Pluses Outweigh Minuses
The author is an analyst of NH Investment & Securities. He can be reached at pk.park@nhqv.co. -- Ed.
Celltrion Healthcare’s OP for 3Q22 satisfied consensus if stripping out one-off costs. We see 2022E OP of W283.9bn, driven by Remsima IV/SC sales growth in the US and EU markets. If it mainly targets PBM based payers (including hospitals and distributors), the US sales force is to be 30~40% smaller in size than initially expected. Thus, related sales forces expenses should land at the bottom end of guidance projections, representing only 1% of Celltrion group (Celltrion + Celltrion Healthcare)’s 2023E revenue.
3Q22 review: OP meets consensus if excluding one-off costs
We maintain a Buy rating and our TP of W90,000 on Celltrion Healthcare. The firm showed 3Q22 revenue of W496.4bn (+21% y-y) and OP of 72.5bn (+229% y-y), in line with our estimates but falling slightly short of consensus. The company incurred commission expenses of W70mn to compensate local distributors in the process of its converting distribution system in EU from a partnership model to direct sales. If putting aside one-off expenses, OP satisfied the market projection.
All of the firm’s major products showed y-y growth with the exception of Truxima. EU market share for the flagship product, Remsima, rebounded sharply to 56%. The market share of Remsima SC, a new version of Remsima, came at 12% thanks to switchover effects (from Remsima to Remsima SC). Profitability for the Remsima lines strengthened alongside elevated brand power. Remsima’s US market share showed a robust 32% in September. But, Truxima sales dropped on both stiffened price competition in the US market (after the arrival of Amgen’s new biosimilar) and distribution conversion in EU. US sales of Truxima fell 14% q-q.
We foresee 4Q22 sales of W605.8bn (+0.0% y-y) and OP of W92.3bn (+32% y-y), with Remsima (EU/US) and Remsima SC(EU) leading sales growth before the start of Celltrion Healthcare’s direct sales in the US market.
Direct sales to begin in US: Pluses outweigh minuses
Celltrion Healthcare has been making a variety of efforts for listing up payers, which is to be a key factor in determining the success of direct sales strategy in the US. Although the market is worrying the cost of direct sales, the number of sales forces in the US could be reduced by 30~40% compared to our initial estimate if the firm targets PBM-based payers. Accordingly, annual direct sales costs in the US are projected to be at the lower-end of the guidance range (W50~100bn). CT-P16 (Avastin biosmilar) and Yuflyma are both scheduled to be released as direct sales in the US in 2023, with a Stellara biosimilar to follow in early 2024.
Assuming that costs are at the lower end of the guidance, they should represent around 1% of total sales in 2023. We believe that the group’s total COGS-to-sales ratio can improve by at least 10% after 2025 on the securing of distribution margins. Thus, the pluses of a direct sales strategy in the US appearing to outweigh the minuses.