on an EV of 10,764.5 billion W, which reflects the value of Xcopri in the United States ($ 7,857.4 billion), Europe (licensed to Arvelle; 2,075.6 billion W) and Japan (licensed to Ono Pharmaceutical; W467.9bn), as well as value of Sunosi (licensed to Jazz Pharmaceuticals). In 2021, SK Biopharm is expected to report consolidated sales of 237.1 billion won (+ 912% yy) and an operating loss of 4.4 billion won (RR yy).
We note that Xcopri’s US prescriptions have increased by 33% qq in 1Q21, showing relatively stronger performance than competing drugs, even in the midst of Covid-19. We forecast US sales to reach 80.6 billion won this year, driven by: 1) strong clinical trial results, with 21% of patients experiencing no seizures; and 2) normalization of online marketing activities with a probable decrease in Covid-19 cases in 2H21. As competing drugs become available in generic forms, the differentiated effectiveness of Xcopri is likely to be more evident in the midst of marketing promotions.
Planning to venture into China this year, SK Biopharm is looking to engage in a strategic platform partnership with a local pharmaceutical company that is expected to enable the continued sale of its central nervous system (CNS) drugs, rather than to sign a conventional license agreement. As for other regions (including Canada, South America, Middle East and Asia), the company is moving forward with additional license agreements.
Need to expand the range of neurological drugs to achieve stronger operating leverage effects
In 2020, SK Biopharm’s SG&A expenses amounted to 263.5 billion won, including labor costs of 63.3 billion won and advertising costs of 24.7 billion won, which were mainly devoted to marketing activities targeting neurologists. We expect the company’s selling and administrative expenses to increase further this year, believing that marketing promotions will increase alongside a pandemic easing in 2H21. We note that cost rationalization could be achieved if Xcopri is sold in combination with other neurological drugs. SK Biopharm is currently developing carisbamate, a pipeline that should soon enter phase III. We believe that merger and acquisition agreements and licensing agreements are necessary so that the company can further secure drugs ready to enter the market.
After raising 652.3 billion won through its IPO last year, SK Biopharm has ample liquidity. To support the growth of its US subsidiary SK Life Science, the company will likely need to increase its investment in securing additional neurological drugs, which should lead to greater operational leverage and expansion of electric vehicles. Deals to secure small molecule drugs and brain tumor treatments also seem to be on the cards.