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Pharmaceuticals:Earnings growth,R&D results in the spotlight in 2H

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Pharmaceuticals:Earnings growth,R&D results in the spotlight in 2H

Solid growth ahead for global, Korean pharmaceutical markets: The globalpharmaceutical market is projected to grow at a 2016-2022 CAGR of 6.3% to reach USD1.12t, whileits Korean counterpart should expand at 2017-2021 CAGR of 4.4% to KRW18.6t. Meanwhile, asecond patent cliff is ahead: blockbuster drugs (including several biologics) worth USD249b willlose patent protection over 2016-2020. In short, things are looking good for the Korean companiesthat lead the global biosimilar market.

    Sea change for Korean healthcare: Over 2012-2017, Korean healthcare firms made massiveprogress on R&D, B2B operations, and exports. Some signed large out-licensing deals with globalpharmaceutical firms. Korea-made biosimilars dominate the global market, while Korea-madebotulinum toxins and fillers are gaining global market share. We expect Korea to produce theworld’s top biologics contract manufacturing organization and one of the world’s top-ten chemicaldrugcontract manufacturing services. Successes over the past five years owe much to theaccumulation of technology, effective business strategies, investments by chaebol, and supportivegovernment policies. Over the next five years, Korean healthcare firms should enter a virtuous cyclewherein stronger brand equities and track records lead to greater financial gains.

    Monitor policy, regulatory direction: Korea’s healthcare industry should benefit if thegovernment keeps election pledges to nurture the pharmaceutical, biotechnology, and medicaldevice industries; halts the introduction of for-profit medical corporations; and raises subsidies forimplants, hearing aids, and Alzheimer’s treatments. But prescription-drug makers will suffer if atotal drug cost limit is enforced. Focus on firms specialized in OTC drugs, supplements, biotech,diagnostics, medical aesthetics, and medical devices.

    To make visible progress on R&D, B2B fronts: In 2H, Hanmi Pharmaceutical should beginglobal Phase III clinical trials for Efpeglenatide and resume global Phase I trials forHM12525A/JNJ-64565111; Green Cross should win US approval for IVIG; Samsung Biologicsshould win US and European approval for three biosimilars; Medytox-Allegan should begin globalPhase III trials for Innotox; Kolon Life Science should win domestic approval for Invossa; Genexineand Qurient should make progress on their B2B operations; and Seegene should begin supplyingODM products to Beckman Coulter.

    Operating profit growth: We have operating profits at our covered large pharmaceutical firms,medium-sized pharmaceutical firms, biotech, medical-diagnostics, medical-aesthetics, and medicaldevicefirms growing 32.9%, 12.6%, 123.2%, 26.5%, 51.6%, and 15.6% y-y, respectively, in

    Medical aesthetics profits should stand out in 2Q on rising demand. In 2H, large pharmaceuticalfirms should shine on base effect and SG&A cost-cutting; biotech firms should shine on exportgrowth. We foresee outstanding earnings growth over 2Q-4Q for Hanmi Pharm, Donga ST,Celltrion, Seegene, and Hugel.

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