medy-tox (086900 ks) popularity of korean...

Company Report May 21, 2015

Pharma/bio

BUY (M)

TP: W500,000 (U)

Share price (won, May 15) 382,400

Paid-in capital (Wbn) 3

Market cap (Wbn) 2,163

BPS (won) 27,364

Net debt to equity (%) -85.3

Shares outstanding 5,656,535

Avg daily T/O (2M, Wbn) 18

Avg daily vol (2M, shrs) 50,497

52-week high (won) 404,900

52-week low (won) 118,900

Foreign ownership (%) 33.7

Major shareholders (%)

Hyeon-Ho Jung & others 21.8

Stock performance (%)

1M 3M 12M

Absolute 7.2 1.3 159.1

Relative 5.5 (12.7) 106.3

Abs (US$) 8.3 2.3 144.7

0

50

100

150

200

250

300

350

400

050,000

100,000150,000200,000250,000300,000350,000400,000450,000

May-13 May-14 May-15

Medy-Tox Inc.(LHS)

Rel. to KOSDAQ(RHS)

(won) (%)

Medy-Tox (086900 KS)

Popularity of Korean fillers

Forecasts and valuations (K-IFRS, consolidated) (Wbn)

FY ends Dec 2013A 2014A 2015E 2016E

Sales 39 76 103 124

Operating profit 17 50 71 86

Net profit, CI 14 44 56 70

% YoY -7.3 205.0 29.3 23.6

P/E (x) 48.8 24.2 38.3 31.0

P/B (x) 11.0 12.2 15.7 10.7

EV/EBITDA (x) 36.9 18.5 27.3 21.8

ROE (%) 24.7 61.3 53.4 43.6

Note: Operating profit = gross profit – SG&A expense, CI = controlling interest

Source: Yuanta Securities

Quarterly earnings

(Wbn) 1Q15E % YoY % QoQ Consens vs consens (%)

Sales 19 41.6 31.2 16 20.6

Operating profit 11 48.3 69.5 9 27.0

Pre-tax profit 11 36.4 34.4 9 16.4

Net profit 9 29.6 29.1 7 16.6

Op margin (%) 59.0 +2.6 %pt +13.3 %pt 56.0 +3.0 %pt

Net margin (%) 45.2 -4.2 %pt -0.7 %pt 46.7 -1.5 %pt

Note: TTB = turn to black, TTR = turn to red, RR = remain in red


Earnings surprise led by strong filler sales

Medy-Tox’s 1Q15 K-IFRS consolidated sales came to W18.8bn (+41.2% YoY, 30.8% QoQ)

and operating profit W11.1bn (+48.1% YoY, +69.4% QoQ, OPM 59.1%), beating consensus by

a significant margin.

Sales jumped as much as 68% (excluding upfront fees from Allergan)

Medy-Tox received W68.9bn in upfront payment from Allergan in 1Q14 and recognized

W3.9bn each quarter until 4Q14, where it reflected just W0.2bn, as it decided to recognize

W11.8bn annually. From 1Q15, it began to recognize W3.0bn each quarter. Excluding

Allergan’s upfront payment, sales came to W15.8bn (+67.9% YoY, +11.5% QoQ) and operating

profit W8.1bn (+124.7% YoY, +27.5% QoQ, OPM 51.3%). Despite that, COGS to sales climbed

0.9%p due to higher filler sales, while SG&A dropped 13.9% thanks to a sharp increase in

sales. Non-operating loss worsened due to W0.9bn in valuation and disposal losses on

financial assets designated at fair value.

Domestic sales up 35% while exports jumping a whopping 111%

In 1Q15, domestic sales grew 35.3% to W6.8bn. From 3Q13, it started selling HA filler, but

after it released a filler containing lidocaine at end-2014, filler sales (both domestic and

overseas) began to sky-rocket. In 1Q15 alone, overseas filler sales jumped 111.0% to W8.9bn,

with especially high demand in Japan, China, and Taiwan. Filler demand in the Asia Pacific

region is relatively strong and Korean fillers are the most popular. Medy-Tox fillers have been

well received in the region thanks to their decent quality and brand power.

Revise up target price to reflect solid sales and expectations for JV in China

In Mar 2015, Actavis completed its merger with Allergan and plans to change its name to

Allegan after gaining the approval of shareholders. Medy-Tox’s next-generation botulinum toxin

(liquid type) will enter phase-IV clinical trials in the US in 4Q15 upon which Allergan is due to

make an additional milestone payment (assumed to be $25mn). The Chinese botulinum toxin

market is valued at W100.0~W150.0bn, but Medy-Tox has yet to secure approval for its

botulinum toxin there. To facilitate its Chinese operations, it is expected to set up a joint venture

with a local company. We upgrade our earnings estimates to reflect 1Q’s earnings surprise and

revise up our target price to W500,000 (target P/E 45x and 2015-16 average EPS) on

expectations for overseas expansion.

2


Medy-Tox: earnings estimates (K-IFRS, consolidated) (Wbn)

1Q14 2Q14 3Q14 4Q14 1Q15 % YoY % QoQ1Q15E

(consensus) 2014

2015E

(consensus)

Sales 13.3 16.1 32.1 14.4 18.8 41.2 30.8 15.6 75.9 84.1

COGS 1.5 1.8 1.8 1.8 2.7 78.5 48.6 6.9 0

COGS-to-sales (%) 11.2 11.2 5.5 12.5 14.1 9.0

Gross profit 11.8 14.3 30.4 12.6 16.1 36.7 28.3 69.1 0

SG&A 4.3 4.8 3.9 6 5 16.7 -16.4 19.1 0

SG&A-to-sales (%) 32.4 29.9 12.3 41.9 26.8 25.1

Op profit 7.5 9.5 26.4 6.6 11.1 48.1 69.4 8.8 50 53.2

Op margin (%) 56.3 58.9 82.2 45.7 59.1 56.4 65.9 63.3

Non-op profit/loss 0.3 1.3 0.9 1.4 -0.5 -235.3 -133.1 0.4 3.9 3.1

Net prof before income tax 7.8 10.8 27.3 8 10.7 35.8 34.0 9.2 53.9 56.3

Income tax 1.3 2.2 5.5 1.4 2.1 66.1 55.1 1.9 10.3 10.9

Tax rate (%) 16.2 20.4 20.0 17.1 19.8 20.7 19.1 19.4

Net profit 6.6 8.6 21.8 6.6 8.5 30.0 29.6 7.3 43.6 45.4

Net margin (%) 49.4 53.5 67.9 45.9 45.4 46.8 57.4 54.0


Medy-Tox: earnings estimates (K-IFRS, consolidated, excluding payments from Allergan) (Wbn)

1Q14 2Q14 3Q14 4Q14 1Q15 % YoY % QoQ 1Q15E

(consensus) 2014

2015E

(consensus)

Sales 9.4 12.2 12.8 14.2 15.8 67.9 11.5

COGS 1.5 1.8 1.8 1.8 2.7 77.3 48.6

COGS-to-sales (%) 15.9 14.8 13.8 12.6 16.8

Gross profit 7.9 10.4 11.1 12.4 13.1 66.1 6.1

SG&A 4.3 4.8 3.9 6 5 17.0 -16.4

SG&A-to-sales (%) 45.7 39.4 30.7 42.5 31.8

Op profit 3.6 5.6 7.1 6.4 8.1 124.7 27.5

Op margin (%) 38.4 45.8 55.5 44.9 51.3

Non-op profit/loss -0.3 -1.3 0.9 1.4 -0.5 53.3 -133.1

Net prof before income tax 3.3 4.3 8 7.8 7.7 131.1 -1.3

Income tax 0.3 1.3 0.8 1.3 1.4 324.3 5.5

Tax rate (%) 9.9 29.4 9.9 16.9 18.1

Net profit 3 3 7.2 6.4 6.3 110.0 -2.7

Net margin (%) 31.7 24.8 56.0 45.4 39.7


3

Company Report

Medy-Tox: sales breakdown (Wbn)

1Q14 2Q14 3Q14 4Q14 1Q15 % YoY % QoQ 2013 2014 2015E

Sales 13.3 16.1 32.1 14.3 18.8 41.2 31.8 39.1 75.9 103

% YoY 51.1 45.0 219.0 55.0 41.2 7.8 94.1 35.7

1) Domestic 5.1 6.7 5.6 7 6.8 35.2 -2.7 20.8 24.4 29.3

% YoY 2.9 18.8 5.7 43.2 35.2 18.3 17.4 20.0

Meditoxin + INNOTOX (botulinum toxins) 4.4 NA NA NA 5.8 32.5 NA 22.8 0

% YoY 32.5

Neuramis (HA fillers) + others 0.7 NA NA NA 1 52.5 NA 1.6 0

% YoY 52.5

2) Exports 4.2 5.4 7.2 7.2 8.9 111.0 24.1 18.3 24.1 36.5

% YoY 8.6 0.2 51.6 67.4 111.0 -2.0 31.5 51.7

% of sales 31.8 33.9 22.4 50.5 47.5 46.9 31.7 35.5

* By product

Neuronox (botulinum toxin) 4 NA NA NA 4.9 21.8 NA 18.3 0

% YoY 21.8

Neuramis (HA fillers) 4 NA NA NA 4.9 2031.9 NA 5.8 0

% YoY 2031.9

* By region

Asia 2.5 3.6 4.5 5.9 7 181.3 19.2 11.5 16.5 28.0

% YoY 20.7 0.3 42.8 117.8 181.3 -13.7 43.3 70.0

East Europe 0.5 0.4 0.4 0.6 0.3 -43.1 -49.6 1.8 1.9 1.9

% YoY 75.7 -19.8 3.5 -6.0 -43.1 53.0 5.6 4.0

Latin American and others 1.2 1.5 2.3 0.8 1.6 32.1 118.1 5.1 5.8 6.6

% YoY -16.1 6.8 90.6 -24.7 32.1 153.6 42.9 6.8

3) Revenues relevant to Allergan 4 3.9 19.3 0.2 3 -24.5 1798.1 27.4 37.2

% YoY -24.5 35.7

* Peer group botulinum toxin sales

CKD Botulax sales 1.5 1.9 1.9 2.1 2.1 36.6 2.7 3.1 7.4

% YoY 1077.9 222.2 99.7 45.5 36.6 140.1

Daewoong Nabota sales 0.4 1.3 1.9 1.4 1.2 200.0 -14.3 5.0

% YoY NA NA NA NA 200.0

Estimated sales from Allergan related to technology transfer (Wbn)

2014 2015E 2016E 2017E 2018E 2019E

Milestone payments 27.0 37.2 47.3 67.6 11.8 9.9

Upfront payment 11.8 11.8 11.8 11.8 11.8 9.9

Milestone payments 15.2 25.4 35.5 55.8

Allergan sales 106.0 212.0 318.0

Sales milestone 5.3 10.6 15.9

Supply to Allergan 26.5 53.0 79.5

Royalty 7.4 14.8 22.3

Total sales related to Allergan alliance 27.0 37.2 47.3 106.8 90.2 127.6


4


Medy-Tox earnings estimates (K-IFRS, consolidated) (Wbn)

New Old Change %

2015E 2016E 2017E 2015E 2016E 2017E 2015E 2016E 2017E

Sales 103.0 124.0 192.7 93.9 110.7 176.9 9.7 12.0 8.9

Operating profit 71.2 86.4 144.5 61.9 74.0 130.4 15.0 16.8 10.8

OPM (%) 69 70 75 66 67 74

Pre-tax profit, continuing ops 72.0 88.3 148.8 64.6 77.4 135.7 11.5 14.1 9.7

NPCI 56.9 69.7 114.6 52.3 62.7 109.9 8.8 11.2 4.3

EPS (won) 10,061 12,327 20,262 9,253 11,080 19,437 8.7 11.3 4.2

Current price (won) 382,400 382,400 382,400

Implied P/E (x) 38.0 31.0 18.9

2015-16 avg. EPS (won) 11,194

Target P/E (x) 45.0

Target price (won) 503,730


Medy-Tox’s technology transfer agreement with Allergan

Other party Allergan

Technology to introduce/transfer Next-generation botulinum toxin (Korean product name Innotox)

Method of introduction/transfer Transfer of license, transfer of data for permission and approval

Key contract detail Medy-Tox makes product and Allergan has exclusive rights to distribute it globally

Allergan, Inc exclusively develops and sells product globally, excluding Korea and Japan

Medy-Tox has sales rights in Korea; joint sales in Japan

Beginning/expiry of contract Sep 25, 2013 / none

Total amount $362mn (W389.8bn)

Upfront payment

$65mn (W68.9bn); received total amount in 1Q14 and recognized W3.9bn each quarter. From

4Q14, decided to book W11.8bn annually, so booked just W0.2bn in 4Q14. Reflected W3bn

per quarter from 1Q15

Milestone payment on Biologic License Application (BLA) in US Up to $116.5mn (W125.4bn), 3Q14 $15mn (W15.2bn); received and booked entire amount

Milestone payment on commercialization Up to $180.5mn (W194.4bn)

Base currency USD (basic rate on Sep 26, 2013 of W1,076.80/$)

Other Sales royalties for future sales not included in the amount


Characteristics of next-generation botulinum toxin

Meditoxin (identical to Botox) Nex-gen Meditoxin (different from Botox)

Fermentation process Animal-derived drug ingredients used Safer; animal-derived drug ingredients not used

Stabilizer Human serum albumin Safer; human serum Albumin not used

Dosage form Freeze-dried Liquid

Storage temperature Refrigerated (4℃) Room-temperature storage

Key markets Korea and developing world Developed markets (US, Europe, etc)


5

Company Report

Global cosmeceuticals market

“Cosmeceuticals” (cosmetics + pharmaceuticals) are cosmetic products with biologically active

ingredients proven to have medical benefits and in which doctors and pharmacists participated in

R&D. Most cosmeceutical brands highlight the brand value of the participating doctors and partner

pharmaceutical companies. The cosmeceutical label applies mostly to functional cosmetics

products such as whitening and anti-wrinkle products.

The global cosmeceuticals market was valued at $35bn as of 2012, and is likely to post a CAGR

of 5.4% to reach $45.6bn in 2017. In particular, the injectable cosmeceuticals (botulinum toxin,

facial filler, etc) market was valued at $1.6bn in 2012, and is likely to grow to $2.8bn in 2017,

posting a CAGR of 11.8%. The global botulinum toxin market was valued at $2.3bn in 2012, but

only 48% ($1.1bn) came from injectable cosmeceuticals. The domestic cosmeceuticals market is

currently valued at about W400.0bn with an annual growth rate of 15%.

Cosmeceuticals brand zone in Hong Kong drug store Mannings

Global cosmeceuticals market value and forecast Injectable cosmeceuticals market (2012)

33.4

42.8

1.6

2.8

0

10

20

30

40

50

2012 2017F

Topical Cosmeceuticals Injectable Cosmeceuticals($bn)

Botulinum Toxin69%

Facial Fillers31%

Source: Yuanta Securities Source: Yuanta Securities

6


What are facial injectables or injectable cosmeceuticals?

Minimally-invasive and non-invasive procedures have become mainstream, across most medical

fields, and especially in cosmetic surgery. Minimally invasive and non-invasive procedures using

injectables such as botulinum toxin and dermal filler are now referred to as “petit surgery,” and are

used for diverse purposes including wrinkle elimination and facial contouring surgery.

Some 20 years ago, face-lifts were the only way to get rid of facial wrinkles. However, the

popularity of facial injectables has grown considerably since their launch thanks to their

convenience and relatively low cost, and they are now the primary way to eliminate wrinkles. In the

US, over 50% of plastic surgeons’ income is estimated to come from facial injectables.

Face-lifts vs facial injectables

Strength Weakness

Face-lift Long duration High cost ($6,000~15,000)

Weeks of recovery

Facial injectable

Relatively low costs ($400~1,000)

Fast recovery period (procedures can be

done over a lunch break)

Relatively short duration

Note: Based on US prices Source: Yuanta Securities

As shown in the table below, facial injectables are divided into four types. The global facial

injectable market was estimated at $2.2bn in 2010 and should expand at a CAGR of 9% to reach

$4.0bn in 2017. The US is the world’s largest market, estimated at $1.4bn, or 39% of the global

facial injectable market. Among facial injectables, the botulinum toxin market is the largest,

estimated at $1.4bn in 2010. It is also growing most rapidly, along with HA filler. Botulinum toxin is

mostly used for eliminating wrinkles on the upper part of a face, such as the forehead or around

the eyes, while HA filler is mostly used for eliminating wrinkles on the lower part of the face.

Types of facial injectables

Strength Weakness

Botulinum toxin

Short procedure (5~10 mins); immediate results Can be applied to diverse areas such as forehead, eye area, lips, neck Needs repeated injections; doctors have incentive to recommend it

Relatively frequent side effects Lasts up to just 6 months

HA filler (hyaluronic acid-based dermal filler)

Similar to material in living body; thus, has few side effects Needs repeated injections, and thus, doctors have strong incentive to recommend botulinum toxin

Lasts for 6~12 months

Particle and polymer filler Lasts for up to 2 years Relatively frequent side effects Doctors have less incentive to recommend due to long duration

Collagen filler Lasts for 2~3 years Patients could be allergic to animal protein Doctors have less incentive to recommend due to long duration


7

Company Report

Facial injectable applications


8


Dermatologist treatment preferred to expensive cosmetics

Trend-savvy young women tend to prefer treatment by dermatologists, whose prices have recently

declined, over high-priced premium cosmetics with little discernible effect, and then use

cosmeceutical products after receiving treatment.

As consumers can compare products through the Internet, they can decide which brand to use

from among a range of diverse botulinum toxin and facial filler products. Currently, most

dermatologist clinics disclose treatment prices for facial injectables (Botox, Meditoxin, etc). The

domestic price of Medy-Tox’s Meditoxin is 40% lower than Botox and its export price is 30% lower.

UK dermatologist’s Botox treatment advert

Source: Premier Laser Clinic, Yuanta Securities

9

Company Report

Botulinum toxin market

▶ Uses of botulinum toxin

Botulinum toxin blocks the secretion of acetylcholine, which causes muscles to contract. Thus, it

can be used to treat all ailments caused by excessive secretion of acetylcholine.

Botulinum toxin blocks the secretion of acetylcholine in the target body part for a certain period of

time, affecting the action of nerve cells without destroying them. Thereafter, the secretion of

acetylcholine in the target area is restored. It can be used to treat a variety of complaints, including

neuromuscular diseases.

Botulinum toxin applications

Area Indications

Ophthalmology Squints, facial tics, hemifacial spasms

Dentistry Square jaw, teeth grinding

Rehabilitation medicine Cerebral palsy, post-stroke muscle stiffness

Gastroenterology Esophageal muscle spasms, and others

Dermatology/plastic surgery Wrinkle elimination, square jaw, calf muscle slimming, hyperidrosis

Neurology Migraine, back pains

Urology Prostate hypertrophy, overactive bladder

Gynecology Incontinence

Other Vocal cord nodule, hemorrhoids


Botox: therapeutic vs cosmetic sales

57% 56%52% 50% 50% 52% 51% 51% 52% 54%

0%

25%

50%

75%

100%

0

500

1,000

1,500

2,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

($mn) Cosmetic sales (L)

Therapeutic sales (L)

Therapeutic sales share (R)


Therapeutic sales represent

only 10% of Botulinum Toxin

sales in emerging countries

10


▶ Botox, the breakthrough botulinum toxin product

Allergan’s Botox was the world’s first botulinum toxin product. It was approved by the FDA in 1989

and went on sale in 1991. In 1991, French drugmaker Beaufour Ipsen obtained approval in Europe

for and began selling its botulinum toxin product “Dysport.” However, until 2000, only Botox had

been approved by the FDA. Since going on sale in 1991, Botox’s cumulative sales had reached

just $240mn by 2000. However, with approval from the FDA in 2000 for the treatment of platysma

muscle spasms, and in 2002 for the treatment of wrinkles, Botox sales posted a CAGR of 15% to

reach $2.0bnin 2013.

Global botulinum toxin product market vs Botox sales

125 176 240 310 440 564 705 831 982 1,212 1,311 1,310 1,419 1,595 1,766 1,982 966 1,156 1,426 1,579 1,597 1,797 2,045 2,294

2,608

86% 85% 85% 83% 82% 79% 78% 77% 76%

0%

25%

50%

75%

100%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Botox sales (L)

Global botulinum toxin market (L)

Botox market share (R)

($mn)

Botox approved for cosmetic use by FDA

2005~2013 global market CAGR 13.2%2005~2013 botox sales CAGR 11.5%

Source: Allergan, Yuanta Securities

Botulinum toxin product market share, by region (2013) Botulinum toxin product market share, by product (2013)

Source: Yuanta Securities Source: Company data, Yuanta Securities

US, 50%

EU, 26%

Others, 24%

Botox (US), 74.5%

Dysport (France),

15.8%

Xeomin (Germany),

6.0%

BTXA (China), 1.2%

Meditoxin (Korea), 2.5%

11

Company Report

▶ Korea’s botulinum toxin market

In Korea, clinical use of botulinum toxin began in 1996 when Allergan’s Botox imports were

approved. Imports of Dysport began in 1999 and BTXA from China in 2002. In 2006, Medy-Tox’s

“Medytoxin” was the first domestically manufactured botulinum toxin product to be approved by

Korea’s FDA. After the release of “Botulax” and “Nabota,” Korea had the highest number of

competing botulinum toxin products. Korea’s botulinum toxin market was estimated at W71.0bn for

2014, and Medy-Tox’s Meditoxin has the largest market share (30% in sales value, 38% in sales

volume).

Domestic botulinum toxin market value Botulinum toxin product market share, by product (2013)


Comparison of botulinum toxin products sold in Korea

Botox Dysport BTXA Meditoxin Myobloc Xeomin Botulax Nabota

Toxin type A A A A B A A A

Manufacturer

Allergan (US) Ipsen (France) Lanzhou Institute

(China)

Medy-Tox

(Korea)

Solstice

Neuroscience

(US)

Merz (Germany) Hugel Pharma

(Korea)

Daewoong

Pharm (Korea)

Distributor Allergan Korea Ipsen Korea Hanol Pharm Medy-Tox,

Pacific Pharm Dream Pharma Hanwha Pharm Hugel Pharma,

CKD

Daewoong

Pharm (Korea)

Major markets US, UK, etc US, UK, etc China, Korea

Korea, Japan,

etc US, Europe

Europe, South

Am

Korea, Japan,

etc Korea

Approval Oct 2, 1996 Jul 13, 1999 May 29, 2002 Mar 16, 2006 Apr 8, 2008 Jun 2, 2009 Mar 17, 2010 Nov 29, 2013

Ingredients

A-type 100U

Human serum

albumin 0.5mg

NaCl 0.9mg

A-type 500U

Human serum

albumin 125ug

Lactose 2.5mg

A-type 100U

gelatin 5mg

dextran 25mg

sucrose 25mg

A-type 100U

Human serum

albumin 0.5mg

NaCl 0.9mg

B-type 5000U/ml

Human serum

albumin 0.05%

Succinate 0.01 M

A-type 100 LD50

U

Human serum

albumin 1mg

Saccharose

4.7mg

A-type 100U

Human serum

albumin 0.5mg

NaCl 0.9mg

A-type 100U

Human serum

albumin 0.5mg,

NaCl 0.9mg

Product image


Meditoxin, 29.6%

Botox, 21.3%

Botulax, 21.3%

Dysport, 12.8%

Others, 14.9%

26 32

41 46

56 61 63

66 70

74

0

10

20

30

40

50

60

70

80

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014F

CAGR 12.5%

(Wbn)

12


Dermal filler market

Soft tissue augmentation for wrinkles, scars, and lips, has long been used in cosmetic surgery.

In the early 1900s, liquid paraffin was used for soft tissue augmentation, and in the 1940s, liquid

silicone, but they were subsequently banned due to side effects. In the late 1970s, with the

introduction of liposuction, autologous fat began to be widely used for soft tissue augmentation. In

1981, bovine collagen was approved by the US FDA as a dermal implant, and, in the late 1980s,

autologous collagen was successfully separated from autologous fat for use in soft tissue

augmentation.

These days, hyaluronic acid derivatives (HA filler), autologous dermal implants, allogenic dermal

implants, recombinant human collagen, and synthetics, are used in soft tissue augmentation. With

the introduction of HA filler, now the most popular type of dermal filler, collagen is less frequently

used. The table below shows the various types of dermal filler.

Hyaluronic acid (HA) was first extracted from vitreous humor by Meyer and Palmer in 1934. It is a

polyanionic mucopolysaccaride, a bio-macromolecule commonly found in living organisms. It is

found in muscle, the skeleton, blood, lymph, the placenta, eyes, cartilage, and synovia, but most

commonly in the skin. HA is widely used to replace and restore human tissue, and is commonly

used in cosmetic surgery.

HA filler classification, by originating material

Classification Note

Heterografts Bovine collagen and derivatives, pig collagen, and hyaluronic acid

Allografts Less chance of allergic reactions to bovine/pig collagen and derivatives

Autografts Autologous fat, autologous collagen, etc

Synthetics Gore-tex, silicone, bio polymer, bio plastics, etc


HA filler classification, by action

Classification Note Ingredients

Volumizer Remains in bulk form Collagen, hyaluronic acid, silicone, PAAG, etc

Stimulator Stimulates creation of new collagen and tissue PMMA, PLA, Dextran, CaHA, HEMA, etc


13

Company Report

▶ HA filler (hyaluronic acid based dermal filler) market

Hyaluronic acid-based dermal filler is most widely used, since HA has few side effects compared

with artificial material-based fillers. Some of the latest HA products now come with local anesthetic

“Lidocaine,” which can minimize pain.

Sweden-based Q-Med’s “Restylane” was the first HA filler approved by the FDA (2003). In 2010,

Q-Med was bought by Swiss firm Galderma, a joint venture between Nestle and L’Oreal.

Galderma sells both Restylane and “Azzalure” (Ipsen), a botulinum toxin; and Allergan sells Botox

and HA filler “Juvederm” (approved by the FDA in 2006), which has now become the most popular

HA filler, overtaking Restylane. In this way, when a company offers both botulinum toxin and HA

filler, it can maximize synergies by selling package deals (= product bundling).

Global Juvederm sales Vs facial filler market Global facial filler market breakdown (4Q13)

14%

28% 31% 33% 35% 37% 36% 38%

0%

20%

40%

60%

80%

100%

0

500

1,000

1,500

2,000

2006 2007 2008 2009 2010 2011 2012 2013

Juvederm sales (L)

Global facial filler market (L)

Juvederm M/S (R)

($mn)

2006~2013 global market CAGR 14.0%

2006~2013 Juvederm sales CAGR 37.2%


Domestic facial filler market Domestic facial filler market breakdown (2013)


Juvederm (Allergan),

44%

Restylane (Galderma),

25%

Others, 31%

Restylane (Galderma),

32.9%

Yvoire (LGLS), 15.7%

Juvederm (Allergan),

14.3%

Elravie (Huons), 11.4%

Ellanse (JW Pharma),

10.0%

Others, 15.7%

43

55

70

100

0

20

40

60

80

100

120

2011 2012 2013 2014F

CAGR 32.5%

(Wbn)

14


Allergan the leader in facial injectable market

Founded in 1948, Allergan is a global specialty pharma specializing in ophthalmic, dermatological,

and neurological products. It is best known for “Restasis” (prescription eye drop), “Botox”

(botulinum toxin), “Juvederm” (HA filler), and “Natrelle” (breast implant). Through the acquisition in

1991 of Oculinum, it obtained the sales license for Botox, which received FDA approval in 2002 for

the treatment of wrinkles. In 2006, it bought US company Inamed for $3.3bn (12-month-forward

P/E 31x), adding Natrelle, Juvederm, and “Lap-Band” (adjustable gastric banding system) to its

product line-up.

Allergan announced a plan in Nov 2014 to merge with Irish generic pharma, Actavis, for $66bn

($215/share). In Mar 2015, Actavis completed its merger with Allergan and it plans to change its

name to Allegan after shareholders’ approval.

Allergan: sales breakdown, by product Allergan: sales breakdown, by region

1,531 1,777 2,009 2,101 2,262 2,520 2,692 2,890 982

1,212 1,311 1,310 1,419

1,595 1,766

1,982

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2006 2007 2008 2009 2010 2011 2012 2013

($mn) Eye care pharmaceuticalsBotox/neuromodulatorSkin careUrologicsMedical devicesOther revenues

2,024 2,542 2,793 2,906 3,017 3,222 3,379 3,839

549 762

882 858 932 1,087 1,096

1,238

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2006 2007 2008 2009 2010 2011 2012 2013

($mn) United States Europe Asia Pacific Latin America Other regions


Allergan: operating margin change depending on Botox’s sales portion

10%12%

15%

18%

32% 32%34% 36%

32% 31% 30% 29% 29% 29%31% 31%

17% 17% 18%18%

22%

-1%

26% 27%

1%

19%19% 21%

5%

25%29% 29%

-10%

0%

10%

20%

30%

40%

0

500

1,000

1,500

2,000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Botox sales (L)Botox sales share (L)OPM (R)

($mn)


15

Company Report

Medy-Tox (086900 KS) pro forma financial statements (K-IFRS, consolidated)

Statement of comprehensive income Statement of financial position

FY ends Dec (Wbn) 2013A 2014A 2015E 2016E 2017E FY ends Dec (Wbn) 2013A 2014A 2015E 2016E 2017E

Sales 39 76 103 124 193 Current assets 31 103 141 192 298

Cost of sales 5 7 11 13 15 Cash & cash equiv 4 5 40 87 182

Gross profit 34 69 92 111 177 Accts rec & other 10 14 18 20 29

SG&A 18 19 21 25 33 Inventory 2 4 3 4 6

Operating profit 17 50 71 86 145 Non-current assets 48 65 76 86 84

EBITDA 19 53 75 92 151 Tangible assets 36 51 59 66 63

Non-op profit/loss 0 4 1 2 4 Investment in affiliate 0 0 0 0 0

Forex gain/loss 0 0 0 0 0 Other non-current 0 0 0 0 0

Net interest inc 0 2 2 3 6 Total assets 79 169 217 278 383

Equity-meth gain/loss 0 0 0 0 0 Current liabilities 14 35 36 36 36

Other 0 2 -2 -2 -1 Accts payable & other 4 6 7 7 7

Net prof before income tax 17 54 71 88 149 ST financial liabilities 8 8 8 8 8

Income tax 2 10 15 19 34 Liquid LT liabilities 0 0 0 0 0

Net profit from cont op 14 44 56 70 115 Non-current liabilities 4 52 52 52 52

Net profit from discont op 0 0 0 0 0 LT financial liabilities 0 0 0 0 0

Net profit 14 44 56 70 115 Debentures 0 0 0 0 0

NP for controlling int 14 44 56 70 115 Total liabilities 19 87 87 88 88

Total comprehensive inc 14 43 56 70 114 Equity, controlling int 61 82 130 190 295

TCI for controlling int 14 43 56 70 114 Paid-in capital 3 3 3 3 3

Note: Operating profit calculation same as K-GAAP (sales - COGS - SG&A). Capital surplus 14 14 14 14 14

Retained earnings 55 90 138 199 304

Equity, non-control int 0 0 0 0 0

Total equity 61 82 130 190 295

Net debt -10 -76 -111 -158 -253

Total debt 8 8 8 8 8

Cash flow statement Valuation FY ends Dec (Wbn) 2013A 2014A 2015E 2016E 2017E FY ends Dec 2013A 2014A 2015E 2016E 2017E

Operating cash flow 17 105 57 71 109 EPS (won) 2,529 7,713 9,975 12,325 20,274

Net profit 14 44 56 70 115 BPS (won) 11,186 15,276 24,327 35,655 55,211

Depreciation & amort 1 1 3 4 4 EBITDA/shr (won) 3,293 9,337 13,284 16,233 26,690

Forex gain/loss 0 0 0 0 0 SPS (won) 6,920 13,417 18,209 21,922 34,067

Affiliate invest gain/loss 0 0 0 0 0 DPS (won) 1,000 1,500 1,700 1,900 2,500

Inc(dec) net working cap 1 55 -3 -3 -11 P/E (x) 48.8 24.2 38.3 31.0 18.9

Other 0 6 0 1 1 P/B (x) 11.0 12.2 15.7 10.7 6.9

Investing cash flow -6 -84 -15 -15 -5 EV/EBITDA (x) 36.9 18.5 27.3 21.8 12.7

Investment 1 0 0 0 0 PSR (x) 17.8 13.9 21.0 17.4 11.2

Inc in tangible assets -17 -17 -11 -11 -1

Dec in tangible assets 0 0 0 0 0 Key financial dataOther 10 -67 -4 -4 -4 FY ends Dec 2013A 2014A 2015E 2016E 2017E

Financing cash flow -7 -21 -7 -8 -9 Sales (% YoY) 7.9 93.9 35.7 20.4 55.4

Inc(dec) in ST fin liab 4 0 0 0 0 Operating profit (%YoY) -1.6 198.1 41.3 22.4 67.4

Inc(dec) in LT fin liab -2 0 0 0 0 NP, CI (%YoY) -7.3 205.0 29.3 23.6 64.5

Inc(dec) in equity 0 0 0 0 0 Gross margin (%) 87.6 91.0 89.1 89.7 92.1

Cash dividend -3 -8 -8 -9 -10 Operating margin (%) 42.8 65.8 68.5 69.7 75.0

Other -6 -13 1 1 1 NP, CI margin (%) 36.5 57.5 54.8 56.2 59.5

Other cash flow 0 0 -1 -1 -1 EBITDA margin (%) 47.6 69.6 73.0 74.1 78.3

Inc (dec) in cash & eq 4 1 34 47 95 ROIC (%) 32.9 78.4 93.3 93.4 132.0

Beginning cash & equiv 1 4 5 40 87 ROA (%) 19.1 35.2 29.3 28.2 34.7

Ending cash & equiv 4 5 40 87 182 ROE (%) 24.7 61.3 53.4 43.6 47.3

NOPLAT 17 50 71 86 145 Debt-to-equity (%) 30.9 106.5 67.4 46.1 29.9

FCF 0 82 46 59 106 Net debt-to-equity (%) -16.8 -93.4 -85.3 -83.2 -85.9

OP/financing cost (x) 100.9 472.3 667.4 816.8 1,367.0

Note: EPS, BPS, P/E and P/B are based on controlling interest

For valuation metrics such as P/E, historical figures are based on annual averages, estimates on current price

For ROA or ROE, assets and equity are averages of end-of-year figures for given year and year prior

Data to 2010 based on K-GAAP and from 2011, K-IFRS


16


P/E band chart P/B band chart

Medy-Tox (086900 KS) ratings and target price history

Date Rating TP (won)

2015-05-18 BUY 500,000

2015-05-06 BUY 400,000

2015-03-30 BUY 400,000

2015-03-02 BUY 450,000

2015-02-10 BUY 450,000

2015-01-28 BUY 400,000

2015-01-14 BUY 400,000

2014-12-22 BUY 290,000

2014-12-01 BUY 290,000

2014-11-28 BUY 290,000


Disclosures & disclaimers This research report has been prepared for informational purposes only; it does not constitute an offer or a solicitation of an offer to buy or sell any securities or other financial instruments. The information and data contained in this report have been obtained from sources we consider reliable; however, we make no representation that the information provided in this report is accurate or complete, and it should not be relied on as such. The recipient of this report should use his/her independent judgment regarding the sale or purchase of any securities or financial instruments mentioned herein. We disclaim any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. This report is for our clients only. It is copyrighted material and may not be reproduced, transmitted, quoted, or distributed in any manner without the prior written consent of Yuanta Securities Korea Co., Ltd.

As of the publication date of this report, Yuanta Securities Korea Co., Ltd. does not own a stake in excess of 1%, nor does it have any interest whatsoever, in the subject company (ies). The material contained herein was not disclosed by Yuanta Securities Korea Co., Ltd. to any institutional investors or third parties prior to its publication. The analyst (s) of this report or the analyst (s)’ spouse does not have any financial interest in the securities of the subject company (ies) mentioned herein, nor financial interest of any nature related to the subject company (ies) (including without limitation, whether it consists of any option, right, warrant, future, long or short position), as of the publication date of this report.

Analyst certification I/We, as the research analyst/analysts who prepared this research report, do hereby certify that the views expressed in this report accurately reflect my/our personal views about the subject securities discussed in this report.

Stock and sector ratings Stock ratings include an Investment Rating (Strong Buy, Buy, Hold, Sell) based on the expected absolute return of a stock over

the next 6 -12 months. - Strong Buy: Expected to return 30% or more - Buy: Expected to return between 10% and 30% - Hold: Expected to return between -10 and +10%

- Sell: Expected to return -10% or less

Sector ratings suggest 6 to 12 - month forward investment weighting of a given sector compared to its market capitalization weighting.

- Overweight: Investment weighting is higher than the market capitalization weighting - Neutral: Investment weighting is equal to the market capitalization weighting - Underweight: Investment weighting is lower than the market capitalization weighting

0

100,000

200,000

300,000

400,000

500,000

600,000

May-13 Nov-13 May-14 Nov-14 May-15

Current PriceTarget Price

(won)

0

100

200

300

400

500

600

700

800

900

1,000

Jan-08 Jan-11 Jan-14 Jan-17

Price (adj)8.1 x15.2 x22.3 x29.3 x36.4 x

(W'000)

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Jan-08 Jan-11 Jan-14 Jan-17

Price (adj)2.6 x7.7 x12.9 x18.0 x23.1 x

(W'000)

17

Company Report

Yuanta Securities (Korea) International Network

Research Center

Yuanta Securities Building

Euljiro 76 Jung-gu

Seoul, Korea 100-845

Tel: +822 3770 3454

Seoul

Head Office

Yuanta Securities Building

Euljiro 76 Jung-gu

Seoul, Korea 100-845

Tel: +822 3770 3454

Hong Kong

TONGYANG Securities Hong Kong Limited

#2107, 21F, Hutchison House, 10 Harcourt Road,

Central, Hong Kong

Tel: +852 3980 6000

Manila

TONGYANG Savings Bank

Ground Floor Chatham House 116 Valero cor. V.A.

Rufino streets, Salcedo Village, Makati City Metro

Manila, Philippines

Tel: +63 2 845 3838

Phnom Penh

TONGYANG Securities (Cambodia) Plc.

#138, 2nd Floor, Paragon Bldg, Norodom Blvd,

Phnom Penh, Cambodia

Tel: +855 23 224 125

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