Medy-Tox (086900 KS) Cosmeceuticals industry likely to...

Korea’s largest botulinum toxin maker likely to supply next-gen botox to US

Medy-Tox’s “Meditoxin” is the most popular botulinum toxin in Korea with the highest market

share (29.6% in terms of sales value). The company signed an agreement with Allergan in Sep

2013, giving Allergan exclusive global rights outside Korea (joint sales in Japan) for “Innotox”

(name in Korea).

Phase III Innotox trials in US likely to begin in 2015, milestone payment expected

After receiving a W68.9bn upfront payment from Allergan in 1Q14, Medy-Tox has been

recognizing W3.9bn every quarter. In addition, with Allergan receiving confirmation from the

FDA and EMA of the necessary requirements to develop and receive approval for a new

botulinum toxin product, Medy-Tox received $15mn (W15.2bn) in milestone payments in 3Q

and booked the entire amount in 3Q. Allergan is likely to begin Phase III clinical trials for

Innotox in the US in 1H15 and make additional milestone payments when the trials begin.

3Q14 earnings beat consensus, despite seasonality

Medy-Tox released its 3Q14 results on Nov 21. K-IFRS, consolidated sales came to W32.1bn

(+218.2% YoY, +100.0% QoQ), operating profit W26.4bn (+544.6% YoY, +179.1% QoQ, OPM

82.2%), and net profit W21.8bn (+506.1% YoY, +153.7% QoQ), beating consensus estimates.

Excluding the upfront payment from Allergan, sales rose 27.1% YoY. Currently, the company’s

product line-up has increased (“Meditoxin” 25U, 50U, 100U, 150U, 200U, “Innotox” 25U, and

five types of “HA Filler”), but only its old plant is operating, which has disrupted product supply.

Thus, domestic sales came to W5.6bn (+5.7% YoY), but exports came to W7.2bn (51.6% YoY)

thanks to higher exports of HA filler (including Lidocaine) to Japan and Meditoxin to Brazil. In

addition, commissions to its domestic marketing partner, Pacific Pharm, declined, and R&D

expenses also dropped thanks to the end of some new products, boosting profitability.

R&D-focused Actavis to acquire Allergan for $66bn

Valeant, Canada’s largest pharma, has been attempting a hostile takeover of Allergan since Apr

2014, and a special shareholder meeting was set to be held on Dec 18 at the request of

Valeant. In a move against the hostile takeover, on Nov 17, Allergan agreed to merge with Irish-

headquartered Actavis for $66bn.

Pharmaceuticals/bio

BUY (M) TP: W290,000 (M)

Share price (won, Nov 14) 246,000

Paid-in capital (Wbn) 3

Market cap (Wbn) 1,392

BPS (W) 18,684

Net debt/equity ratio (%) -96.4

Shares outstanding 5,656,535

Avg daily T/O (2M, Wbn) 13

Avg daily volume (2M, shrs) 61,433

52-week high (won) 256,000

52-week low (won) 118,900

Foreign ownership (%) 30.3

Major

shareholders (%)

Hyeon-ho Jung & others

21.8

Stock performance (%)

1M 3M 12M

Absolute 7.4 57.6 34.6

Relative 7.8 62.3 27.1

Abs (US$) 3.9 46.2 30.6

0

50

100

150

200

250

300

0

50,000

100,000

150,000

200,000

250,000

300,000

Nov-12 Nov-13 Nov-14

Medy-Tox Inc.(LHS)

Rel. to KOSDAQ(RHS)

(won) (%)

Company Report 2014.11.20

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

FY ends Dec 2012A 2013A 2014E 2015E

Sales 36 39 78 95

OP 17 17 50 62

Net profit, CI 15 14 40 50

Chg (% y-y) 108.6 -7.3 179.9 25.9

P/E (x) 21.2 48.8 34.2 27.2

P/B (x) 5.7 11.0 13.6 9.5

EV/EBITDA 16.4 36.9 24.6 18.7

ROE (%) 32.1 24.7 51.4 43.4

Note: OP = gross profit - SG&A Source: Yuanta Securities

Medy-Tox (086900 KS)

Cosmeceuticals industry likely to grow strongly

Quarterly earnings

(Wbn) 4Q14E YoY (%) QoQ (%) Consens Chg (%)

Sales 16 77.6 -49.3 16 -1.2

OP 6 55.3 -75.8 9 -29.8

NPBIT 5 10.0 -80.1 9 -42.8

NP, CI 3 -27.5 -86.1 9 -65.9

OP margin (%) 39.3 -5.7 %p -42.9 %p 55.3 -16.0 %p

NP margin (%) 18.5 -26.9 %p -49.3 %p 53.7 -35.2 %p

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

Source: Yuanta Securities

Company Report Dec 2, 2014

Medy-tox (086900 KS)

2

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

3Q13 4Q13 1Q14 2Q14 3Q14 YoY QoQ3Q14E

(Consensus) 2013

2014E

(Consensus)

Sales 10.1 9.2 13.3 16.1 32.1 218.2 100.0 31.2 39.1 76.5

COGS 1.3 1.4 1.5 1.8 1.8 36.2 -1.7 4.9

COGS-to-sales (%) 12.9 15.2 11.2 11.2 5.5 12.5

Gross profit 8.8 7.7 11.8 14.3 30.4 245.1 112.8 34.3

SG&A 4.7 3.6 4.3 4.8 3.9 -16.2 -17.9 17.5

SG&A-to-sales (%) 46.5 39.5 32.4 29.9 12.3 44.8

Op profit 4.1 4.1 7.5 9.5 26.4 544.6 179.1 23.8 16.8 50.1

Op margin (%) 40.6 44.6 56.3 58.9 82.2 76.3 43.0 65.5

Non-op profit/loss 0.1 0.7 0.3 1.3 0.9 750.0 -36.1 0.6 0.0 2.8

Net prof before income tax 4.1 4.9 7.8 10.8 27.3 565.4 152.6 24.4 16.8 52.9

Income tax 0.5 0.7 1.3 2.2 5.5 992.0 148.2 6.0 2.5 9.5

Tax rate (%) 12 14 16 20 20 25 15 18

Net profit 3.6 4.2 6.6 8.6 21.8 506.1 153.7 18.4 14.3 43.4

Net margin (%) 35.6 45.7 49.4 53.5 67.9 59.0 36.6 56.7

Medy-Tox: eanings excluding upfront payment from Allergan

3Q13 4Q13 1Q14 2Q14 3Q14 YoY QoQ

Sales 10.1 9.2 9.4 12.2 12.8 27.1 5.5

COGS 1.3 1.4 1.5 1.8 1.8 36.2 -1.7

COGS-to-sales (%) 12.9 15.2 15.9 14.8 13.8

Gross profit 8.8 7.7 7.9 10.4 11.1 25.8 6.8

SG&A 4.7 3.6 4.3 4.8 3.9 -16.2 -17.9

SG&A-to-sales (%) 46.5 39.5 45.7 39.4 30.7

Op profit 4.1 4.1 3.6 5.6 7.1 73.9 28.0

Op margin (%) 40.6 44.6 38.4 45.8 55.5

Non-op profit/loss 0.1 0.7 -0.3 -1.3 0.9 NA NA

Net prof before income tax 4.1 4.9 3.3 4.3 8.0 94.6 86.9

Income tax 0.5 0.7 0.3 1.3 0.8 57.9 -37.2

Tax rate (%) 12 14 10 29 10

Net profit 3.6 4.2 3.0 3.0 7.2 99.7 138.6

Net margin (%) 35.6 45.7 31.7 24.8 56.0

Note: Consensus estimates are based on Nov 14, when 3Q14 results were released


Company Report

3

Medy-Tox: sales breakdown (Wbn)

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 YoY QoQ 2012 2013

Sales 8.8 11.1 10.1 9.2 13.3 16.1 32.1 219.0 100.0 36.3 39.1

Chg (% YoY) 27.4 17.3 10.2 -14.5 51.1 45.0 21.9 67.1 7.8

1) Domestic sales 4.9 5.6 5.3 4.9 5.1 6.7 5.6 5.7 -16.1 17.6 20.8

Chg (% YoY) 35.4 30.9 20.8 -6.1 2.9 18.8 5.7 109.5 18.3

2) Overseas sales 3.9 5.4 4.8 4.3 4.2 5.4 7.2 51.6 32.3 18.7 18.3

Chg (% YoY) 18.6 5.8 0.3 -22.3 8.6 0.2 51.6 40.6 -2.0

Sales portion (%) 44.3 49.1 47.2 46.7 31.8 33.9 22.4 51.6 46.9

Asia 2.1 3.6 3.2 2.7 2.5 3.6 4.5 42.8 25.8 13.3 11.5

Chg (% YoY) -15.6 -7.4 0.8 -30.3 20.7 0.3 42.8 35.6 -13.7

East Europe 0.3 0.5 0.4 0.6 0.5 0.4 0.4 3.5 6.7 1.2 1.8

Chg (% YoY) 10.5 53.7 49.6 89.9 75.7 -19.8 3.5 -3.2 53.0

ROW 1.5 1.4 1.2 1 1.2 1.5 2.3 90.6 54.6 4.2 5.1

Chg (% YoY) 15.4 42.9 -10.6 -25.7 -16.1 6.8 90.6 98.3 153.6

3) Allergan upfront 3.9 3.9 19.3 NA 392.0

Chg (% YoY) NA NA NA


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 exclusively distributes 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); recevied total amount in 1Q14, but has recognized W3.9bn each quarter

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)



4

Estimated sales from Allergan related to technology transfer (Wbn)

2014E 2015E 2016E 2017E 2018E

Milestone payments 31 41 51 71 6

Upfront payment 16 16 16 16 6

Milestone payments 15 25 36 56

Allergan sales 106 212

Sales milestone 5 11

Supply to Allergan 27 53

Royalty 7 15

Total sales related to Allergan alliance 31 41 51 111 85


Medy-Tox: DCF valuation (Wbn)

2014E 2015E 2016E 2017E 2018E Continuing

NOPLAT 38.8 48.6 58.3 106.7 88.3

Depreciation & amortization 1.5 4.1 4.1 4.0 4.0

Free cash 40.3 52.7 62.4 110.7 92.3

Working capital increase 2.5 -0.6 7.3 13.5 -6.4

Capex (tangible & intangible Assets) 14.0 1.0 1.0 1.0 1.0

Total investment 16.5 0.4 8.3 14.5 -5.4

Free cash flow 23.8 52.3 54.1 96.2 97.7 102.1

PVIF (present value interest factor) 1.00 0.91 0.83 0.76 0.69 0.63 0.63

PV of FCF 23.8 47.7 45.0 73.1 67.7

Terminal value 2,003.9

Fair price calculation

FCF growth (normalized, %) 4.5 Beta 1.2

Terminal growth (%) 4.5 Rf 2.3

WACC 9.6 Risk premium 6.0

PV of FCF 257 Dividend yeld 0.6

PV of continuing value 1,267 Re 10.1

Sum 1,525

Net debt -92 We 0.9

Equity value 1,617 Wd 0.1

Shares out ('000) 5,657 Re 10.1

Share price (calculated) 285,782 Rd 4.0

Stock price 236,800 WACC 9.6

Total return 20.7%


Company Report

5

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 cosmeceuticalsInjectable cosmeceuticals

($bn)

Botulinum toxin69%

Facial fillers31%

Source: Yuanta Securities Source: Yuanta Securities


6

What are facial injectables or injectable cosmeceuticals?

Across most medical fields, and especially in cosmetic surgery, minimally-invasive and non-

invasive procedures have become mainstream. 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


Company Report

7

Facial injectable applications



8

Dermatologist treatment prefered 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 dematologist’s Botox treatment advert

Source: Premier Laser Clinic, Yuanta Securities

Company Report

9

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)



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%

Company Report

11

▶ 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, US, Europe Europe, South Korea, Japan, 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.

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


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


Company Report

13

▶ 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 US$3.3bn (12-month-forward

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

product line-up.

Among its products, Botox accounts for the highest sales portion of 31%, and Botox has high

margins, as the botulinum toxin market is an oligopoly due to stiff entry barriers. Thus, the

company’s profitability is affected most by its Botox sales portion.

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)


Company Report

15

▶ Allergan merges with Actavis for $66bn

Valeant, Canada’s largest pharma, had attempted a hostile takeover of Allergan from Apr 2014.

Its corporate culture differs greatly from Allergan’s, as Valeant has grown through M&A deals and

cost savings. At the request of Valeant, a special shareholder meeting was set to be held on Dec

18, where Valeant was set to depose executives who opposed its acquisition.

In April, Valeant and Bill Ackman, a 9.7% stake owner, suggested that Allergan should sell the

company, but after Allergan rejected the offer, Valeant pursued a hostile takeover from end-June.

In a move against the hostile takeover, Allergan negotiated with Irish-headquartered Actavis and

decided to merge with Actavis for $66bn ($215/share) on Nov 17. We believe Actavis is a better

acquirer for Allergan, as Actavis values R&D. Actavis generates about 50% of sales from brand

drugs thanks to its acquisitions of Warner Chillcott (US) in 2013 and Forest (US) in 2014.

Meditox related firms valuation table ($mn)

Mkt cap Sales OP NP OPM

(%)

Sales

(% YoY)

OP

(% YoY)

ROE

(%)

2014E

P/E

2015E

P/E P/B

EV/

EBITDA

Price

(% YTD)

Market

(% YTD)

Allergan 59,178 7,210 2,640 1,909 36.6 14.4 45.9 22.9 31.5 23.2 8.0 20.1 78.8 6.4

Valeant 44,769 8,228 3,796 2,811 46.1 42.6 1,326.2 28.4 16.3 13.4 7.8 15.2 14.3 6.4

Actavis plc 64,614 12,660 4,011 2,999 31.7 45.9 1,047.7 9.3 18.0 14.8 1.9 18.7 45.1 6.4

Ipsen SA 4,289 1,614 308 220 19.1 -0.8 13.8 17.7 19.0 17.8 3.2 11.1 20.4 -2.2

Medy-Tox Inc 1,263 73 49 36 67.3 105.2 222.8 56.3 36.0 30.0 13.3 24.0 44.9 8.4

Average 40.2 41.5 531.3 26.9 24.2 19.8 6.9 17.8 40.7 5.1

Note: As of Nov 14, 2014, Source: Yuanta Securities

Allergan P/E band chart (12-month forward) Valeant P/E band chart (12-month forward)

0

50

100

150

200

250

300

2008 2009 2010 2011 2012 2013 2014

Price10x15x20x25x

($)

0

50

100

150

200

2008 2009 2010 2011 2012 2013 2014

Price6x9x12x15x18x

($)

Source: Datastream, Yuanta Securities Source: Datastream, Yuanta Securities


16

Note: 1. Adjusted op profit = gross profit - SG&A

2. EBITDA is based on adjusted operating profit

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

Statement of comprehensive income Statement of financial position

FY ends Dec (Wbn) 2012A 2013A 2014E 2015E 2016E FY ends Dec (Wbn) 2012A 2013A 2014E 2015E 2016E

Sales 36 39 78 95 112 Current assets 39 31 117 146 182

Cost of sales 3 5 6 9 9 Cash & cash equiv 1 4 86 113 141

Gross profit 33 34 72 87 103 Accts rec & other 11 10 14 15 23

SG&A 16 18 22 24 28 Inventory 1 2 2 2 3

Operating profit 17 17 50 62 75 Non-current assets 32 48 62 60 58

EBITDA 19 19 52 67 80 Tangible assets 21 36 48 45 42

Non-op profit/loss 1 0 2 2 3 Investment in affiliate 0 0 0 0 0

Forex gain/loss 0 0 -1 -1 -1 Other non-current 0 0 0 0 0

Net interest inc 1 0 3 4 4 Total assets 71 79 179 205 240

Equity-meth gain/loss 0 0 0 0 0 Current liabilities 11 14 14 14 14

Other 0 0 -1 -1 -1 Accts payable & other 3 4 4 4 4

Net prof before income tax 18 17 51 65 78 ST financial liabilities 5 8 8 8 8

Income tax 3 2 11 14 17 Liquid LT liabilities 0 0 0 0 0

Net profit from cont op 15 14 40 50 61 Non-current liabilities 4 4 69 54 38

Net profit from discont op 0 0 0 0 0 LT financial liabilities 2 0 0 0 0

Net profit 15 14 40 50 61 Debentures 0 0 0 0 0

NP for controlling int 15 14 40 50 61 Total liabilities 15 19 84 68 53

Total comprehensive inc 15 14 40 50 61 Equity, controlling int 55 61 95 137 187

TCI for controlling int 15 14 40 50 61 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 44 55 90 132 182

Equity, non-control int 0 0 0 0 0

Total equity 55 61 95 137 187

Net debt -18 -10 -92 -119 -146

Total debt 8 8 8 8 8

Cash flow statement Valuation

FY ends Dec (Wbn) 2012A 2013A 2014E 2015E 2016E FY ends Dec 2012A 2013A 2014E 2015E 2016E

Operating cash flow 15 17 42 58 60 EPS (won) 2,729 2,529 7,077 8,907 10,751

Net profit 15 14 40 50 61 BPS (won) 10,148 11,186 17,757 25,629 34,949

Depreciation & amort 1 1 2 4 4 EBITDA/shr (won) 3,323 3,293 9,175 11,854 14,092

Forex gain/loss 0 0 1 1 1 SPS (won) 6,411 6,920 13,756 16,879 19,799

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

Inc(dec) net working cap -4 1 -2 1 -7 P/E (x) 21.2 48.8 34.8 27.6 22.9

Other 3 0 2 2 2 P/B (x) 5.7 11.0 13.9 9.6 7.0

Investing cash flow -15 -6 -15 -2 -2 EV/EBITDA (x) 16.4 36.9 25.0 19.0 15.6

Investment 0 1 0 0 0 PSR (x) 9.0 17.8 17.9 14.6 12.4

Inc in tangible assets -7 -17 -14 -1 -1

Dec in tangible assets 0 0 0 0 0 Key financial dataOther -8 10 -1 -1 -1 FY ends Dec 2012 2013 2014E 2015E 2016E

Financing cash flow 0 -7 -5 -7 -10 Sales (% YoY) 67.1 7.9 98.8 22.7 17.3

Inc(dec) in ST fin liab -2 4 0 0 0 Operating profit (%YoY) 98.1 -1.6 197.2 25.0 20.2

Inc(dec) in LT fin liab 3 -2 0 0 0 NP, CI (%YoY) 108.6 -7.3 179.9 25.9 20.7

Inc(dec) in equity 0 0 0 0 0 Gross margin (%) 90.6 87.6 92.2 90.7 91.7

Cash dividend -2 -3 -5 -8 -11 Operating margin (%) 47.0 42.8 64.0 65.2 66.8

Other 1 -6 1 1 1 NP, CI margin (%) 42.6 36.5 51.4 52.8 54.3

Other cash flow 0 0 59 -21 -21 EBITDA margin (%) 51.8 47.6 66.7 70.2 71.2

Inc (dec) in cash & eq 0 4 81 27 27 ROIC (%) 45.3 32.9 65.5 71.6 82.2

Beginning cash & equiv 1 1 4 86 113 ROA (%) 25.0 19.1 31.0 26.2 27.3

Ending cash & equiv 1 4 86 113 141 ROE (%) 32.1 24.7 51.4 43.4 37.5

NOPLAT 2 2 5 6 7 Debt-to-equity (%) 27.8 30.9 88.1 49.7 28.1

FCF 5 0 24 53 55 Net debt-to-equity (%) -33.1 -16.8 -96.4 -86.7 -78.2

OP/financing cost (x) 98.2 100.9 299.9 374.9 450.6

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


Company Report

17

P/E band P/B band

Medy-Tox Inc. (086900 KQ) ratings and target price history

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

Nov-12 May-13 Nov-13 May-14 Nov-14

Current PriceTarget Price

(won) Date Ratings TP (won)

2014-11-20 BUY 290,000

2014-10-29 BUY 290,000

2014-10-14 BUY 290,000

2014-10-06 BUY 220,000

2014-09-01 BUY 220,000

2014-08-19 BUY 220,000

2014-08-18 BUY 220,000

2014-08-04 BUY 220,000

2014-07-16 BUY 220,000

2014-07-07 BUY 220,000


Disclosures & disclaimersThis 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

200

300

400

500

600

700

800

Jan-07 Jan-10 Jan-13 Jan-16

Price (adj)8.1 x14.7 x21.2 x27.7 x34.3 x

(W'000)

0

100

200

300

400

500

600

700

800

900

Jan-07 Jan-10 Jan-13 Jan-16

Price (adj)2.6 x6.0 x9.4 x12.8 x16.1 x

(W'000)

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Research Center

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Tel: +822 3770 3454

Seoul

Head Office

Yuanta Securities Building

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

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Rufino streets, Salcedo Village, Makati City Metro

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Phnom Penh, Cambodia

Tel: +855 23 224 125

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