[News Space=Reporter seungwon lee] Daewon Pharmaceutical, once the pride of domestic new drugs, has lost four consecutive patent lawsuits for ‘Pelubi’ from the first trial to the Supreme Court, exposing its management incompetence and structural risks at once.

In recent years, Daewon Pharmaceutical has been criticized as a typical ‘bad company’ due to repeated investigations by the Ministry of Food and Drug Safety and the National Tax Service, as well as repeated defeats in court.

◆ Four consecutive patent lawsuit losses… The fall of the Pelubi myth

Daewon Pharmaceutical’s domestic new drug ‘Pelubi’ had patent expiration until November 2028, but it lost all patent lawsuits against generic companies such as Yungjin Pharmaceutical, Huons, and Chong Kun Dang that began in 2019, from the first trial, second trial, patent court, and Supreme Court. This justified the launch of generics, and the Ministry of Health and Welfare ordered a drastic reduction in the drug prices of Peluvi and Peluvi SR from 180 won to 96 won and from 304 won to 179 won, respectively.

If the drug price reduction becomes a reality, it is expected that 20-30 billion won of the Peluvi series sales, which amounted to 62 billion won as of last year, could disappear. Daewon Pharmaceutical is trying to buy time by filing a lawsuit to cancel the drug price reduction, but the industry consensus is that it has almost no chance of winning as the patent has already been invalidated.

◆ Repeated quality and legal risks… A company that is a ‘regular’ company for the Ministry of Food and Drug Safety and the National Tax Service

In recent years, Daewon Pharmaceutical has repeatedly received administrative measures from the Ministry of Food and Drug Safety for poor quality and violations of the Narcotics Control Act. In 2024, a fine of 134.4 million won was imposed on the diarrhea medicine ‘Potagel Suspension’ for exceeding the microbial standard, and six types of children’s cold medicine ‘Coldaewon Kids’ were also fined for quality issues.

Manufacturing suspensions were also imposed on narcotic injections and painkillers, and management lapses such as violations of GMP (Generation of Pharmaceutical Manufacturing and Quality Control Standards) and noncompliance with the company’s standards were repeatedly revealed.

The National Tax Service also launched a high-intensity tax investigation targeting Daewon Pharmaceutical and its affiliates in March 2025, following 2017. The industry points out suspicions of providing rebates, insider trading, and slush fund creation as the background for the investigation. In fact, suspicions of slush fund creation and illegal rebates by some sales employees have been raised continuously, and some employees received deferred prosecution in the prosecution investigation. As such, criticism is strong that Daewon Pharmaceutical’s ethical management is just empty talk.

◆ Limitations of third-generation succession and family management… governance structure and ESG at the bottom

Daewon Pharmaceutical is a representative case of family management centered on the founding family.

Following the second-generation management, Chairman Baek Seung-ho and Vice Chairman Baek Seung-yeol, the third-generation, President Baek In-hwan (US citizen) and Managing Director Baek In-young, are taking over the management. The wife of the late founder Baek Bu-hyeon was reappointed as a director eight times until 2021, and no outside director has voted against a single motion in the past five years. The checks and balances are effectively nullified, as major board agendas are passed with flying colors.

Despite the fact that the owner family holds executive positions, subsidiaries such as Daewon Healthcare and Daewon Meditech are suffering from capital erosion. Excessive concurrent positions of executives, poor management of subsidiaries, and low ESG (environment, society, and governance) scores are pointed out as structural limitations in terms of increasing shareholder value and management transparency.

In fact, Daewon Pharmaceutical's ESG score is 43.4, which is significantly behind competitors such as Chong Kun Dang (51.7), Dong-A ST (50.3), and HK Inno.N (53.2).

◆ Poor performance and financial instability... Results of management incompetence

Daewon Pharmaceutical's sales increased 13.5% year-on-year to KRW 598.1 billion in 2024, but operating profit (KRW 28.2 billion) and net profit (KRW 9 billion) decreased for three consecutive years.

The operating profit ratio also decreased to 4.7% compared to the previous year (6.1%). Fixed costs such as sales management fees, labor costs, and advertising costs have skyrocketed, and the financial structure is also worsening due to rising raw material prices, intensifying domestic competition, losses from the consolidation of subsidiaries, and an increase in short-term borrowings and debt ratio (105%). Short-term borrowings (KRW 77.9 billion) amount to 4.6 times cash assets (KRW 17 billion), putting short-term liquidity at risk.

In addition, structural pain points such as worsening management of subsidiaries, risk of collecting accounts receivable, and product safety controversies are weighing on mid- to long-term growth potential and corporate value.

In this way, Daewon Pharmaceutical is suffering from all the typical problems of a ‘bad company’ such as failure to defend new drug patents, unrealistic litigation strategies, repeated quality and legal risks, backward family management, low ESG scores, poor performance, and financial instability. The industry, investors, and consumers all demand changes and innovations from Daewon Pharmaceutical, but there are currently no clear signs of improvement.

Daewon Pharmaceutical, which has gone from being the pride of domestic new drugs to being synonymous with a ‘bad company,’ is now facing a warning that there is no future without change and innovation.