GC's Struggles in Q2, Reversal Expected in H2?

There is a prediction in the securities industry that GC, which showed poor performance in Q2 this year, will succeed in turning the atmosphere around in the second half. It is expected that sales of its core products, the intravenous immunoglobulin ALYGLO and the Hunter syndrome treatment, will expand.

On August 6, Daol Investment & Securities, DB Financial Investment, and Eugene Investment & Securities forecast that despite GC's somewhat weak Q2 performance, it would achieve strong results in the second half, reaching the anticipated level of performance growth predicted at the beginning of the year.

GC announced its provisional results for Q2 the previous day, reporting consolidated sales of KRW 417.4 billion (USD 328.6 million) and an operating profit of KRW 17.6 billion (USD 13.9 million). These figures represent a decrease of 3.6% and 25.5%, respectively, compared to the same period last year, with a net loss of KRW 9.1 billion (USD 7.2 million).

Lee Ji-soo, an analyst at Daol Investment & Securities, explained, "The weaker-than-expected performance is largely due to adjustments in supply from other countries to prioritize ALYGLO's launch in the U.S. Additionally, increased competition in the influenza vaccine market led to a decline in export sales."

Lee further noted, "With ALYGLO having launched in the U.S. in July, significant sales are expected in the second half." She highlighted GC's strategic moves to expand its market share in the U.S. private insurance sector by securing contracts with major players like United Healthcare and Express Scripts.

In the U.S., PBMs (Pharmacy Benefit Managers) manage prescription drug plans, negotiate drug prices, and establish pharmacy networks. Securing a PBM contract facilitates easier integration into the U.S. healthcare system. GC aims to finalize contracts with the top three PBMs, which hold about 80% of the U.S. market share, to expand prescriptions.

Lee added, "Moreover, ALYGLO's U.S. launch price is set six times higher than in Korea, contributing to profit improvement."

Expectations for GC's additional growth drivers in the second half remain high. Kwon Hae-soon, an analyst at Eugene Investment & Securities, commented, "The normalization of sales for Hunterase, a treatment for Hunter syndrome, also bodes well for the second half."

Hunter syndrome is a rare genetic disorder characterized by the accumulation of glycosaminoglycans (GAGs) in the body, causing damage to various tissues. GC has been selling Hunterase, which held about 80% of the domestic prescription market last year.

However, sales in Russia, the largest export market for Hunterase, plummeted due to the ongoing conflict with Ukraine, leading to weak exports last year. If GC leverages its expanded U.S. sales network for ALYGLO to recover exports, the high-price, high-margin nature of rare disease treatments should stabilize revenues quickly. Fortunately, Hunterase's Q2 sales reached KRW 18.4 billion (USD 14.5 million), up 49.6% year-on-year and 38.3% quarter-on-quarter, indicating a recovery.

Kwon noted, "Although the core business segment returned to growth on a standalone basis in Q2, increased R&D expenses from subsidiary GC Cell's clinical trials and rising interest costs impacted results. Focusing on financial health and investment efficiency in the second half could enhance corporate value."