Dong-A ST's stock slump is dragging on. It holds all the new drug pipelines drawing attention from the pharmaceutical industry and investors—metabolic dysfunction-associated steatohepatitis (MASH), antibody-drug conjugates (ADC), and anti-obesity drugs—but the share price has yet to rebound.
Experts said investor confidence in the company's research and development (R&D) capabilities is not strong, and the limited role of Dong-A ST within the Dong-A Socio Group is also weighing on the stock. The company has halted major pipelines one after another over the past year.
Dong-A ST shares closed at 46,200 won on the 29th, down 300 won (0.65%) from the previous trading day. That is about half of the 52-week high of 79,157 won recorded in October last year. Considering that biotech stocks have surged sharply this year, Dong-A ST's slump is viewed as even more severe.
Starting with the erectile dysfunction treatment udenafil in 2005, Dong-A ST has introduced the antibiotic Sivextro tablet/injection and the blood sugar-lowering drug Suganon tablet, building its name as Korea's most prolific new drug developer. It has continued investing in multiple pipelines to pursue new drug development through recently.
The MASH therapy and anti-obesity drug are being developed through the U.S. subsidiary Metavie (formerly NeuroBo Pharmaceuticals), acquired in 2022, and in 2023 the company acquired Aptis, which developed AppClick, an ADC platform technology. These pipelines are among the hottest areas in the biotech industry recently.
The clinical trial progress is not bad. The MASH therapy "DA-1241," which completed a phase 2 trial last year, showed meaningful improvements in endpoints in the treatment arm. The anti-obesity drug "DA-1726" also showed reductions in weight and waist circumference in topline data from a phase 1 trial announced on 4th. The ADC new drug "DA-3501" filed an investigational new drug (IND) application on Jun. and is expected to begin clinical trials soon.
However, Dong-A ST's share price is not reflecting clinical expectations at all. The gap is particularly stark compared with rivals with similar pipelines. For example, IntoCell, which received a technology return from ABL Bio after a similar patent to its ADC technology was identified in China, currently has a market capitalization of 566.4 billion won, higher than Dong-A ST's 432.1 billion won.
OliX Pharmaceuticals, which is developing a MASH therapy, is in a phase 1 clinical trial but has a market capitalization of 1.9069 trillion won, and Ildong Pharmaceutical also hit the upper price limit after announcing phase 1 results for its anti-obesity drug the previous day, reflecting market expectations.
Heo Hye-min, a research fellow at Kiwoom Securities, said, "Even when IntoCell's stock plunged on the patent return issue, its market cap was similar to Dong-A ST's," and added, "Despite research and development in line with global trends, it appears the company has failed to build trust in the market and its R&D capabilities."
Dong-A ST's recent suspension of new drug pipelines has also deepened investor disappointment. The company halted 2 of its 4 key new drug pipelines over the past year. The overactive bladder treatment candidate "DA-8010" had been in development for 15 years but failed to produce meaningful results even after completing a phase 3 trial last year. The anticancer drug candidate "AFM32" was also discontinued due to the partner's bankruptcy and uncertainty over economic effects. The intangible assets of the two pipelines total 19.5 billion won, or about 30% of the total for key new drug pipelines.
While the company recently secured a new revenue source by developing IMULDOSA, a biosimilar (biologic copy) to Stelara, analysts say the impact on the share price will be relatively limited. Expectations for biosimilars are lower than for proprietary new drugs, and since production is handled by STgen Bio, another subsidiary of Dong-A Socio Holdings, Dong-A ST's profitability could be somewhat diluted.
An official at a financial investment firm said, "It may be efficient for the group to divide roles such as production and exports among individual affiliates, but for shareholders of a single affiliate, it can look like development costs are incurred as-is while revenues are shared," and added, "From an investor's standpoint, that is inevitably less attractive."
As long-running new drug investments fail to deliver results, financial burdens are mounting. As of the end of the second quarter, Dong-A ST's total borrowings were 472 billion won, with net borrowings at 353 billion won. The interest coverage ratio, which shows a corporation's debt-servicing capacity, stood at -1.2 last year, meaning operating profit alone cannot cover even the interest. An interest coverage ratio below 1 indicates that interest expenses exceed operating profit.
A Dong-A ST official said, "We will strengthen shareholder returns through shareholder-friendly policies such as stock and in-kind dividends," and added, "Because the success rate of new drug development is inherently low, near-term results may be weak, but we will focus on the current pipelines to deliver outcomes."