Ilyang Pharmaceutical, set to resume transactions, is on the test for restoring normal management. While the suspension triggered by accounting controversy appears to be coming to a close, structural challenges remain, including an almost 10-year gap without a new drug and the patent expiration of flagship products.
Ilyang Pharmaceutical received a remediation period through a review by the Corporate Review Committee (CRC) on Nov. 4 last year, running through Mar. 4 this year. The company on the 24th of last month submitted a report on the implementation of its improvement plan to the Korea Exchange (KRX) and requested a review. Under relevant regulations, the CRC is expected to convene within 20 business days from the date of submission.
A company official said, "The CRC will convene before the 25th of this month, and a final decision will be made on whether transactions will resume."
◇ Ilyang Pharmaceutical cleared by prosecutors, speeds up transaction resumption and profitability improvement
Ilyang Pharmaceutical's stock trading was suspended on Sept. 10 last year on suspicion that the company inflated its financial statements by including a China entity that was not a subsidiary in consolidation.
At the time, financial authorities took issue with control over Tonghua Ilyang in China, which is undergoing dissolution, but Ilyang Pharmaceutical countered by citing brand rights and the equity structure (Ilyang Pharmaceutical and related parties 65.3%).
Subsequently, on the 3rd of last month, prosecutors issued a disposition of no charges and non-prosecution in the case, leading to assessments that the company had overcome the biggest hurdle.
Ahead of the CRC, Ilyang Pharmaceutical is also accelerating efforts to streamline its governance system. In December last year, it newly appointed two outside directors and established three subcommittees, including the Ethics Management Committee, moving to strengthen "transparency."
At the regular shareholders' meeting on the 26th, the board will be reshuffled for the first time in 13 years. The key items are the reappointment of Chief Executive Jung Yu-seok, a third-generation owner, and the new appointment of Gu Heung-hoe, executive director of the Household Health Business Division, as an inside director.
If the agenda passes, the number of inside directors will expand from the current three to four. Since March 2013, when Chairman Jung Do-eon, a second-generation owner, stepped down from his posts as CEO and registered director, Ilyang Pharmaceutical has maintained a three-person structure with CEO Jung Yu-seok, former co-CEO Kim Dong-yeon, and Executive Director Choi Kyu-young.
The appointments are also seen as reflecting a determination to strengthen the household health business and restore profitability, which halved last year. Ilyang Pharmaceutical recorded operating profit of 4.7 billion won last year, down 53% from a year earlier, due to one-off expenses such as legal advisory fees and a penalty surcharge.
Last month, the company also joined "Platpharm," a platform for pharmacy-only over-the-counter drugs and health functional foods. A company official said, "Our goal is to restore the operating margin to the usual level as soon as possible," adding, "We are trying various approaches to move up the timetable."
◇ Forecast headwinds of Noltec's "price cuts and generic offensive" … limits from the absence of new drugs
The issue is the mid- to long-term growth engine. Ilyang Pharmaceutical has not launched a new drug since the release of the anti-ulcer agent "Noltec" in 2009 and the leukemia treatment "Supect" in 2016.
In the meantime, the domestic market for gastrointestinal treatments has shifted to the P-CAB class, including Daewoong Pharmaceutical's "Fexuclu" and HK inno.N's "K-CAB," and the company's flagship product Noltec faces patent expiration at the end of next year. With Huons and Geonil Biopharm already developing generics, further entries are also being raised as a possibility.
When the patent expires and generics are launched, the original drug price is uniformly cut to 53.55% of the existing price. This means the key product of the prescription drug (ETC) division, which accounts for about 40% of total sales, will be shaken.
Accordingly, starting in 2028, Noltec will compete between generics and new P-CAB class drugs at a reduced price.
Ilyang Pharmaceutical belatedly began developing the P-CAB class new drug candidate "IY-828026," but observers say it will be difficult to fill the sales gap in the short term, as commercialization will take at least several years. The company received approval for a phase 1 clinical trial plan (IND) from the Ministery of Food and Drug Safety last month.
The company's strategy is first to build a defense line by launching the combination drug "Noltec Plus" and expanding indications (prevention of peptic ulcers). However, uncertainty remains even for this. Ilyang Pharmaceutical conducted a phase 3 trial in 2021 to obtain the indication for non-erosive reflux disease (NERD) but failed.
A company official said, "We expect the P-CAB new drug under development to expand prescription options alongside Noltec."