Korean drug maker Kwangdong Pharmaceutical, which has been focusing on diversifying its business portfolio, appears to be making attempts at a turnaround amid its slumping global business.
The Korean company’s American dream, which started in 2015 through establishing Kwangdong USA, to sell its beverage products including popular Kwangdong Cornsilk Tea and Vita500, ended in 2018 partially due to mounting losses. The US unit’s net loss reached 1.1 billion won ($977,361) last year, with sales of around 100 million won in 2017.
“Through our internal decision making process, we decided to close down our unit in the US,” a Kwangdong spokesperson told The Investor. The company, however, declined to state a specific reason.
In 2017, the company established a unit in China to retail its beverages like Vita500, produced by a local OEM company, but this unit has yet to see any profit.
Stuck on beverages
Industry watchers were not surprised when the pharma company entered China and US as a food and beverage retailer because it was already Kwangdong’s main stay. Sales of the food and beverage sector accounts for more than 60 percent of the firm's total sales, which is estimated to have surpassed 1 trillion won last year.
Developing new drugs is a high risk-taking business. It requires more than 10 years of funding, and successful commercialization is difficult to achieve. As a result, Korean pharma companies often diversify their business portfolio like Kwangdong to stabilize their financial condition.
“We are trying to find a balance between drug development and new businesses,” a CJ Healthcare spokesperson told The Korea Herald. “Our H&B sector, which conducts business related to beverages accounts for around 10 percent of our sales and we are planning to further expand this.”
She added that part of the company’s sales from selling its flagship drink product like CJ Condition is being used for developing new drugs.
However, some industry watchers criticize Kwangdong for using just a tiny portion of its revenues on R&D. Only 1 percent of its sales last year was spent on this category during the third quarter of last year. It compared with the 10 percent average spent by its industry rivals.
To make matters worse, the company’s competitiveness in the local beverage market is also weakening. Although Kwandong is one of the few Korean pharma firms that posted sales of over 1 trillion won for the last three consecutive years, its profits have been falling. Its operating profit which reached 50.9 billion won in 2015 decreased to 35.7 billion won in 2017. In the third quarter last year it reached 27.2 billion won.
A turning point?
Kwangdong has been manifesting some changes since the end of last year. The company included its R&D executive as one of its board members for the first time in 15 years to strengthen the sector, according to sources.
“We are trying to make a business model that can boost our beverage, pharmaceutical and new businesses altogether,” the Kwangdong spokesperson said.
It also invested 2 billion won in cancer treatment related R&D firm Wellmakerbio through an investment association at the end of last year, saying the funding decision was made due to high potential that Kwangdong saw in the firm.
“Also, we are currently funding phase 2 clinical trials of new treatments for patients with obesity,” the company official added.
By Song Seung-hyun (email@example.com)