JW Pharmaceutical said it reported operating loss in 2019, turning from an operating profit a year earlier. A 29.3 billion won ($24.7 million) fall from a profit to a loss, which was worse than expected, was not only due to base effects from the 2018 royalty earnings but reduced sales of enteral nutrient Encover and increased R&D expenses.

The company said in a public filing on Thursday that it recorded 523.8 billion won sales, 7.7 billion won operating loss, and 20.4 billion won net loss in 2019. The revenue was down 2.5 percent from 537.2 billion won last year.

In 2018, the company reported an operating profit of 21.6 billion won and a net profit of 8.1 billion won.

JW Pharmaceutical attributed the drops in earnings to base effects from the royalty income in 2018. The company recorded 18.1 billion won upfront payment as an income when it licensed out its investigational atopic dermatitis treatment JW1601 to Danish firm Leo Pharma in 2018.

Last year, the company also recorded 6 billion won upfront payment from Simcere Group for gout candidate URC-102 and the remaining 800 million won payment from Leo Pharma as an operating income.

Even if the company considers changes in operating income caused by royalty income, the company had another 18 billion won loss due mainly to a suspension of Encover supply and a rise in R&D cost.

Encover, which directly injects nutrients to severe patients with difficulty in eating, sells about 20 billion won per year. JW Pharmaceutical’s Encover and Yungjin Pharm’s Harmonilan are the only enteral nutrients authorized as prescription drugs.

However, JW Pharmaceutical had a glitch in selling Encover last year. The company imports Encover from Japan’s Otsuka Pharmaceutical but had to suspend the sale of Encover for six months when it sought changes in approval conditions for Encover. The company resumed the sale, but the revenue from Encover sales plunged last year.

With JW Pharmaceutical’s experimental drug entering a higher-phase clinical trial, the company’s R&D cost rose by 6.3 billion won last year, compared to a year earlier. In 2019, the company spent 40.7 billion won on R&D, which accounted for 7.8 percent of the total revenue. The R&D proportion out of the revenue was 6.4 percent in 2018.

“Besides, we had prescription drug losses due to the valsartan recall and expenses went up as we discarded the inventory,” an official at JW Pharmaceutical said.

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