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KOREA Pharma/Bio

Medy-Tox (086900 KS)

BUY (I) / TP: W60,000 (I)

Share price (won, May 15) 44,400

Paid-in capital (Wbn) 3

Market cap (Wbn) 251

BPS (won) 6,974

Net debt to equity (%) -29.9

Shares outstanding 5,656,535

Avg daily T/O (2M, Wbn) 4

Avg daily vol (2M, shrs) 106,095

52-week high (won) 47,600

52-week low (won) 17,000

Foreign ownership (%) 20.60

Major shareholders (%)

Chung Hyun-ho & others 21.8

Stock performance (%)

1M 3M 12M

Absolute 17.9 31.0 90.2

Relative 22.6 46.6 100.7

Abs (US$) 16.7 28.6 84.3

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

May 2010 May 2011 May 2012

0

50

100

150

200

250

MedyTox(LHS)

Rel. to KOSDAQ(RHS)

(won) (%)

Source: Datastream

May 23, 2012

www.tys.co.kr/english TONGYANG Research

Company Report

Upside potential strong What are “facial injectables”?

Some 20 years ago, facelifts were the only way to get rid of facial wrinkles. However, since their launch, facial injectables have grown in popularity thanks to their convenience and relatively low cost, and are now the primary way to eliminate wrinkles. In the US, over 50% of plastic surgeons’ income is estimated to come from facial injectables.

Global peers’ 12-month-forward P/Es average 25x

We calculated our target price of W60,000 using DCF method (WACC 10.3%, terminal growth 5.0%). Our target price translates to a 2012 P/E of 24x or 2013 P/E of 19x. Given major global facial injectable treatment developers’ average 12-month-forward P/E of 25x (Allergan’s is 20x, and during M&As, Inamed was 31x, Mentor 26x, and Q-Med 21x), we believe Medy-Tox has ample upside potential.

Forecasts and valuations (Wbn)

FY ends Dec 2010 2011E 2012E 2013E 2014E

Sales 21.1 21.7 30.9 37.3 43.2

Chg (% y-y) 22.7 2.9 42.4 20.7 15.8

Reported OP 10.6 7.9 15.1 19.1 23.2

Adjusted OP* 10.6 8.6 15.4 19.5 23.6

NP, CI 10.4 7.4 14.4 18.0 21.5

EPS, CI (won) 1,837.0 1,303.3 2,540.1 3,184.7 3,804.0

Chg (% y-y) 17.3 -29.1 94.9 25.4 19.5

P/E (x) 15.2 17.6 17.4 13.9 11.6

P/B (x) 3.9 2.8 4.2 3.3 2.6

EV/EBITDA (x) 12.4 12.5 14.5 11.7 9.2

ROA (%) 26.4 14.9 23.0 22.0 20.9

ROE (%) 32.7 19 30.3 29.1 26.8

Note: * Adjusted OP = reported OP (K-IFRS) – other operating profit/loss. CI = controlling interest Source: TONGYANG Securities

Miriam Kim [email protected]

+822-3770-3547

2 TONGYANG Securities Inc.


What are facial injectables? Across most medical fields, and especially cosmetic surgery, minimally-invasive and non-invasive procedures have become mainstream. Minimally invasive and non-invasive procedures using injectables such as botulinum toxin and dermal filler are now referred to as “petit surgery,” and are used for diverse purposes including wrinkle elimination and facial contouring surgery.

Some 20 years ago, face-lifts were the only way to get rid of facial wrinkles. However, the popularity of facial injectables has grown considerably since their launch thanks to their convenience and relatively low cost, and they are now the primary way to eliminate wrinkles. In the US, over 50% of plastic surgeons’ income is estimated to come from facial injectables.

Face-lifts vs facial injectables

Strength Weakness

Face-lift Long duration High cost (US$6,000~15,000)

Weeks of recovery

Facial injectable Relatively low costs (US$400~1,000) Relatively short duration

Fast recovery period (procedures can be done over a lunch break)

Note: Based on US prices Source: TONGYANG Securities

As shown in the table below, facial injectables are divided into four types. The global facial injectable market was estimated at US$2.2bn in 2010 and should expand at a CAGR of 9% to reach US$4.0bn in 2017. The US is the world’s largest market for facial injectables, estimated at US$1.4bn, or 39% of the global facial injectable market. Among facial injectables, the botulinum toxin market is the largest, estimated at US$1.4bn in 2010. It is also growing most rapidly, along with HA filler. Botulinum toxin is mostly used for eliminating wrinkles on the upper part of a face, such as the forehead or around the eyes, while HA filler is mostly used for eliminating wrinkles on the lower part of a face.

Types of facial injectables

Strength Weakness Botulinum toxin Short procedure (5~10 mins); immediate results

Can be applied to diverse areas such as forehead, eye area, lips, neck Needs repeated injections; doctors have incentive to recommend it

Relatively frequent side effects Lasts up to just 6 months

HA filler (hyaluronic acid-based dermal filler)

Similar to material in a living body, and thus has little side effects Needs repeated injections, and thus doctors have strong incentive to recommend botulinum toxin

Lasts for 6~12 months

Particle and polymer filler Lasts for up to 2 years Relatively frequent side effects Doctors have less incentive to recommend due to long duration

Collagen filler Lasts for 2~3 years Patients could be allergic to animal protein Doctors have less incentive to recommend due to long duration

Source: TONGYANG Securities

TONGYANG Securities Inc. 3

Company Report

Global facial injectable market and forecast US facial injectable market and forecast

2.22.4

2.62.8

3.13.4

3.74.0

1.4 1.5 1.6 1.8 1.92.1

2.3 2.5

0

1

2

3

4

5

2010 2012E 2014E 2016E

Facial- injectable market

Botulinum toxin market

(US$bn)

CAGR 9%

CAGR 9%

0.80.9

1.01.1

1.21.4

1.5

1.7

37%38%

39%40%

40%41%

42%43%

0.0

0 .5

1 .0

1 .5

2 .0

2010 2012E 2014E 2016E

35%

40%

45%US fac ial- injec table market (LHS)

Global market share (RHS)

(US$bn)

CAGR 11%

Source: TONGYANG Securities Source: TONGYANG Securities

Facial injectable applications

Source: Premier Laser Clinic, TONGYANG Securities

Botulinum Toxins

HA Fillers



What is botulinum toxin? ▶ Uses of botulinum toxin

Botulinum toxin blocks the secretion of acetylcholine, which causes muscles to contract. Thus, it can be used to treat all ailments caused by excessive secretion of acetylcholine.

Botulinum toxin blocks the secretion of acetylcholine in the target body part for a certain period of time, affecting the action of nerve cells without destroying them. Thereafter, the secretion of acetylcholine in the target area is restored. It can be used to treat a variety of complaints, including neuromuscular diseases.

Botulinum toxin applications

Area Indications

Ophthalmology Squints, facial tics, hemifacial spasms

Dentistry Square jaw, teeth grinding

Rehabilitation medicine Cerebral palsy, post-stroke muscle stiffness

Gastroenterology Esophageal muscle spasms, and others

Dermatology/plastic surgery Wrinkle elimination, square jaw, calf muscle slimming, hyperidrosis

Neurology Migraine, back pains

Urology Prostate hypertrophy, overactive bladder

Gynecology Incontinence

Other Vocal cord nodule, hemorrhoids


▶ Accidental discovery of botulinum toxin

Botulism has been in existence in Europe since ancient times, and comes from the Latin botulus, meaning sausage. During an epidemiological investigation in Belgium in 1895, it was discovered that the pathogen clostridium botulinum caused botulism.

In the 1920s, Herman Sommer isolated botulinum toxin A in purified form, and, in 1946, Edward Schantz succeeded in isolating botulinum toxin A in crystal form.

In the 1960s and 1970s, Dr Alan Scott, of the Smith-Kettlewell Institute used botulinum toxin A to treat a squint-eyed monkey. In the late 1970s, Scott founded Oculinum, and conducted clinical trials on cross-eyed patients, to develop botulinum toxin A into a drug. In 1979, the US FDA approved the limited use of botulinum toxin A to treat squints, and it was used to treat squints for the first time in 1981. In 1985, the US FDA approved limited use of botulinum toxin A to treat spasmodic winking.

In 1987, Theodore Thomovich, while injecting botulinum toxin A between the eyebrows of patients suffering from spasmodic winking, discovered that wrinkles around the eyebrows diminished and disappeared. As a result, he became interested in the possible cosmetic applications of botulinum toxin A. In the same year, Jean Carruthers, an ophthalmologist in Vancouver, Canada, witnessed the same


Company Report

phenomenon, and began to use botulinum toxin A to treat wrinkles around the eyebrows, on the forehead, and around eye areas.

In 1989, botulinum toxin A was approved by the US FDA for the treatment of squints, spasmodic winking, hemifacial spasms, and spasms in affected areas, for patients aged 12 and older. In 1991, US-based Allergan took over Oculinum, and began marketing botulinum toxin A under the brand name “Botox,” which went on to become the representative botulinum toxin product. In the 1990s, as Botox’s wrinkle elimination effects became widely known to dermatologists and plastic surgeons, wrinkle elimination procedures grew in popularity across the US.

In the 2000s, botulinum toxin A was approved by the FDA for the treatment of adult torticollis (abnormal head positioning). In 2002, it was approved by the FDA for the treatment of wrinkles, setting the stage for the expansion of the botulinum toxin product market and opening of the cosmetic treatment market. Over the past 20 years, botulinum toxin products have proven effective in treating scores of ailments, with few side effects. As a result, they have become widely used.

Global botulinum toxin market

1,212

1,4881,639 1,688

1,844

2,101

0

500

1,000

1,500

2,000

2,500

2006 2007 2008 2009 2010 2011E

CAGR 11.6%

(US$mn)




Botulinum toxin industry ▶ Global botulinum toxin market

Allergan’s Botox was the world’s first botulinum toxin product. It was approved by the FDA in 1989 and went on sale in 1991. In 1991, French drugmaker Beaufour Ipsen obtained approval in Europe for and began selling its botulinum toxin product Dysport. However, until 2000, only Botox had been approved by the FDA.

Since going on sale in 1991, Botox’s cumulative sales came to just US$240mn until 2000. However, with approval from the FDA in 2000 for the treatment of platysma muscle spasms, and in 2002 for the treatment of wrinkles, Botox sales surged 20~30% y-y annually, reaching US$1.4bn in 2010.

Global botulinum toxin product market vs Botox sales

125 176 240 310 440 564 705 831 982 1,212 1,311 1,310 1,419 1,595

1,2121,488 1,639 1,688 1,844

2,101

81% 81% 80% 78% 77% 76%

0

500

1 ,000

1 ,500

2 ,000

2 ,500

1998 2000 2002 2004 2006 2008 2010

0%

25%

50%

75%

100%Botox sales (LHS)

Global botulinum toxin market (LHS)

Botox market share (RHS)

(US$mn)

Botox approved forcosmetic use by FDA


Botulinum toxin product market share, by region Botulinum toxin product M/S, by product (as of 2010)

EU 30%

Other 26%

US 44%2010US$1.8bn

BTXA

(C hina),

3 .1%

Meditoxin

(Korea),

2 .4%Xeomin

(Germany),

4 .0%

Dysport

(France),

15 .8%

Botox (US),

74 .7%



Company Report

▶ Botox therapeutic sales portion to rise in developing markets

As mentioned earlier, botulinum toxin blocks the secretion of acetylcholine on the target body part for a certain period of time, affecting the action of nerve cells without destroying them. Thereafter, the secretion of acetylcholine on the target area returns to normal. It can be used to treat a variety of ailments, including neuromuscular diseases.

In 1989, Botox, the world’s first botulinum toxin product, was approved by the US FDA for the treatment of squints, spasmodic winking, and others disorders, and in 2002, was approved by the FDA for the treatment of wrinkles. Thus, botox’s therapeutic sales portion was high, and therapeutic sales still account for 51% of total botox sales as of 2011. In developing markets like Korea, where botulinum toxin began to be used later, cosmetic-use sales account for about 90% of total botulinum toxin product sales. As botulinum toxin can be used to treat a wide range of ailments, we expect the therapeutic sales share to increase.

Botox: therapeutic vs cosmetic sales

57% 56%52% 50% 50% 52% 51% 51%

0

250

500

750

1,000

1,250

1,500

1,750

2004 2005 2006 2007 2008 2009 2010 2011

(US$mn)

0%

25%

50%

75%

100%

미용용도 매출(좌)

치료용도 매출(좌)

치료용도 매출 비중(우)

Therapeutic sales (LHS)

C osmetic sales (LHS)

Therapeutic sales share (RHS)


Botulinum toxin product sales share in Korea, by use


2005

5%

95%

2013(E)

20%

80%

C osmetic sales

Therapeutic sales



▶ Korean botulinum toxin market

In Korea, clinical use of botulinum toxin began in 1996 when Allergan’s Botox imports were approved. Imports of Dysport began in 1999 and BTXA from China in 2002. In 2006, Medy-Tox’s “Medytoxin” was the first domestically manufactured botulinum toxin product to be approved by Korea’s FDA. After the release of “Botulax”, a total of seven products now compete in Korea’s botulinum toxin market, making it the world’s most competitive.

Korea’s botulinum toxin market was estimated at W71.0bn for 2011, posting a strong CAGR of 17.5% over the past six years. Meditoxin has an estimated 30% market share in Korea, in second place after Botox. With Meditoxin retailing at 30% below the price of Botox, we believe Meditoxin ranks first in terms of sales volume.

▶ Characteristics of Meditoxin

Meditoxin is made of the same strain and has the same ingredients as Allergan’s Botox, and matches Botox in terms of effectiveness and safety. Unlike other botulinum toxin products, Meditoxin has the same ingredients, effects, and application method as Botox, while being about 30% cheaper, resulting in dramatic market share gains. Currently, Botox retails at W350,000~450,000 per 100U (an amount that can treat three patients), Meditoxin and Dysport at W250,000, and Botulax at W100,000.

Korean botulinum toxin product market Meditoxin market share in Korea

31.7

40.645.6

55.660.5

71

0

10

20

30

40

50

60

70

80

2006 2007 2008 2009 2010 2011

CAGR 17.5%

(Wbn)

8%

18%

25%

30%

35%34%

0%

5%

10%

15%

20%

25%

30%

35%

40%

2006 2007 2008 2009 2010 2011E

Meditoxin

released



Company Report

Comparison of botulinum toxin products sold in Korea

Botox Dysport BTXA Meditoxin Myobloc Xeomin Botulax

Toxin type A A A A B A A

Manufacturer Allergan (US) Ipsen (France) Lanzhou Institute

(China)

Medy-Tox (Korea)

Solstice Neuroscience

(USA)

Merz (Germany) Hugel (Korea)

Distributor Allergan Korea Ipsen Korea Hanol Pharm Pacific Pharm Dream Pharma Hanwha Pharm Hugel Pharma

Major markets Worldwide Worldwide China, Korea Korea, Japan, India, Brazil

US, Europe Europe, South America

Korea, Japan, developing world

Approval Oct 2, 1996 Jul 13, 1999 May 29, 2002 Mar 16, 2006 Apr 8, 2008 Jun 2, 2009 Mar 17, 2010

Ingredients

A-type 100U

Human serum albumin 0.5mg

NaCl 0.9mg

A-type 500U

Human serum albumin 125ug

Lactose 2.5mg

A-type 100U

gelatin 5mg

dextran 25mg

sucrose 25mg

A-type 100U

Human serum albumin 0.5mg

NaCl 0.9mg

B-type 5000U/ml

Human serum albumin 0.05%

Succinate 0.01 M

A-type 100 LD50 U

Human serum albumin 1mg

Saccharose 4.7mg

A-type 100U Human serum albumin 0.5mg

NaCl 0.9mg

Product image


Botulinum toxin product market share in Korea (2011)

Xeomin 10%

3 products ,

inc luding Botulax

25%

Dysport 10% M editoxin 30%

Botox 35%




Dermal filler industry ▶ What is dermal filler?

Soft tissue augmentation for wrinkles, scars, and lips, has long been used in cosmetic surgery.

In the early 1900s, liquid paraffin was used for soft tissue augmentation, and in the 1940s, liquid silicone, but they were subsequently banned due to side effects. In the late 1970s, with the introduction of liposuction, autologous fat began to be widely used for soft tissue augmentation. In 1981, bovine collagen was approved by the US FDA as a dermal implant, and, in the late 1980s, autologous collagen was successfully separated from autologous fat for use in soft tissue augmentation.

These days, hyaluronic acid derivatives (HA filler), autologous dermal implants, allogenic dermal implants, recombinant human collagen, and synthetics, are used in soft tissue augmentation. With the introduction of HA filler, now the most popular type of dermal filler, collagen is less frequently used. The table below shows the various types of dermal filler.

Classification, by originating material

Classification Note

Heterografts Bovine collagen and derivatives, pig collagen, and hyaluronic acid

Allografts Less chance of allergic reactions to bovine/pig collagen and derivatives

Autografts Autologous fat, autologous collagen, etc

Synthetics Gore-tex, silicone, bio polymer, bio plastics, etc


Classification, by action

Classification Note Ingredients

Volumizer Remains in bulk form Collagen, hyaluronic acid, silicone, PAAG, etc

Stimulator Stimulates creation of new collagen and tissue PMMA, PLA, Dextran, CaHA, HEMA, etc


▶ HA filler: what’s so good about it?

Hyaluronic acid (HA) was first extracted from vitreous humor by Meyer and Palmer in 1934. It is a polyanionic mucopolysaccaride, a bio-macromolecule easily found in living organisms. It is found in muscle, the skeleton, blood, lymph, the placenta, eyes, cartilage, and synovia, but most commonly in the skin. HA is widely used to replace and restore human tissue, and is commonly used in cosmetic surgery.

Hyaluronic acid-based dermal filler is expected to see robust growth in demand going forward, since HA has few side effects compared with artificial material-based fillers. Some of the latest HA products now come with local anesthetic “Lidocaine,” which can minimize pain.


Company Report

Sweden-based Q-Med’s “Restylane” was the first HA filler approved by the FDA (2003) and has the largest global market share (41% as of 2010). In 2010, Q-Med was bought by Swiss firm Galderma, a joint venture between Nestle and L’Oreal. Allergan’s “Juvederm,” which received FDA approval in 2006, ranks second, with a 35% market share. Galderma sells both Restylane and “Azzalure” (Ipsen), a botulinum toxin; and Allergan sells Botox and HA filler “Juvederm.”

No.1 HA filler Restylane HA filler: global market share (2010)

O ther

24 %Restylane

(Q -Med) 41%

Juvederm

(A llergan) 35%




What is the fair value of botulinum toxin makers? ▶ Surging demand for facial injectibles driving new products, M&As

The global market for facial injectables is posting a CAGR of about 10%, despite the poor economy. This is prompting a increasing number of companies to roll out new products. In addition, there is plenty of M&A activity underway.

Meditox is Korea’s biggest botulinum toxin developer and marketer and is the only listed company in Korea specializing in facial injectibles. Shares have surged on expectations for an earnings turnaround and potential partnerships with global companies. With many investors wondering whether shares are fairly valued and the lack of comparables in Korea, we looked into the valuations of its global rivals.

Because of stiff entry barriers, the botulinum toxin market is an oligopoly, with just seven products on the market. (In contrast, some 200 companies are competing in dermal fillers.) Here, we will outline the companies developing and marketing facial injectibles, as well as three major M&As that took place.

Allergan (US): Founded in 1948, Allergan is a global specialty pharma specializing in ophthalmic, dermatological, and neurological products. It is best known for “Restasis” (prescription eye drop), “Botox” (botulinum toxin), “Juvederm” (HA filler), and “Natrelle” (breast implant). Through the acquisition in 1991 of Oculinum, it obtained the sales license for Botox, which received FDA approval in 2002 for the treatment of wrinkles. In 2006, it bought US company Inamed for US$3.3bn (12-month-forward P/E 31x), adding Natrelle, Juvederm, and “Lap-Band” (adjustable gastric banding system) to its product line-up. Allergan is a niche player with a firm position in the ophthalmic and dermatology markets. Its shares trade at a 12-month-forward P/E of 20x.

Medicis (US): Based in North America, Medicis was founded in 1988 and specializes in dermatology. Its cash cows are acne treatments (62% of sales in 2011), “Reloxin” (Dysport’s US name, FDA-approval 2003) and “Restylane” (HA filler, FDA-approval 2003). In 2006, it acquired development and sales rights for Dysport in the US, Canada, and Japan from Ipsen. It paid US$229mn in milestone payments and promised 30% of net sales as royalties. Medicis is not a developer of facial injectibles, but an exclusive distributor of hit products such as Dysport and Restylane in North America. Although the patent expiry for its famed acne treatment “Solodyn” (which accounts for more than half of sales) is nearing, the company is still trading at a 12-month-forward P/E of 14x.

Ipsen (France): Ipsen is a specialty pharma that primarily develops and markets medications for oncological, endocrinological, and neuromuscular disorders. It is makes second-ranked botulinum toxin Dysport, but mainly licenses out Dysport’s development and sales rights to others in order to focus more on its key areas. Of note, the sales license for Dysport in North America and Japan is held by Medicis (which sells it under the name “Reloxin”), and in Europe by Galderma (“Azzalure”). It would be hard to call botulinum toxin Ipsen’s core business.

Buys Inamed at 31x P/E

Trades at 20x P/E

Distributor of facial injectibles in North

America

Acquires sales rights for Dysport for US$200mn

Trades at 14x P/E

Licensed out Dysport; focusing on oncology

and endocrinology Trades at 13x P/E


Company Report

Mentor (US): Established in 1969, Mentor is a leading supplier of surgical aesthetic products to plastic surgeons. It has over 2,000 employees, and plants in the US, France, Holland, and the UK. It has been manufacturing breast implants for over 30 years, and its silicon gel-based breast implant “MemoryGel” was approved by the FDA in 2006. Of note, there are only three FDA-approved breast implants, made by Allergan, Mentor, and Sientra. Mentor also produces a botulinum toxin named “PurTox,” which is awaiting FDA approval, with a release set for 2013. In Dec 2008, Johnson & Johnson acquired Mentor for US$1.07bn (US$31/share, 92% premium to previous day close, 26x 12-month-forward P/E). Johnson & Johnson’s well-established sales network among plastic surgeons and dermatologists is expected to boost sales of Mentor’s breast implant and botulinum toxin further.

Q-Med (Sweden): Sweden-based Q-Med’s Restylane was the first HA filler to win US FDA approval (2003) and has the leading global market share (41% as of 2010). Q-Med was bought in 2010 by Swiss company Galderma, a joint venture between Nestle and L’oreal, for US$1.08bn (21x 12-month-forward P/E). Galderma also sells Azzalure, a botulinum toxin developed by Ipsen.

Peer valuation: facial injectible developers and marketers (US$mn)

Mkt cap Sales OP NP EPS (US$) Sales, % y-y OP, % y-y ROE

(%) P/E (x)

P/B (x)

EV/EBITDA

(x)

Allergan (US) 28,170 5,863 1,854

1,289 4.2 8.2 14.5 21.7 21.9 5.1 16.2

Medicis (US) 2,255 850 274 172 2.7 18.0 12.7 18.2 13.9 3.4 12.9

Ipsen (France) 2,241 1,567 210 169 2.1 1.9 -15.6 9.7 12.9 1.7 7.9

Medy-Tox (S. Korea) 218 27 13 12 2.2 35.9 52.4 30.1 17.6 5.9 12.0

Average 16.0 16.0 19.9 16.6 4.0 12.3

Source: Bloomberg, TONGYANG Securities

Acquired by J&J at 26x P/E

Acquired by Galderma at 21x P/E



Allergan (US) Founded in 1948, Allergan is a global specialty pharma specializing in ophthalmic, dermatological, and neurological products. It is best known for “Restasis” (prescription eye drop), “Botox” (botulinum toxin), “Juvederm” (HA filler) and “Natrelle” (breast implant). Through the acquisition in 1991 of Oculinum, it obtained the sales license for Botox, which received FDA approval in 2002 for the treatment of wrinkles. In 2006, it bought US company Inamed for US$3.3bn (12-month-forward P/E of 31x), adding Natrelle, Juvederm, and Lap-Band (adjustable gastric banding system) to its product line-up. Allergan is a niche player with a firm position in the ophthalmic and dermatological markets. It trades at a 12-month-forward P/E of 20x.

Allergan: OPM trend vs Botox sales portion

125 176 240 310 440 564 705 831 982.2 1211.8 1310.9 1309.6 1419.4 1594.9

-1%1%

30%31%32%

36%34%32%32%

18%

15%

10%12%

29% 29% 29%

18%

22% 27%

19%19%

17% 17% 18%28%26%

25% 26%

0

500

1,000

1,500

2,000

1998 2000 2002 2004 2006 2008 2010-10%

0%

10%

20%

30%

40%

Botox 매출(좌)Botox 매출 비중(좌)O PM%(우)

(US$mn)

Botox sales (LHS)Botox sales share (RHS)OPM (RHS)


Allergan: price performance Allergan: P/E band (12-month forward)

0

25

50

75

100

125

2008 2009 2010 2011 2012

(US$)

0

500

1,000

1,500

2,000

(p)

P riceS&P 500

0

50

100

150

2008 2009 2010 2011 2012

(US$)

P rice 12x16x 20x24x 28x


Buys Inamed for 31x P/E

Trades at 20x P/E


Company Report

Allergan: sales mix by product Allergan: sales mix by region

1530.6 1776.5 2009.1 2100.6 2262 2520.2

982.21211.8

1310.9 1309.6 1419.41594.9

0

1,000

2,000

3,000

4,000

5,000

6,000

2006 2007 2008 2009 2010 2011

(US$mn)

Eye C are P harmaceuticals Botox/NeuromodulatorSkin C are Urologic sMedical Devices O ther Revenues

`̀̀̀

2023.62541.5 2793.2 2906 3017 3221.6

548.5

762.3881.9 857.8 931.6

1086.6

0

1,000

2,000

3,000

4,000

5,000

6,000

2006 2007 2008 2009 2010 2011

(US$mn)

United States Europe A s ia P ac ific Latin A merica O ther Regions


Inamed: earnings trend

132189

240 238276

333384

438

23%

10%

19%19%

22% 21% 22%

19%

-100

0

100

200

300

400

500

1998 1999 2000 2001 2002 2003 2004 2005

0%

10%

20%

30%매출액(좌) 영업이익(좌)

순이익(좌) O P M%(우)

(US$mn)

O P (LHS)

O P M (RHS)Sales (LHS)

Net profit (LHS)


Inamed: price performance Inamed: P/E band (12-month forward)

0

25

50

75

100

2002 2003 2004 2005 2006

(US$)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

(p)

P rice

NasdaqNA SDA Q

0

25

50

75

100

2001 2002 2003 2004 2005

(US$)





Medicis (US) Based in North America, Medicis was founded in 1988 and specializes in dermatology. Its cash cows are acne treatments (62% of sales in 2011), “Reloxin” (Dysport’s US name, FDA-approval 2003) and “Restylane” (HA filler, FDA-approval 2003). In 2006, it acquired development and sales rights for Dysport in the US, Canada, and Japan from Ipsen. It paid US$229mn in milestone payments and promised 30% of net sales as royalties. Medicis is not a developer of facial injectibles, but an exclusive distributor of hit products such as Dysport and Restylane in North America. Although the patent on its famed acne treatment “Solodyn” (which accounts for more than half of sales) will expire soon, Medicis is still trading at a 12-month-forward P/E of 14x.

Medicis: sales mix by product Medicis: earnings trend

92.63 111.19 158.19243.41

325.02398.86

482.36 447.59154.58

177.52157.84

172.9

147.95

133.6

174.98 229.6

0

100

200

300

400

500

600

700

800

2004 2005 2006 2007 2008 2009 2010 2011

(US$mn) Non-dermatological P roduc ts

Non-acne Dermatological P roduc ts

A cne & A cne-related Dermatological P roducts

304 377 349457 518 572

696 721

36%

23%21%

-24%

14%

28%

35%

26%

-250

0

250

500

750

1,000

2004 2006 2008 2010

-30%

0%

30%

60%

매출액

영업이익

순이익

O P M%

(US$mn) Sales (LHS)

O P (LHS)

Net profit (LHS)

O P M (RHS, %)


Medicis: price performance Medicis: P/E band (12-month forward)

0

10

20

30

40

50

2008 2009 2010 2011 2012

0

500

1,000

1,500

2,000

(p)

P riceS&P 500

`

(US$)

0

25

50

75

2008 2009 2010 2011 2012

(US$)



Distributor of facial injectibles in North

America

Acquired Dysport sales license for US$200mn

Trades at 14x P/E


Company Report

Mentor (US) Established in 1969, Mentor is a leading supplier of surgical aesthetic products to plastic surgeons. It has over 2,000 employees, and plants in the US, France, Holland, and the UK. It has been manufacturing breast implants for over 30 years, and its silicon gel-based breast implant “MemoryGel” was approved by the FDA in 2006. Of note, there are only three FDA-approved breast implants, made by Allergan, Mentor, and Sientra. Mentor also produces a botulinum toxin named “PurTox,” which is awaiting FDA approval, with a release set for 2013. In Dec 2008, Johnson & Johnson acquired Mentor for US$1.07bn (US$31/share, 92% premium to previous day close, 12-month-forward P/E of 26x). Johnson & Johnson’s well-established sales network among plastic surgeons and dermatologists is expected to boost sales of Mentor’s breast implant and botulinum toxin further.

Mentor: sales mix by product Mentor: earnings trend

217.42 233.19262.56

328.03

15.717.3

22.68

29.97

0

100

200

300

400

2005 2006 2007 2008

(US$mn)Body C ontouringO ther A esthetic s (Non-surgical Fac ial P roduc ts )Breast A es thetics

321382

422

252 268 302373

21%23%

30%

19%

26%

18%20%

0

100

200

300

400

500

2002 2003 2004 2005 2006 2007 2008

0%

10%

20%

30%

40%

매출액 영업이익

순이익 O P M%

(US$mn)O P (LHS)

O P M (RHS)

Sales (LHS)

Net profit (LHS)


Mentor: price performance Mentor: P/E band (12-month forward)

0

10

20

30

40

50

60

70

2006 2007 2008 2010

(US$)

0

500

1,000

1,500

2,000

(p)

Price

S&P 500

0

10

20

30

40

50

60

2006 2007 2008 2010

(US$) P rice 10x15x 20x25x 30x


Acquired by J&J at 26x P/E



Q-Med (Sweden) Sweden-based Q-Med’s Restylane was the first HA filler to win US FDA approval (2003) and has the leading global market share (41% as of 2010). Q-Med was bought in 2010 by Swiss company Galderma, a joint venture between Nestle and L’Oreal, for US$1.08bn (21x 12-month-forward P/E). Galderma also sells Azzalure, a botulinum toxin developed by Ipsen.

Q-Med: sales mix by region Q-Med: OPM vs Restylane’s sales portion

69.74103.99 95.72

41.33

37.07 39.24

117.3134.22

25.47

0

100

200

300

2007 2008 2009

(US$mn) Europe A s iaNorth A merica Res t of the WorldLatin A merica Nordic C ountries

89 96

122

157 157 149

180

20%

73%79% 73%

81%

82%84%

91%

25%

14%11%

42%

3%

19%

0

100

200

300

2004 2005 2006 2007 2008 2009 2010

0%

25%

50%

75%

100%

Res tylane 매출Res tylane 매출 비중O P M%

(US$mn)

`

Res tylane sales

Res tylane sales share

O P M (RHS)


Q-Med: price performance Q-Med: P/E band (12-month forward)

0

25

50

75

100

125

2008 2009 2010 2012

(kr)

0

100

200

300

400

500

(p)

P riceO MX STO C KHO LM

0

25

50

75

100

125

150

2008 2009 2010 2012

(kr)



Acquired by Galderma at 21x P/E


Company Report

Medy-Tox: ready to be global botulinum toxin maker ▶ Botulinum toxin market has stiff entry barriers

Since its founding in 2000, Medy-Tox has dedicated itself to developing botulinum toxin. It was the first company in Korea (fourth in the world) to successfully develop and commercialize botulinum toxin type A. Worldwide, the botulinum toxin market is oligopolistic. As of end-2011, only seven companies had the technology required to manufacture botulinum toxin materials, including Allergan (US), Solstice Neuroscience (US), Ipsen (France), Merz (Germany), Lanzhou Institute (China), Medy-Tox (Korea), and Hugel (Korea).

Botulinum toxin was extracted by Edward Schantz in the 1940s. With no patent now attached, any pharma could technically enter the botulinum toxin market if they wished. However, botulinum toxin is a lethal substance; just one gram could be used to kill a million people. Thus, it is internationally subject to the Biological Weapons Convention, which took effect in 1975 (1987 in Korea). ATCC, a global bioresource center and research organization that provides biological products, does not provide botulinum toxin for this reason. In Korea, the manufacture, acquisition, storage, stocking, and relocating of botulinum toxin must be reported to regulators at all times.

Botulinum toxin’s main component is botulinum toxin protein (type A or B). Existing toxin makers have the ability to produce it themselves, but those who do not have to get it from elsewhere, which is extremely difficult for the aforementioned reasons.

Furthermore, it is hard to recruit R&D staff with extensive knowledge in the field, since there are only a few of them in the industry. Moreover, the manufacturing process requires special plant design and equipment that meets biosafety level three, given the lethal nature of the substance. Since each unit is produced in nanograms, it takes a long time before the manufacturing process is stabilized. These are the main reasons that it is very difficult for a new player to enter the botulinum toxin market.

▶ Rising expectations about earnings turnaround and overseas licensing

Although shares have risen remarkably, further upside looks high, given its earnings turnaround and prospective strategic alliances with multinational pharmas. At the moment, the company sells through marketing partners at home and abroad, and sells only Meditoxin 200U directly to general hospitals.

1) Meditoxin sales set to rise in Korea on approval for therapeutic use

After gaining approval from the Korean FDA in 2006, Pacific Pharm has exclusive rights to sell Meditoxin 100U/50U in Korea until 2014. Medy-Tox received approval for Meditoxin 200U for therapeutic use from the KFDA in Apr 2009 and began directly selling to general hospitals in Jan 2011. Sales of Meditoxin for therapeutic use have driven up Medy-tox sales since end-2011.

Following the launch of Botulax (a botulinum toxin product developed by Hugel in Mar 2010) in May 2010, botulinum toxin product prices have dropped around 20%. Botox



(based on 100U) is now sold at W350,000~450,000; Meditoxin and Dysport at W250,000; and Botulax at W100,000. Due to declining ASPs, domestic sales of Meditoxin have fallen since 3Q10, but surged 101% y-y to W3.4bn in 4Q11 thanks to sales of Meditoxin 100U for therapeutic uses.

Medy-Tox: domestic sales

2.22.4

1.8 1.7 1.6

2.0

1.5

3.43.6

15%

-6% -10%

-28%-17% -17%

52%

101%

124%

0

1

2

3

4

1Q 10 3Q 10 1Q 11 3Q 11 1Q 12

-30%

0%

30%

60%

90%

120%

150%

국내 매출(좌)

국내 YoY%(우)

(Wbn)

Botulinum toxin price fell 20% due to

release of domestic productsTherapeutic Meditoxin 200U sales

began

Domestic sales (LHS)

Domestic sales growth y-y (RHS)


Meditoxin applications


2) Sales to Brazil rising; export outlook favorable

In 2011, exports accounted for 61% of total sales. Medy-Tox exports to about 40 nations in Asia, Eastern Europe, and South America. It has registered Meditoxin (also sold as “Neuronox,” “Siax,” “Boyulift,” and “Cunox”) in 23 nations, and has applied for registration in another 28.

Exports to Japan account for 40% of total exports, but took a hit from the quake in Mar 2011. Meanwhile, the company has sold Meditoxin to Brazil since 2Q10 after receiving approval from Brazil’s national health surveillance agency ANIVISA in Jan 2010. Unfortunately, Brazilian marketing partner Bergamo was taken over by Amgen in Apr 2011, and since then exports to Brazil have dropped sharply, because

Meditoxin 200U: therapeutic use

- Cerebral palsy, chronic migraine

- Squinting, blepharospasm

- Dysmyotonia, prostatism

Meditoxin 100U, 50U: cosmetic use

- Reduction of wrinkles around the eyes

- Square jaw, slimming calf muscle

- Hyperhidrosis, gummy smile


Company Report

Meditoxin, used off-label for cosmetic purposes in Brazil, did not fit with Amgen’s strict marketing policy. However, with its approval for cosmetic use, exports recovered from Apr 2012.

Medy-Tox: export breakdown by region

85%

51%42%

13% 17%1% 7%

-5% 1%

35%

74%

180%

42%38%

66%

116%

156%

0

1

2

3

4

5

1Q 08 3Q 08 1Q 09 3Q 09 1Q 10 3Q 10 1Q 11 3Q 11 1Q 12

-50%

0%

50%

100%

150%

200%

중남미 및 기타국가(좌) 동유럽(좌) 아시아(좌)수출 비중(우)수출 YoY%(우)

(Wbn) (% y-y)

Exports to Brazil begin

Japan quake in 1Q

Brazilian marketing partner

acquired by Amgen in 2Q

Asia (LHS)East Europe (LHS)South & Central America and other (LHS)Export sales share (RHS)Export growth (RHS)


3) Overseas alliances for next-generation Meditoxin likely

Botulinum toxin is made up of botulinum toxin (type A or B), protein, and human serum albumin (HSA). HSA, one of the most widely used proteins in the pharmaceutical field, is frequently used as a stabilizer for proteins, and used in the treatment of heart failure and hepatocirrhosis. Previous Meditoxins could not win approval in nations such as the US and Europe, as Korean HSA is unsuitable for Caucasian patients.

Medy-Tox developed next-generation Meditoxin, which does not include HSA. The new Meditoxin is now under phase-II clinical trials in Australia and slated for phase-III clinical trials in 2013. The company plans to get approval from advanced nations in 2015 and release it in 2016. To achieve this, it plans to invest W40bn over 2012~2013 to construct a new plant at the Osong Life Science Complex, in accordance with US cGMP and EU GMP. We think that strategic alliances with multinational pharmas are highly likely, given their strong interest in next-generation Meditoxin.

Next-generation Meditoxin, better than botox

Meditoxin (equal to Botox) Next-generation Meditoxin (better than Botox)

Animal-derived drug ingredients used Safer; animal-derived drug ingredients not used

Human serum albumin used as stabilizer Safer; human serum Albumin not used

Freeze drying Solution

Refrigerated (4℃) Room-temperature storage

Korea and the third world Advanced nations (US & Europe)

Used for blepharospasm and facial lines Used for blepharospasm, facial lines, and migraines




Meditoxin vs Botox : clinical result comparison

0

1

2

3

4

Before A fter

MeditoxinBotox

Facial ticStrength: 0 (zero) - 4 (very strong)

Clinical outcome1 (~25%↓) – 2 (25~50%) – 3 (50%↑)

Benign essential blepharospasmStrength: 0 (zero) - 4 (very strong)

0

1

2

3

4

Before A fter

MeditoxinBotox

0

1

2

3

4

1 Week 2 Weeks 3 Weeks

MeditoxinBotox


4) Product line-up to strengthen on Neuramis development

The facial injectable market was worth US$2.2bn as of 2010, and is expected to post a CAGR of 9% over the coming years, expanding to US$4.0bn in 2017. The botulinum toxin market (valued at US$1.4bn as of 2010) accounts for the largest portion of the market, and botulinum toxin and HA filler sales are likely to grow most rapidly. Botulinum toxins are mostly used for the lines around the eyes and forehead, and HA fillers for those around the nose and mouth. Thus, botulinum toxins and HA fillers are complementary, rather than substitute goods. Indeed, most firms sell both; Allergan sells Botox (botulinum toxin) and Juvederm (HA filler); Galderma Azzalure (botulinum toxin) and Restylane (HA filler); and Medicis Reloxin (botulinum toxin) and Restylane (HA filler).

Medy-Tox developed “Neuramis” (HA filler) in an effort to diversify its product line-up. It is undergoing clinical trials in Korea, and, in Dec 2011, earned the “CE” mark needed to market medical devices in Europe. Clinical trials for HA fillers are relatively simple, as they are categorized as medical devices, and thus, the company can sell the new product both at home and abroad if it receives approval in Korea in 2013. Medy-Tox plans to price it 30% cheaper than major HA fillers such as Restylane and Juvederm. In addition, the company plans to develop more HA fillers, such as “Neuramis Lidocaine” (lidocaine, an amide local anesthetic, reduces patient discomfort).

Neuramis (HA filler)


Neuramis Deep: very deep wrinkles

Neuramis Deep Lidocaine: very deep wrinkles

Neuramis Lidocaine: all wrinkles

Neuramis Messo Lidocaine: hydro lifting

Neuramis Volume Lidocaine: facial contouring


Company Report

▶ High margin on strong market dominance

Facial injectable makers and sellers enjoy high margins thanks to the oligopolistic nature of the market. So far, only seven botulinum toxin products have been released due to the difficulty in securing key raw materials. Moreover, although there are more than 200 companies in the dermal filler market, Restylane (Q-Med) and Juvederm (Allergan) accounted for 76% in 2010.

COGS ratio is also one of the reasons for high margins. Medy-Tox has the highest operating margin (40% as of 2010) among peers, as SG&A-to-sales ratio is far lower than the peer group’s, probably due to relatively low labor costs.

Medy-Tox’s operating margin fell 12%p y-y from 51% in 2010 to 36% in 2011, as weak sales drove up SG&A cost ratio. We expect operating margin to rise y-y in 2012 on lower fixed cost burden and recovering sales.

Margin comparison between facial injectable makers and sellers

Allergan (US) Medicis (US) Mentor (US) Q-Med

(Sweden) Medy-Tox (Korea)

Facial injectable sales share 46% 32% 8% 84% 100%

COGS (%) 14 9 27 18 12

SG&A (%) 60 63 52 64 48

Operating margin (%) 26 28 21 19 40

Note: Based on 2011; 2008 for Mentor and 2009 for Q-Med Source: Company reports, TONGYANG Securities

Medy-Tox sales and operating margin forecast

0

5

10

15

20

25

30

35

2007 2008 2009 2010 2011 2012E

0%

10%

20%

30%

40%

50%

60%

매출(좌) C O GS%(우)

SG&A %(우) O P M%(우)

(Wbn) C O GS (RHS)

O P M (RHS)

Sales (LHS)

SG&A (RHS)


Facial injectable developers and sellers: valuations (US$mn)

Market cap Sales OP NP EPS (US$) Sales, % y-y OP, % y-y ROE (%) P/E(x) P/B(x) EV/EBITDA(x)

Allergan (US) 28,170 5,863 1,854 1,289 4.2 8.2 14.5 21.7 21.9 5.1 16.2

Medicis (US) 2,255 850 274 172 2.7 18.0 12.7 18.2 13.9 3.4 12.9

Ipsen (France) 2,241 1,567 210 169 2.1 1.9 -15.6 9.7 12.9 1.7 7.9

Medy-Tox (Korea) 218 27 13 12 2.2 35.9 52.4 30.1 17.6 5.9 12.0

Average 16.0 16.0 19.9 16.6 4.0 12.3

Source: Bloomberg, TONGYANG Securities



▶ Valuation

Based on DCF (WACC 10.3%, terminal growth 5.0%), we set our target price at W60,000, implying a 2012 P/E of 24x and 2013 P/E of 19x. We believe that Medy-Tox has strong upside, as major facial injectable makers traded at 12-month-forward P/Es of 25x on average when they were involved in M&As (Allergan at 20x P/E, Inamed 31x, Mentor 26x, and Q-Med 21x) and their shares have jumped since then.

Medy-Tox DCF valuation

(Wbn) 2011 2012E 2013E 2014E 2015E Continuing

NOPLAT 8.0 14.1 18.0 21.5 22.4

Depreciation & amortization 1.6 1.4 1.3 1.2 4.2

Free cash 9.6 15.5 19.3 22.7 26.6

Working capital increase 1.5 2.4 1.7 1.6 1.6

Capex 1.1 15.0 15.0 1.0 1.0

Total investment 2.6 17.4 16.7 2.6 2.6

Free cash flow 7.0 -1.9 2.6 20.1 24.0 25.2

PVIF (present value interest factor) 1.00 0.91 0.82 0.74 0.68 0.61 0.61

PV of FCF 7.0 -1.7 2.1 15.0 16.2

Terminal value 474

* Share price calculation * WACC calculation

FCF growth (normalized, %) 5.0 Beta 1.0

Terminal growth (%) 5.0 Rf 3.5

WACC 10.3 Risk premium 8.0

PV of FCF 39 Dividend yield (%) 0.7

PV of continuing value 290 Re 12.2

Sum 329

Net Debt -13 We 0.8

Equity value 342 Wd 0.2

No of shares ('000) 5,657 Re 11.5

Share price (calculated) 60,373 Rd 6.0

Share price 44,400 WACC 10.3

Total return 36.0%


Allergan:

Acquired Inamed at P/E of 31x

Trades at P/E of 20x

Mentor:

Acquired by J&J at P/E of 26x

Q-Med:

Acquired by Galderma at P/E of 21x

Facial injectable developers average P/E

of 25x


Company Report

Allergan (US) share performance Inamed (US) share performance

0

25

50

75

100

125

2008 2008 2009 2010 2011

(US$)

0

500

1,000

1,500

2,000

(p)

P riceS&P500

0

25

50

75

100

2002 2003 2004 2006

(US$)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

(p)

Price

Nasdaq

Source: Thomson, TONGYANG Securities Source: Thomson, TONGYANG Securities

Medicis (US) share performance Q-Med (Sweden) share performance

0

10

20

30

40

50

2008 2009 2010 2012

(US$)

0

500

1,000

1,500

2,000

(p)

P rice

S&P 500

`

0

25

50

75

100

125

2008 2009 2010 2012

(kr)

0

100

200

300

400

500

(p)

P rice

O MX STO C KHO LM


Mentor (US) share performance Medy-Tox (Korea) share performance

0

10

20

30

40

50

60

70

2006 2007 2008 2010

(US$)

0

500

1,000

1,500

2,000

(p)

P rice

S&P 500

0

10,000

20,000

30,000

40,000

50,000

2008 2009 2010 2012

(won)

0

250

500

750

1,000

(p)

P rice

Kosdaq




Allergan (US) P/S band (trailing) Inamed (US) P/S band (trailing)

0

50

100

150

2008 2009 2010 2012

(US$)

P rice 2x

3x 4x

5x 6x

0

25

50

75

100

2001 2002 2003 2005

(US$)

P rice 1x2 .5x 4x5.5x 7x


Medicis (US) P/S band (trailing) Q-Med (Sweden) P/S band (trailing)

0

25

50

75

2008 2009 2010 2012

(US$)

P rice 1x2x 3x4x 5x

0

25

50

75

100

125

150

2008 2009 2010 2012

(kr)

P rice 2x3x 4x5x 6x


Medy-Tox (Korea) P/S band (trailing)

0

10,000

20,000

30,000

40,000

50,000

2008 2009 2010 2012

(won) P rice 4x

5 .5x 7x

8.5x 10x

Source: Thomson, TONGYANG Securities


Company Report

Allergan (US) P/E band (12-month forward) Inamed (US) P/E band (12-month forward)

0

50

100

150

2008 2009 2010 2012

(US$)


0

25

50

75

100

2001 2002 2003 2005

(US$)

P rice 10x

15x 20x

25x 30x


Medicis (US) P/E band (12-month forward) Q-Med (Sweden) P/E band (12-month forward)

0

25

50

75

2008 2009 2010 2012

(US$)

P rice 5x

10x 15x

20x 25x

0

25

50

75

100

125

150

2008 2009 2010 2012

(kr)P rice 10x

15x 20x

25x 30x


Mentor (US) P/E band Medy-Tox (Korea) P/E band

0

10

20

30

40

50

60

2006 2007 2008 2010

(US$) Price 10x

15x 20x

25x 30x

0

10,000

20,000

30,000

40,000

50,000

2008 2009 2010 2012

(won)P rice 8x10x 12x14x 16x




Allergan (US) 12-month-forward P/B band Inamed (US) 12-month-forward P/B band

0

50

100

150

2008 2009 2010 2012

(US$)

P rice 2x3x 4x5x 6x

`

0

25

50

75

100

2001 2002 2003 2005

(US$)

P rice 1x2 .5x 4x5.5x 7x


Medicis (US) P/B band (12-month-forward) Q-Med (Sweden) P/B band (12-month forward)

0

25

50

75

2008 2009 2010 2012

(US$)

P rice 1x

1 .5x 2x

2.5x 3x

0

25

50

75

100

125

150

2008 2009 2010 2012

(SEK)

P rice 1x

2x 3x

4x 5x


Mentor (US) P/B band (12-month forward) Medy-Tox (Korea) P/B band (12-month forward)

0

10

20

30

40

50

60

2006 2007 2008 2010

(US$) Price 3x 5x7x 9x 11x

0

10,000

20,000

30,000

40,000

50,000

2008 2009 2010 2012

(won) P rice 2x

2 .5x 3x

3.5x 4x



Company Report

▶ 1Q review

Medy-Tox’s K-IFRS non-consolidated 1Q sales came to W6.9bn (+68.3% y-y, -8.0% q-q), operating profit W3.6bn (227.3% y-y, +5.9% q-q), and operating margin 52.2%, far above consensus.

Domestic sales jumped 70.4% y-y to W3.6bn, down only 7.6% q-q, despite base effect (2Q and 4Q are strong seasons). This was because the company started direct sales of Meditoxin to general hospitals in Jan 2011. Exports also came to a sound W3.3bn (+34.7% y-y, -19.9% q-q) thanks to exports to Japan rebounding from 2H11, and rising exports to other Asian nations such as Thailand and Hong Kong. The company restarted Meditoxin exports to Brazil in Apr 2011 (see details on page 21; exports to Brazil stood at W500mn).

COGS-to-sales ratio remained at a stable 13%. SG&A cost-to-sales ratio dropped by a considerable 6.6%p q-q, as SG&A costs stayed almost flat y-y, despite a sharp increase in sales. As a result, operating margin jumped to 52%. We think that operating margin is likely to remain at the current level (around 50%), or even increase further, considering the rising portions of exports and therapeutic sales, which have higher margins than cosmetic sales.

Medy-Tox: 1Q results (K-IFRS non-consolidated) (Wbn)

1Q11 2Q11 3Q11 4Q11 1Q12 % y-y % q-q 1Q12E

(consensus)

2012E

(consensus)

2012E

(TONGYANG)

Sales 4.1 5.6 4.6 7.5 6.9 68.3% -8.0% 6.6 31.0 30.9

COGS 0.4 0.8 0.5 1 0.9 125.0% -10.0%

COGS as % of sales 9.8% 14.3% 10.9% 13.3% 13.0%

Gross profit 3.6 4.8 4.1 6.5 6.0 66.7% -7.7%

SG&A cost 2.5 2.8 2.1 3.1 2.4 -4.0% -22.6%

SG&A cost as % of sales 61.0% 50.0% 45.7% 41.3% 34.8%

Other operating profit 0 0 0 0 0 NA NA

Operating profit 1.1 2.0 2.0 3.4 3.6 227.3% 5.9% 2.6 14.8 15.1

Operating margin (%) 26.8% 35.7% 43.5% 45.3% 52.2% 39.4% 47.7% 48.9%

Non-operating profit 0.2 0.1 -0.4 -0.5 0.2 0.0% -140.0%

Pre-tax profit 1.3 2.1 1.6 2.9 3.8 192.3% 31.0% 2.7 15.0 15.6

Tax 0.2 0 0.3 0.1 0.6 200.0% 500.0% 0.3 1.1 1.2

Effective tax rate (%) 15% 0% 19% 3% 16% 11% 7% 8%

Net profit 1.1 2.1 1.3 2.8 3.2 190.9% 14.3% 2.4 13.9 14.4

Net margin (%) 26.8% 37.5% 28.3% 37.3% 46.4% 36.4% 44.8% 46.6%

Source: DataGuide, TONGYANG Securities



Meditoxin (100U, 50U, 200U) sales by region

1Q11 2Q11 3Q11 4Q11 1Q12 % y-y % q-q

Total sales 41 56 46 75 69 70.4% -7.6%

Chg (% y-y) -12.5% -3.2% -9.3% 30.4% 70.4%

Domestic sales 16 20 15 34 36 124.3% 7.4%

Chg (% y-y) -27.5% -17.3% -17.3% 100.7% 124.3%

Exports 24 36 32 41 33 34.7% -19.9%

Chg (% y-y) 1.5% 6.6% -5.1% 1.2% 34.7%

Export portion 60.2% 64.8% 68.4% 54.9% 47.6%

Asia 17 28 26 27 24 40.8% -8.4%

Chg (% y-y) 16.0% 30.2% 24.9% 10.5% 40.8%

Eastern Europe 2 2 4 5 3 71.3% -45.7%

Chg (% y-y) -43.8% 50.0% 182.5% 103.9% 71.3%

South/Central America, others 6 6 2 8 6 5.6% -26.0%

Chg (% y-y) 4.3% -42.5% -85.6% -43.7% 5.6%


Medy-Tox: domestic sales

78%55%

30%

-28% -17%

101%124%

52%

113%

233%

46%

104%

191%

-17%-10%-6%15%

0

1

2

3

4

1Q 08 3Q 08 1Q 09 3Q 09 1Q 10 3Q 10 1Q 11 3Q 11 1Q 12

.

-50%

0%

50%

100%

150%

200%

250%국내 매출(좌)

국내 YoY%(우)

(Wbn)

Botulinum toxin product price falls 20%

on release of domestic productDirect sales of therapeutic

meditoxin begin

Domes tic sales (LHS)

Domes tic sales growth, y-y


Medy-Tox: exports breakdown by region

85%

51%42%

13% 17%1% 7%

-5% 1%

35%

74%

180%

42%38%

66%

116%156%

0

1

2

3

4

5

1Q 08 3Q 08 1Q 09 3Q 09 1Q 10 3Q 10 1Q 11 3Q 11 1Q 12

-50%

0%

50%

100%

150%

200%

중남미 및 기타국가(좌) 동유럽(좌)

아시아(좌)수출 비중(우)수출 YoY%(우)

(Wbn)Japan hit by quake in 1Q

Brazilian marketing partner

acquired by Amgen in 2Q

Asia (LHS)Eastern Europe (LHS)South & Central America, others (LHS)Export portion (RHS)Export growth, y-y (RHS) Exports to Brazil

begin



Company Report

▶ Ownership structure

The largest shareholder and affiliated persons hold a 22% stake, treasury stocks 4%, and foreign investors (including Templeton Asset Management) 21%.

Medy-Tox: ownership structure

General

shareholders

54%Larges t

shareholders

22%

Foreign

6%Templeton A sset

Management

14%

Treasury shares

4%




Medy-Tox (086900 KS) pro forma financial statements (K-IFRS parent-based)

Statement of financial position Statement of comprehensive income (K-IFRS)

FY to Dec (Wbn) 2010 2011 2012E 2013E 2014E FY to Dec (Wbn) 2010 2011 2012E 2013E 2014E

Non-current assets 24 25 42 59 63 Sales 21 22 31 37 43

Investment in affiliate 0 0 0 0 0 Cost of sales 3 3 4 4 4

LT financial assets 2 0 0 0 0 Gross profit 18 19 27 33 39

Tangible assets 15 15 29 43 43 SG&A 8 10 12 14 16

Other non-current 3 2 3 3 3 Reported op prof 11 8 15 19 23

Current assets 22 28 30 33 51 Adjusted op prof 11 9 15 20 24

Cash & equivalent 6 1 0 1 16 Other op prof/loss 0 -1 0 0 0

ST financial assets 12 20 20 20 20 Non-operating prof 0 0 1 1 0

Accts rec & other 4 6 8 10 11 Interest income 1 1 1 1 1

Inventory 1 1 1 2 2 Interest expense 0 0 0 0 1

Other current 0 1 1 2 2 Forex gain/loss 0 0 0 0 0

Total assets 46 53 72 92 114 Equity-meth gain/loss 0 0 0 0 0

Non-current liabilities 3 2 8 11 12 Other 0 -1 0 0 0

LT financial liabilities 0 0 4 6 6 Pre-tax from cont op 11 8 16 20 24

Other non-current liab 2 2 4 5 6 Income tax 1 1 1 2 2

Current liabilities 6 10 10 11 11 Net profit 10 7 14 18 22

Accts payable & other 0 1 1 1 1 NP for controlling int 10 7 14 18 22

ST financial liabilities 5 8 8 8 8 Total comprehensive inc 10 7 14 18 22

Other current 1 1 2 2 3 TCI for controlling int 10 7 14 18 22

Total liabilities 10 12 18 22 24 EBITDA 12 10 17 21 25

Equity for controlling int 37 41 54 70 90 Free cash flow 3 8 -4 -1 17

Paid-in capital 3 3 3 3 3 EPS 1,837 1,303 2,540 3,185 3,804

Capital surplus 14 14 14 14 14 Book value/share 7,228 8,233 10,486 13,383 16,901

Retained earnings 25 30 43 59 79 Dividend/share 300 300 300 300 400

Equity for non-control int 0 0 0 0 0 EBITDA/share 2,185 1,794 2,956 3,686 4,385

Total equity 37 41 54 70 90

Net debt -12 -13 -8 -6 -21

Cash flow statement Valuation

FY to Dec (Wbn) 2010 2011 2012E 2013E 2014E FY to Dec 2010 2011 2012E 2013E 2014E

Operating cash flow 11 5 14 18 22 Gross margin (%) 86.1 87.5 88.2 89.6 90.6

Net profit 10 7 14 18 22 Operating margin (%) 50.3 39.6 49.7 52.3 54.7

Depreciation & amortization 2 2 1 1 1 Net margin (%) 49.3 34.0 46.5 48.3 49.8

Forex translation gain/loss 0 0 0 0 0 EBITDA margin (%) 58.6 46.8 54.1 55.9 57.4

Affiliate invest gain/loss 0 0 0 0 0 Sales (% y-y) 22.7 2.9 42.4 20.7 15.8

Inc (dec) in net working cap -2 -5 -2 -1 -1 Operating profit (% y-y) 20.9 -19.1 78.7 27.1 21.1

Other -1 -3 1 1 1 Net profit (% y-y) 17.9 -29.1 94.9 25.4 19.5

Investing cash flow -13 -11 -17 -18 -4 EPS (% y-y) 17.3 -29.1 94.9 25.4 19.5

Disp (acq) of tangible asst -4 -1 -15 -15 -1 EBITDA (% y-y) 25.9 -17.9 64.7 24.7 19.0

Inc (dec) in intang asst -3 -3 -3 -4 -4 ROE (%) 32.7 19.0 30.3 29.1 26.8

Inc (dec) in ST/LT finl asst -6 -8 0 0 0 ROA (%) 26.4 14.9 23.0 22.0 20.9

Other 0 1 1 1 1 Accts rec turnover (x) 6.8 4.7 4.4 4.1 4.1

Financing cash flow 4 1 2 0 -2 Inventory turnover (x) 20.3 21.3 29.7 27.7 27.1

Inc (dec) in ST/LT finl liab 3 3 0 0 0 P/E (x) 15.2 17.6 17.4 13.9 11.6

Inc (dec) in equity -1 -2 0 0 0 P/B (x) 3.9 2.8 4.2 3.3 2.6

Dividend payout 0 -2 -2 -2 -2 EV/EBITDA (x) 12.4 12.5 14.5 11.7 9.2

Others 1 1 0 0 -1 Div yield (com shr, %) 1.1 1.2 0.6 0.6 0.9

Inc (dec) in cash & eq 2 -5 -1 1 15 Debt-to-equity (%) 26.1 28.7 33.6 31.3 26.0

Beginning cash & equiv 4 6 1 0 1 Net debt-to-equity (%) -32.4 -31.5 -14.3 -8.6 -23.7

Ending cash & equiv 6 1 0 1 16 Net fin cost/sales (%) -2.3 -3.0 -2.3 -1.3 -1.0

OP/financing cost (x) 87.9 35.3 52.9 44.8 45.7

Note: EPS, BPS, P/E and P/B are based on controlling interest For valuation metrics such as P/E, historical figures are based on annual averages, estimates on current price For ROA or ROE, assets and equity are averages of end-of-year figures for given year and year prior Data to 2010 based on K-GAAP and from 2011, K-IFRS Source: TONGYANG Securities


Company Report

Medy-Tox (086900 KS) ratings and target price history

(won)

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

May 2010 Nov 2010 May 2011 Nov 2011

C urrent priceT arget pric e

Date Rating TP (won)

2012/05/16 BUY 60,000

2012/02/27 NOT RATED -


Disclosures & disclaimers

This research report has been prepared for informational purposes only; it does not constitute an offer or a solicitation of an offer to buy or sell any securities or other financial instruments. The information and data contained in this report have been obtained from sources we consider reliable; however, we make no representation that the information provided in this report is accurate or complete, and it should not be relied on as such. The recipient of this report should use his/her independent judgment regarding the sale or purchase of any securities or financial instruments mentioned herein. We disclaim any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. This report is for our clients only. It is copyrighted material and may not be reproduced, transmitted, quoted, or distributed in any manner without the prior written consent of TONGYANG Securities Inc.

As of the publication date of this report, TONGYANG Securities Inc. does not own a stake in excess of 1%, nor does it have any interest whatsoever, in the subject company (ies). The material contained herein was not disclosed by TONGYANG Securities Inc. to any institutional investors or third parties prior to its publication. As of the date of publication of this report TONGYANG Securities Inc. is an issuer and liquidity provider for equity linked warrants backed by the shares of the subject company. The analyst (s) of this report or the analyst (s)’ spouse does not have any financial interest in the securities of the subject company (ies) mentioned herein, nor financial interest of any nature related to the subject company (ies) (including without limitation, whether it consists of any option, right, warrant, future, long or short position), as of the publication date of this report.

Analyst certification

I/We, as the research analyst/analysts who prepared this research report, do hereby certify that the views expressed in this report accurately reflect my/our personal views about the subject securities discussed in this report.

Stock and sector ratings

Stock ratings include an Investment Rating (Buy, Hold, Sell) as well as a Volatility Risk Rating (High, Low) that are based on the expected absolute return of a stock over the next 6 -12 months.

- Buy: Low Risk if a stock is expected to return 10% or more; High Risk if a stock is expected to return 20% or more

- Hold: Low Risk if a stock is expected to return between -10 and +10%; High Risk if a stock is expected to return between -20 and +20%

- Sell: Low Risk if a stock is expected to decline by 10% or more; High Risk if a stock is expected to fall by 20% or more

Sector ratings suggest 6 to 12 - month forward investment weighting of a given sector compared to its market capitalization weighting.

- Overweight: Investment weighting is higher than the market capitalization weighting - Neutral: Investment weighting is equal to the market capitalization weighting - Underweight: Investment weighting is lower than the market capitalization weighting



TONGYANG Securities International Network

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Seoul

Head Office TONGYANG Securities Building Euljiro 76 Jung-gu Seoul, Korea 100-845 Tel: +822-3770-3454 Corporate website: www.tys.co.kr/english Hong Kong

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