Botulinum toxin market poised for change with Hugel sale

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Wrinkle-beating "Boxtox" has been the domain of mid-sized companies, with a number of relatively small players battling it out as larger companies have stayed well clear of the brawl.

That is about to change as Hugel, Korea's largest manufacturer of botulinum toxin, popularly known by the Botox brand name, is in play. Bain Capital is selling its 42.9 percent stake in the company, and some of Korea's largest names might buy the asset, shaking up the fragmented business.

The substance is widely used globally by beauty surgeons for its wrinkle-erasing effects.

Shinsegae Department Store, GS Holdings and SK Discovery have been named in local media reports as possible bidders. The first two have said in filings that they are considering the purchase. SK Discovery denies the reports.

Hugel achieved 55.2 billion won ($48.7 million) in net profit and 211 billion won in sales last year. It was a record high in the company's 20-year history. According to local reports citing investment banking sources, Hugel is currently valued at around 2 trillion won.

Until recently, only a few large companies were heavily investing in the biopharm business. Their investments started to bear fruit during the epidemic as Samsung Biologics and SK Bioscience rallied.

Korea's botulinum toxin market is dominated by four mid-sized companies: Hugel, Medytox, Daewoong Pharmaceutical and Huons.

In part, the attention botulinum toxin is getting can be explained by the recent boom in Korea's bio industry.

Botulinum toxin is particularly interesting because it requires a smaller investment than bio similar or bio contact manufacturing businesses, both of which require trillions of won and a substantial amount of time to turn profits.

Samsung Biologics, the local leader in bio contract manufacturing, for example, didn't turn quarterly profits until its seventh year.

The risks and capital for Botox products are relatively small. All required is a strain of the material. Selling products made of it could immediately generate revenue. Botulinum toxin is also easy to maintain. They multiply as long as they're kept at the right temperature and humidity.

Hugel's operating margins in the first quarter were 46.2 percent. Medytox announced an operating margin of 61.4 percent in 2016, before the company entered a protracted legal battle with Daewoong over technology. This is good profitability considering the operating margins of Korea's five top pharmaceutical companies range between 1 and 4 percent.

"Once you succeed in cultivating a strain, there's barely any raw ingredient or material that has to be invested in," said an anonymous source from a botulinum toxin company. "Most of Botox production costs goes to the glass vials."

Another huge potential in the Botox business is that it caters to a massive market in China. As of 2019, China's botulinum toxin market was estimated at 600 billion won, the third largest in the world behind Europe and the United States.

Hugel's botulinum toxin product was approved for sale in China in October last year. Huons Biopharma raised 155.4 billion won from a Chinese partner in June, while Medytox received a sales permit from Taiwanese drug authorities that same month.

"Botox demand was slow last year due to the Covid-19 pandemic, but there will surely be a recovery this year," said Shinhan Investment Analyst Lee Dong-gun. "I'm anticipating growth to take on speed from the second half."

Pharmaceutical company Ipsen estimates that the global botulinum toxin market will reach $6.5 billion by 2023 from $5.1 billion in 2020.

BY MOON HEE-CHUL,SONG KYOUNG-SON [song.kyoungson@joongang.co.kr]