Sector Top Picks: Celltrion and Celltrion Healthcare
The author is an analyst of NH Investment & Securities. He can be reached at pk.park@nhqv.co. -- Ed.
The US biosimilar market is set to expand in earnest next year. In response, the Celltrion Group plans to deploy a direct selling strategy in the US. While initial cost burden is worrisome, we expect the firm’s COGS-to-sales ratio to improve by roughly 10%p. Yuflyma’s 2024 sales in the US are to serve as a yardstick for the performance of the group’s direct US selling.
US biosimilar market expansion from 2023 vs drug price cuts
The US biosimilar market is set to enter a second wave next year, when the patents of blockbuster monoclonal antibody drugs are set to expire. While a rising number of off-patent original drugs should drive up biosimilar sales volume, we note that biosimilar drug prices are usually discounted 15~35% versus original drug prices at the time of launch, and cut by a further 10~30% pa. Under the circumstances, the success of the Celltrion group’s direct selling strategy in the US is key. Of note, we estimate Yuflyma’s 2024 sales in the US (a yardstick for the performance of the group’s direct US selling) at W356bn.
Vertical integration key for biosimilar company’s survival
Given that the main competitive edge for biosimilars and generic drugs is strong price competitiveness (low prices), cost-savings are critical for drug plays oriented towards biosimilars and generics. We note that vertical integration is one of the most-frequently employed strategies for this goal, with Biocon’s Viatris biosimilars business takeover and Celltrion’s shift to direct marketing in the US representing good cases in point.
Although a direct sales strategy entails initial investment burden, we believe such a shift in marketing strategy is essential for Celltrion, given the group’s lofty COGS-to-sales ratio (58.7% in 2021 and 60.6% in 2022). Of note, the figure for both Teva and Sandoz stands at around 50%. We expect direct marketing to help lower Celltrion’s COGS-to-sales ratio to 56% by 2024.
Sector top picks: Celltrion and Celltrion Healthcare
We initiate coverage on the biosimilar industry, presenting Celltrion and Celltrion Healthcare as sector top picks. After calculating the firms’ combined market cap at W48tn, we divided the figure based on each company’s share of combined 2024F OP (Celltrion 69.7%, Celltrion Healthcare 30.3%) in order to calculate fair market cap for each firm. Although direct selling in the US is a big challenge for the group, we believe that it is a much needed move, as the company can make another breakthrough by utilizing its direct selling experience in Europe and its business foundation in the US (Celltrion USA).