April 24, 2024

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[THE INVESTOR] Local analysts dropped Hanmi Pharmaceutical's share price target on Aug. 1 due to concerns over a weak outlook for the third quarter.

A number of equities research analysts issued cautionary reports on the drug maker, following its second-quarter earnings disclosure a day earlier, posting an operating profit of 19.9 billion won (US$17.74 million), down 7.4 percent on-year. 

The sluggish result stemmed from a change in accounting method which recognizes its research and development expenditure as cost, not as an intangible asset.

“Hanmi has decided to regard clinical development expenses for efpeglenatide, which it had licensed out to Sanofi, as costs. Some 20 billion won to 30 billion won will be recognized as expenses this year and the figure will further grow next year,” said Kang Yang-ku, an analyst at Hyundai Motor Securities. He lowered target price to 580,000 won from 615,000 won.

Under the International Financial Reporting Standards, R&D expenditure can be considered as an asset if the future benefits such as technological feasibility are proved enough. But due to the difficulty of determining the costs applicable to future benefits, many companies calculate research spending as costs.

Due to the new bookkeeping method, Shinhan Investment expected that the drug maker’s operating profit would decrease 28.9 percent on-year to 19.8 billion won in the July to September period.

Kang said Hanmi will spend up to 180 billion won over three years for the development of efpeglenatide, a diabetes drug candidate which is in phase 3 clinical programs.

“A slowdown in the profit margin seems to be inevitable because of the increasing development costs,” said Seo Mi-hwa, an analyst at Yuanta Securities.

Shares of Hanmi Pharmaceutical inched up 0.12 percent to close at 425,000 won.

By Park Han-na (hnpark@heraldcorp.com)