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Samsung Biologics Summary

Core Content

Samsung Biologics is a key player in the biologics sector, with a focus on contract manufacturing and biosimilar development. The company recently reported its 2Q results, which showed a decline in CMO sales due to biannual maintenance, but significant growth in biosimilar sales, particularly from its subsidiary Samsung Bioepis. The report also highlights the company's expansion plans, including the construction of its third plant, which is expected to enhance its CMO capacity and global market share.

Main Points

• 2Q Results:

  • Sales decreased by 41.3% quarter-over-quarter to KRW63.2b.
  • The company reported an operating loss of KRW8.5b and a net loss of KRW22.1b.
  • Samsung Bioepis' sales increased by 129.3% year-over-year to KRW85b, with a significant contribution from biosimilar product revenue and milestone income.

• Biosimilar Developments:

  • Samsung Bioepis received a positive opinion from the EMA for Imraldi (Humira biosimilar) on June 22.
  • The company received tentative US FDA approval for Lusduna (Lantus biosimilar) and launched Renflexis (Remicade biosimilar) in the US on July 24.
  • Herceptin biosimilar is expected to gain EMA approval by year-end, making Samsung Bioepis the first firm to have EMA-approved biosimilars for the top-five biologics.

• Future Outlook:

  • The company expects to reach break-even on an operating basis this year with sales growth of 50% to KRW441.9b.
  • The third plant is scheduled for completion in 4Q17 and validation in 4Q18, with full utilization expected to boost CMO capacity to 360,000 liters by 2020.
  • Annual Imraldi sales are projected to reach KRW721.8b by 2020.

• Target Price:

  • The analyst raises the 12-month target price to KRW340,000, up by 30.8% from the previous estimate.
  • The target price is based on fair equity value calculations and projected earnings.

• Market Performance:

  • Current price: KRW273,000.
  • Target price: KRW340,000.
  • Market cap: KRW18.1t/USD16.2b.
  • Shares (float): 66,165,000 (21.7%).
  • 52-week high/low: KRW297,000/KRW142,000.
  • Avg daily trading value (60-day): KRW89.7b/USD80.6m.

Key Information

• Recommendation: BUY.
• Earnings Visibility: Improved, leading to the reiteration of the stock as the top bio sector pick.
• Plant Utilization:
  • Plant #1 is expected to have full utilization, while Plant #2 is at 40%.
  • Plant #3 will be completed in 4Q17 and validated in 4Q18.
• CMO Backlog: USD3.2b, with negotiations ongoing with at least 15 overseas pharmaceutical players.
• Biosimilar Sales Forecasts:
  • Samsung Bioepis is expected to see significant growth in 2017 and 2018.
  • Sales for 2017E are projected at KRW239.3b, with 2018E at KRW551.6b.
• Valuation Metrics:
  • P/E: 565.5 (2018E).
  • P/B: 4.5.
  • EV/EBITDA: 135.7.
  • ROE: 0.8% (2018E).
• Full-Year Forecasts:
  • Sales are expected to increase from KRW418.1b in 2017 to KRW1,933.7b in 2022.
  • Operating profit is projected to improve significantly, turning positive by 2017.
  • Net profit is expected to increase from KRW(78.0)b in 2017 to KRW1,055.3b in 2022.

Key Changes

Valuation Summary

Per-Share Data (KRW)

Biosimilar Pipeline

• SB5 (adalimumab): Humira biosimilar, patent expiries in 2016 (US) and 2018 (EU).
• SB4 (etanercept): Enbrel biosimilar, launched in Europe and Korea.
• SB2 (infliximab): Remicade biosimilar, launched in Europe and Korea.
• SB9 (insulin glargine): Lantus biosimilar, tentatively approved in the US.
• SB8 (bevacizumab): Avastin biosimilar, in Phase III.
• SAIT101 (rituximab): Rituxan biosimilar, co-developed with Archigen Biotech (AstraZeneca JV).

Marketing Partners

• Merck: Has worldwide rights to distribute the first wave portfolio except for anti-TNF drugs in Europe.
• Biogen: Has rights for anti-TNF drugs in Europe.
• Other Companies: Include Coherus, Biocon, Amgen, Sandoz (Novartis), and Pfizer, each with varying stages in biosimilar development.

US and Europe Biosimilars

• US: Biosimilars of major drugs are being developed by various companies, with Samsung Bioepis in the process of gaining approvals.
• Europe: Samsung Bioepis is leading in the biosimilar approval process, with several products already launched or approved.

Summary of 2Q Results

CMO Sales and Forecasts

Plant Utilization Rate Forecasts

Financial Highlights

• Merck: Sales of USD39.5b and EBIT of USD7.4b in 2015, with key products including Remicade, Januvia, and Tecfidera.
• Biogen: Sales of USD10.8b and EBIT of USD3.6b in 2015, with major blockbusters Avonex and Tysabri.

Conclusion

Samsung Biologics is showing promising growth in its biosimilar segment and is expected to benefit from its expanding CMO capacity and global approvals. Despite a decline in CMO sales due to maintenance, the company is positioned well for future performance, with a raised target price and continued confidence in its stock as a top bio sector pick.