As it marks its 66th anniversary this year, Kukje Pharma is accelerating its succession timetable. On the 22nd, Kukje Pharma held a board meeting and appointed CEO Nam Tae-hoon, 45, as vice chairman. Nam is the grandson of the late founder Chairman Nam Sang-ok and the eldest son of Honorary Chairman Nam Young-woo, 83.
Nam's promotion to vice chairman came about two months after Kukje Pharma shifted to a single-CEO system. The industry interpreted this as leaving effectively only the equity succession. Attention is on whether Kukje Pharma, which has formalized its third-generation management system, can leap to a mid-sized pharmaceutical company.
◇ Governance restructuring under way…equity succession puzzle remains
While Kukje Pharma's current business scale is at the level of a small and medium-sized enterprise, in the 1960s its influence on Korea's political and business circles was formidable. Founder Chairman Nam Sang-ok, who graduated from Waseda University in Japan in 1935, established Kukje Pharma in 1959. He is known to have provided a large sum of funds to former President Park Chung-hee in 1961. That year, he was elected chairman of the Seoul Chamber of Commerce and Industry (Seoul Chamber), and in 1968 he purchased the Tower Hotel in Jangchung-dong, Seoul (now Banyan Tree Club and Spa Seoul). In 1982, he established Shinhan Investment Finance (now Shinhan Investment & Securities) with the then-chairmen Kim Jong-ho of Sechang Trading and Dan Sa-cheon of Hankuk Paper.
After first Chairman Nam Sang-ok passed away in Dec. 1984, his eldest son, Honorary Chairman Nam Young-woo, took over the family business and led Kukje Pharma for nearly 40 years. Then in late Oct., Nam stepped down as CEO, ushering in a single-CEO system under his eldest son, CEO Nam Tae-hoon, who has now been promoted to vice chairman.
Born in 1980, Vice Chairman Nam is known to have graduated from the University of Massachusetts Boston with a degree in business administration. After joining Kukje Pharma in 2009 and working across several departments, he rose quickly to executive vice president overseeing sales in 2013 and to CEO and president in 2017.
Vice Chairman Nam's equity stake in Kukje Pharma currently stands at 2.12%.
Kukje Pharma has a structure in which the founder's family controls the company through the holding company Ukyeong Co., Ltd., established in 2017. Ukyeong was created in Dec. 2017 as a holding company by a spin-off of the investment business institutional sector of Hyolim Industry (now Hyolim E&I), then the largest shareholder of Kukje Pharma. As of the end of Sept., Ukyeong held 23.96% equity in Kukje Pharma, and Honorary Chairman Nam held 8.58%. Honorary Chairman Nam is the largest shareholder of Ukyeong with an 85.43% stake.
Some market experts analyze that the owner family established the holding company with equity succession in mind. An industry official said, "Ukyeong can be used as a channel for equity succession," noting, "It is generally more advantageous in terms of tax burden, market impact, and defense of management control to transfer equity in an unlisted holding company rather than directly gifting equity in a listed company."
On the 22nd, Kukje Pharma and Ildong Holdoings swapped treasury shares worth 3.5 billion won off the exchange. Through this, Ildong Holdoings secured 3.77% equity in Kukje Pharma, and Kukje Pharma obtained 2.15% equity in Ildong Holdoings.
The two companies said it was a "financial strategy to strengthen ties for synergies such as mutual sharing of sales networks and joint development of new drugs," but the market sees it as a hedge against a Commercial Act amendment. The third round of Commercial Act amendments, which would mandate cancellation or restrict voting rights when disposing of treasury shares, is pending in The National Assembly's Legislation and Judiciary Committee. Inside and outside the National Assembly, there is talk that it could pass in Jan. next year.
An industry official explained, "Treasury shares have no voting rights while held by the company, but if they are exchanged with friendly parties before the bill passes, the voting rights are revived, allowing them to be used as an indirect means of defending management control."
◇ Growth track through expansion of ophthalmology business…a test for third-generation management
The main tasks for Kukje Pharma, which has established a third-generation Oner management system, are expanding improved drugs and growing the business.
Next year, the government plans to lower the calculation rate applied to the prices of generic drugs. As a result, most domestic pharmaceutical companies focused on generics are facing a profitability crunch. Kukje Pharma also derives more than 85% of its total sales from generics.
Kukje Pharma surpassed 150 billion won in annual sales for the first time last year. On a consolidation basis, cumulative sales for the first to third quarters this year were about 132.2 billion won, up 15.1% from a year earlier. Over the same period, operating profit rose 34.2% to 7.7 billion won, and net profit increased about 43% to 6.4 billion won.
It posted operating losses in 2021 and 2023, but is seen as having resolved sluggish performance by shedding unprofitable businesses and strengthening its portfolio of ophthalmic drugs.
Ophthalmic prescription drugs such as "Q-ALON eye drops (generic)" and "REBA-EYE eye drops (improved drug)," along with generic antibiotics, drove the company's sales growth. In the first half of this year, the company produced 74.28 million units of eye drops, and the overall utilization rate at the Ansan plant, its eye drop manufacturing facility, reached 97.8%.
The company is also targeting ophthalmology as a mid- to long-term growth engine. Its key R&D pipeline includes the improved glaucoma drug "TFC-003." This year, it completed approval for an amendment to the phase 3 IND, and it is conducting a phase 2 trial for the improved dry eye drug "HCS-001."
Kukje Pharma is also pursuing investment to expand eye drop production capacity. Last month, it announced a decision to invest about 9.3 billion won to add ophthalmic eye drop production facilities. The investment equals 10.6% of equity as of the end of last year, and the expansion work is scheduled for completion by the end of Jan. 2027. Along with using internal funds, the company is reviewing external financing options. As of the end of the first half, the company's cash and cash equivalents stood at 11.9 billion won.
A Kukje Pharma official said, "The investment to expand production facilities is a strategic decision to ensure supply stability and increase domestic and overseas contract manufacturing sales," adding, "We plan to strengthen future competitiveness by expanding our product lineup in ophthalmic diseases and pursuing a fusion strategy that combines AI-based eye disease diagnostic solutions."