HK inno.N is signaling an earnings surprise in the fourth quarter of last year. The company drew concern after recalling products such as its flagship summer drink "Hutgae-su," but the compensation received from manufacturer Dongwon Systems was reflected in the results, turning the situation into an opportunity. On top of that, the steady growth of the homegrown new drug "K-Cab" appears to have helped push annual revenue past 1 trillion won.
According to financial data firm FnGuide on the 31st, HK inno.N's fourth-quarter revenue last year is estimated at 286.3 billion won, with operating profit at 38.1 billion won. That represents a sharp jump of 21% in revenue and 56% in operating profit from a year earlier. Buoyed by strong quarterly results, last year's annual revenue reached 1.0563 trillion won, making entry into the pharmaceutical and biotech industry's so-called "1 trillion club," the "dream threshold," likely.
One of the main reasons behind the improved profitability is seen as compensation payments from Dongwon Systems. The securities industry estimates the amount at around 3 billion won. An HK inno.N official confirmed, "We have concluded discussions with Dongwon Systems regarding the recall, and compensation has indeed been paid."
Earlier, in June, HK inno.N recalled all eight 500-milliliter products, including Hutgae-su and young barley, from convenience stores and supermarkets. That was because a potential for product deterioration due to a parts defect was raised during an inspection of the RTD (ready to drink) line at the Dongwon Systems plant that handled manufacturing. Given the heightened sensitivity to food safety issues in the summer, HK inno.N pulled products from distribution as a preemptive measure, regardless of whether there were actual product abnormalities.
Dongwon Systems said, "We proactively halted production at the time due to a section suspected of a parts defect, and subsequently reworked aseptic and sterilization processes to improve manufacturing." Supply of the affected products resumed from the third week of July after maintenance was completed.
Not only one-off gains but also growth in the core pharmaceuticals business is strong. Prescriptions for HK inno.N's flagship gastroesophageal reflux disease treatment "K-Cab" continue to increase. Launched in 2019, K-Cab has leveraged its fast onset and nighttime heartburn relief to maintain market dominance despite challenges from latecomers such as Daewoong Pharmaceutical's Fexuclu and JEIL PHARMACEUTICAL's Ja Q Bo.
In particular, K-Cab recently filed for product approval with the U.S. Food and Drug Administration (FDA) as it seeks to expand globally. If approved, it will become the 10th homegrown new drug to enter the U.S. market. The company expects a quantum jump by entering the U.S. market, which has about 65 million gastroesophageal reflux disease patients.
Seo Geun-hee, an analyst at Samsung Securities, said, "Reflecting one-off factors such as the reversal of 3 billion won in compensation from Dongwon Systems and the stable growth of K-Cab, profitability improvement is expected in the fourth quarter of last year," adding, "Promotion competition is intensifying in the domestic market, but K-Cab is maintaining its market dominance."