Drug deregulation pleases Dong-A

By Kim Da-ye

The possible reclassification of 44 over-the-counter (OTC) drugs as “quasi-drugs,” is seen as a much needed move for the industry, but not everyone is going to benefit from it.

The “medicines” that provide mild treatments with approved active ingredients, will now be allowed to be sold outside pharmacies.

With a wider sales platform, pharmaceutical companies, many of which saw their sales fall following a government crackdown on kickbacks given to doctors or pharmacies, expect a rebound, but only a few will gain an advantage, analysts said Thursday.

“The sales of the OTC drugs well-known through advertisements could go up when they get reclassified as quasi-drugs. But due to the fast growth of the prescription drug market, many companies that generate little revenue from OTD drugs won’t see much difference,” Chung Bo-ra, analyst at Daishin Securities, said.

The obvious winner from the reclassification will be Dong-A Pharmaceutical, Korea’s largest drug manufacturer in terms of sales, which saw 15 percent of total sales worth 128.3 billion won come from Bacchus energy drinks in 2010.

The energy drinks that contain taurine have so far only been sold at pharmacies.

Analysts find the rosy outlook for Dong-A by studying the move in Japan. When Tokyo deregulated the pharmaceutical industry in 1999, liquid-type OTC drugs benefited most with sales growing 22 percent to 130 billion Japanese yen in 2005.

“One month after they were reclassified, the number of stores selling these drinks shot up 90 percent. That seemed to have aroused potential demand,” Miriam Kim, an analyst at Tong Yang Securities, said in a report.

Pharmaceutical firms are concerned that supplying Bacchus drinks to supermarkets could lead to more competition among final sellers and trigger price cuts. Damage to the product’s reputation from this is another possibility.

Kim said that the price of the drinks dropped only three percent in Japan, compared to the 22 percent growth in sales.

Dong-A’s shares rose 0.32 percent Wednesday and stayed unmoved Thursday to close at 95,400 won.

Another beneficiary is expected to be Dongkook Pharmaceutical whose Madecassol Care, an antiseptic ointment, could be reclassified as a quasi-drug as early as this August.

The ointment generated 10.5 billion won in sales last year, accounting for 7 percent of the total, according to Chung.

Yuhan, the country’s third largest pharmaceutical firm, could also take advantage of Antiphlamine, its anti-inflammatory ointment.

The product made up 2.7 billion won or 0.4 percent of the firm’s total sales last year, and is included among the 44 OTC drugs.

In contrast, Dong Wha Pharm is seen as a loser as its popular digestive drink Gas Whal Myung Su won’t be reclassified. Fifteen of the 44 OTC drugs are digestive drinks and competitors of Gas Whal Myung Su.

The drink contains corydaline, a type of herb that the health ministry found was unsafe for pregnant women.