Korean billionaire's gains add up as pharma stock jumps 900%

[SINGAPORE] The South Korean man who founded two drug companies that are among Asia's best-performing stocks for the past year is seeing his fortune climb after vaulting into the region's billionaire's club.

Hanmi Science Co has surged 971 per cent while its subsidiary Hanmi Pharmaceutical Co has gained 805 per cent through yesterday over the last 12 months after a string of licensing deals with global drugmakers. The rally gave founder Lim Sung-ki a net worth of about US$2.7 billion as of Monday's close, according to the Bloomberg Billionaires index.

Hanmi Pharm has in recent months entered into partnerships with international companies including Janssen Pharmaceuticals Inc, Sanofi and Eli Lilly Co for drugs it is developing as potential treatments for conditions such as diabetes and rheumatoid arthritis.

Analysts say the South Korean drugmaker's stock is being driven by hopes of future payouts from the licensing agreements and other medicines it may eventually bring to market.

"We've never seen any deals this huge among local drugmakers before," said Lee Jin Woo, a Seoul-based fund manager at KTB Asset Management Co, which oversees about 10.2 trillion won (S$12.44 billion) and holds shares of Hanmi Pharm.

"Korean companies haven't drawn much attention from big pharmaceutical companies, but this deal will change how people view Korean drugmakers in terms of their technologies."

Mr Lim was born in South Korea in 1940, graduating in 1965 with a degree in pharmacy from Chung-Ang University. He founded Lim, Sung-ki Pharmaceutical Co in 1973 and changed the company's name to Hanmi Pharmaceutical the same year. The 75- year-old billionaire owns about 36 per cent of Hanmi Science, which has majority control of Hanmi Pharm.

Hanmi declined to comment on its share price or make Mr Lim available for an interview.

Still, even though Hanmi Pharm has struck several partnerships, not all its payouts are guaranteed. Under an agreement announced with Sanofi in early November for a set of experimental diabetes treatments, Hanmi Pharm will receive an upfront payment of 400 million euros (S$610 million). As part of that deal, it is also eligible for milestone payments of up to 3.5 billion euros, although those would depend on it achieving certain sales and development targets.

Bloomberg Intelligence analyst Sam Fazeli said the company's efpeglenatide drug - a once-weekly treatment to control blood sugar for diabetes - appears to be the key product in the Sanofi licensing deal as the other medicines are too early stage. The drug is likely to be two to three years behind other competing medicines, Mr Fazeli said. Eli Lilly has a once weekly diabetes treatment called Trulicity that is already on the market.

"Bottom line is that this was clearly a good deal for Hanmi but the main drug looks to be uncompetitive and very late to the market," Mr Fazeli said via e-mail. Sanofi didn't comment.

Hanmi in an e-mailed statement described its combination of efpeglenatide and LAPS Insulin115, a weekly insulin product, as "the world's first weekly insulin compound" and said it is currently being developed as a 'first-in-class' medicine - a term usually used to describe drugs with a new or unique treatment method.

Sharp gyrations in biotechnology stocks aren't uncommon, particularly as patents on older medicines expire and investors watch for new products. In the US, a boom in biotech stocks in the first half of this year spawned worries that many were being overvalued.

On the Nasdaq, companies with few products and no profits were able to pull off blockbuster initial public offerings as investors wagered that they might produce best- selling drugs down the line. More recently, US biotech stocks have given up some of their gains as pricing in the industry has come under scrutiny from lawmakers.

Korean pharma companies are still at an early stage of development and as countries in the region age "they have enough room for rally," said Mr Lee, the fund manager. Hanmi Pharm's relative strength index, a measure of market momentum, was above 70 last week, a level that analysts consider overbought.

Hanmi Pharm and Hanmi Science were the best performers on the MSCI Asia Pacific Index over the past year, data compiled by Bloomberg show.

Hanmi has the most potential among domestic pharmaceuticals to develop into a global player as the commercialization of its drugs will help generate cash, Samsung Securities analyst Kim Seung-Woo wrote in a note to investors.

"However, even if the firm out-licenses its entire pipeline to global pharmaceutical firms, the drugs must produce satisfactory results at every phase of clinical trials and there needs to be no significant delays in commercialization." Mr Kim's latest target price for Hanmi Pharm's stock is 700,000 won. Hanmi Pharm's shares traded as much as 3.8 per cent higher at 773,000 won in Seoul today.

Treatments The company already markets several hypertension drugs including its best-seller called Amosartan, which is exported to 51 countries around the world through Merck & Co. It also sells treatments for dementia and erectile dysfunction. Hanmi Pharm had revenue of 761 billion won last year, according to data compiled by Bloomberg.

Mr Lim deserves credit for having the foresight to sacrifice short-term gains to invest heavily in research and development for new drugs, which is atypical of Korean pharmaceutical companies as they focus more on generic drugs, said Lee Seung-Ho, a Seoul-based analyst at NH Investment & Securities Co Ltd.

"The chairman insisted that Hanmi must invest in research and development," said Mr Lee. In 2014, Mr Lee pointed out, Hanmi's R&D spending was more than 20 per cent of its sales, higher than the industry average in the country.

BLOOMBERG