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Celltrion Healthcare Summary

Core Content

Celltrion Healthcare is a subsidiary of Celltrion, focused on the biosimilars business. It acts as the master distributor for biosimilars manufactured by Celltrion, with the two companies sharing business risks and profits through adjusted purchase prices. The firm is expected to enjoy rapid growth through 2019, driven by its three blockbuster biosimilars: Remsima/Inflectra, Truxima, and Herzuma. However, growth may slow from 2020 due to intensifying competition and the lack of new blockbuster biosimilars in its pipeline.

Main Points

• Growth Drivers: The launch of biosimilars in key markets like the US and Europe is expected to significantly boost sales. These biosimilars are copies of major biologics such as Remicade, Humira, and Enbrel.
• Market Trends: The biosimilar market is growing rapidly due to the expiration of biologics patents, which reduces healthcare costs and increases patient access. Frost & Sullivan forecasts a CAGR of 62.7% for the global biosimilar market from 2015 to 2020, reaching USD30.4b by 2020.
• Sales and Inventory: Sales growth is expected to outpace inventory growth, leading to improved inventory turnover. In 2016, inventory turnover improved to 0.5, and this trend is anticipated to continue.
• Regulatory Developments: The US FDA has issued draft guidance on biosimilars, removing regulatory hurdles and promoting the approval of interchangeable biosimilars. This opens up significant opportunities for biosimilar companies in the US market.
• Competitive Landscape: The US is opening up to biosimilars, with several companies launching products. However, competition is expected to increase, especially with the entry of new biosimilars for key products like Remicade and Humira.
• Cost Savings: EvaluatePharma predicts that biosimilars will save USD107b in healthcare costs in the US and Europe combined, with the US being the main contributor due to its large market size.
• IPO Proceeds Utilization: To sustain growth beyond 2019, the firm should use its IPO proceeds to co-develop biologics, expand its drug pipeline, and grow its direct sales networks overseas.

Key Information

• Target Price: KRW60,000 (12-month target)
• Current Price: KRW45,250
• Market Cap: KRW6.2t/USD5.5b
• Shares (float): 136,688,120
• 52-week High/Low: KRW51,600/KRW45,250
• Avg Daily Trading Value (60-day): KRW73.7b/USD65.3m
• Recommendation: BUY

Financial Highlights

Biosimilar Launch Timeline

• 2017: US launch of Remsima/Inflectra, European launch of Truxima
• 2018: European launch of Herzuma
• 2019: US launch of Truxima and Herzuma

Market Share and Cost Impact

• Humira: Expected to fall from USD16.5b to USD15.9b
• Enbrel: Expected to fall from USD9.2b to USD5.3b
• Remicade: Expected to fall from USD8.1b to USD2.7b
• Rituxan: Expected to fall from USD7.5b to USD2.6b
• Avastin: Expected to fall from USD6.9b to USD4.4b
• Herceptin: Expected to fall from USD6.9b to USD3.6b

Competitive Landscape

• The US is the largest biologics market, accounting for 50% of the global market.
• Several biosimilars have already launched in the US, including Zarxio, Basaglar, Remsima, and Renflexis.
• The US market is expected to see significant cost savings due to biosimilar competition, estimated at USD107b.

Investment Outlook

• The firm is initiated at BUY with a target price of KRW60,000.
• The fair value is calculated by subtracting Celltrion's target market cap from the combined fair value of both companies.
• Investors should monitor US market share for Remsima/Inflectra and the impact of new biosimilar entrants on the market.