South Korean SK Group sub, SK BIOPHARMACEUTICALS CO., soared to more than double the company’s initially offered price during its trading debut in the nation’s largest first share sale in three years.
The stock flew 159% from the IPO price in Seoul, boosting its market cap to 9.9 trillion won ($8.2 billion). Gains in the sector were rapid enough to prompt a $3 billion U.S. hedge fund to warn last week that valuations of Korean healthcare stocks — trading at 80 times 12-month forward earnings — are too expensive, leaving prices vulnerable.
Biotech stocks have boomed in Korea since regulators banned short-selling on March 16 for six months amid the global pandemic selloff. Many of the firms surged after announcing plans to develop treatments related to Covid-19, making them favourites of the nation’s retail traders.
More than $30 million in sales this year are expected from SK’s pipelines, which include one drug under clinical trial for a rare disease and two FDA-approved ones — Solriamfetol for excessive sleepiness and Cenobamate for epilepsy, according to Han Byung-hwa, analyst at Eugene Investment & Securities. That means the stock is trading at more than 200 times estimated sales, a high valuation given that rival UCB SA had a price-sales-ratio of 5 when it started its pharmaceutical business, Han wrote in a note.
Hans noted ”Still, sales growth from the three drugs will be about 45% per year, reaching 1.8 trillion won in 2030. Despite high R&D and marketing costs at least 200 billion won a year, the firm can get SK Group’s support”.
SK Biopharmaceuticals owns 55% insurance coverage in the U.S. in July for cenobamate, brand-named Xcopri, without a partnership with local companies, CEO Jeong Woo Cho said at a press conference on June 15. Xcopri is about $30 per pill for 50 mg, compared with $20 per pill for rival UCB’s Briviact’s treatment, according to First Data Bank. UCB’s Vimpat will go generic in 2022.