Pharma industry on alert over business risks in China

Supply discontinuation, dissolution, suits...

Ahn-Gook Pharmaceutical, Dong Sung Bio Pharm, Korea United Pharm terminates supply contract for drugs in China

Il-Yang Pharmaceutical plans to dissolute its OTC Chinese subsidiary... Medytox in a KRW 118.8 billion suit with its partner

Most caused by ‘non-fulfillment of the contract by its partner'... Seoul Pharma’s export worth KRW 111.1 billion to China receives attention

Business risks related to China have been rising in Korea’s pharmaceutical industry.

 

There are many causes, including the termination of the contract for supplying medicines (or cosmetics), liquidation of Chinese subsidiaries, and claims for damages, etc.

 

Most of them are due to the failure of their Chinese partners in fulfilling their promises.

 

On the 22nd, Ahn-Gook Pharmaceutical publicly announced that it had requested the termination of its supply contract to the Chinese company (Sichuan Wanhe Chinese Medicinal Decocting Pieces PLC) it had signed a supply contract with for its ‘Anycough Cap’.

 

The original contract term was 10 years from when the company receives the Import Drug License for Anycough Cap.

 

However, the Import Drug License was not approved due to the other party's non-fulfillment of the contract, which was the grounds for the termination.

 

The contract was worth KRW 26.9 billion at the time of its signature.

 

Il-Yang Pharmaceutical is liquidating its key OTC Chinese subsidiary.

 

On the 15th, Il-Yang Pharmaceutical publicly announced that it had decided to dissolute and liquidate its subsidiary 'Tonghwa Ilyang Health Products Co., Ltd.’ to increase management efficiency.

 

The industry pointed to the company’s conflict with its partner as the cause.

 

The company announced that it was unable to settle the dissolution by agreement, and plans to proceed with the dissolution procedure with the competent court.

 

By shares, Tonghwa Il-Yang is 45.9% owned by Il-Yang Pharmaceutical, 19.4% by Il-Yang Pharmaceutical’s owner family Do-eon Jeong and affiliates, and 34% by Tonghua City in China.

 

The dissolution was decided upon due to a conflict with the Chinese city.

 

Tonghwa Ilyang was a profit-raising company that posted sales of KRW 40.4 billion and an operating profit of KRW 19 billion last year.

 

Its good profitability also played a positive role in the consolidated performance of Il-Yang Pharmaceutical In addition, Dong Sung Bio Pharm terminated its overseas distributor contract for Rannce brand products in early May.

 

The termination will be worth KRW 8.5 billion, excluding the KRW 6.5 billion payment made for contract fulfillment from the original contract’s worth, which was KRW 15 billion.

 

The other party, Artface had planned to supply the Rannce brand to China and other countries.

 

However, the contract was terminated due to the other party’s non-compliance with the minimum performance amount in the contract.

 

Korea United Pharm also announced the termination of the supply contract for Clanza CR tablets worth KRW 40.9 billion in December last year.

 

This is a measure following China's JJK's failure to fulfill its contract.

 

Also, Medytox’s Chinese joint venture is on the verge of dissolution.

 

Its partner, Gentix sued Medytox earlier this year for contract violation.

 

The company also filed a claim for damages worth KRW 118.8 billion, claiming that there was a problem with the terms of the JV contract.

 

Medytox had established the joint venture, MedyBloom China, with Bloomage Biotechnology in 2016 with a 50:50 stake.

 

Medytox, which invested KRW 7.2 billion, judged that there was no violation of the contract on its side and is responding through legal representation.

 

As risks arise in the Korean pharmaceutical industry's business with China, the feasibility of the contracts made by other pharmaceutical companies in China is also drawing attention.

 

In June 2017, Seoul Pharmaceutical signed a KRW 111.1 billion contract with a Chinese company to sell and supply orally disintegrating strips for the treatment of erectile dysfunction.

 

The amount of KRW 111.1 billion was set as the supply price based on US dollars for the quantity agreed upon by the two companies for a total of 10 years after the drug’s approval by the CFDA in China.

 

This is a conditional amount that can only be generated if the drug is approved in China.

 

However, no separate announcement has been made so far on its approval.

 

A market insider pointed out, "There are many cases where businesses in China fall apart due to the partners' failure to fulfill contracts.

 

This is why business is often delayed and contracts are broken."