The author is an analyst for NH Investment & Securities. He can be reached at pk.park@nhqv.com -- Ed.
When will global bio indices bottom out? Even if the rankings of the two largest pharmas have changed amid robust sales growth, the S&P500 Healthcare Index has continued to slide this year. We view the growth of the antibody market, which accounts for over half of the bio industry, as being the key to achieving a rebound. The mid-term forecast growth rate of the antibody market has recently recovered to the 10%-level on the expansion of Alzheimer's disease (AD) diagnosis infrastructure, the approval of a lecanemab SC formulation and maintenance therapy, and an expansion of FcRn drug indications to include high prevalence diseases. Samsung Biologics, Korea’s number-one player in the segment, is well situated to find rebound opportunities along with other CMOs such as Lonza, Thermo Fisher, and Danaher.
As the diagnostics market is expanding, we believe that it is necessary to seize opportunities, especially in the US, which is the largest market. We advise paying attention to: 1) Korean diagnostics companies seeking to secure opportunities to enter the US market through CLIA-certified labs; and 2) firms with clear business models that receive CPT codes for AI healthcare from the American Medical Association (AMA).
We present Samsung Biologics, HanAll Biopharma, and Yuhan as our sector top picks for 2024.
I. Sluggish earnings sustaining; bottom to be confirmed for antibody drugs players
Despite the recent big event—a global healthcare market leader being replaced by a new GLP-1 company—healthcare indices (S&P500 Healthcare Index, Nasdaq Bio Index) have remained stagnant due to the relatively small size of the GLP-1 market (2028E US$70bn) in comparison to the US$350bn-worth (2028E basis) global antibody market. We believe that a bio index rebound will arrive only when the large-sized antibody drug market recovers. Having slowed to single-digit (%) growth recently, the antibody market is expected to recover to about 10%-range growth over 2024~2025. Key momentum-boosting events for the antibody market include: 1) the blooming of the AD treatment market; 2) growth of FcRn treatments; and 3) antibody-drug conjugate (ADC) technology expansion.
II. AD diagnosis infrastructure expansion and maintenance therapy momentum
Following the FDA’s granting of traditional approval on lecanemab (AD treatment), in July, a limitation on public insurance coverage of PET scans, which was a main hurdle to AD diagnosis, was lifted on Oct 13. US AD diagnosis should expand in 2024.
Applications for FDA approval on lecanemab SC and donanemab will be applied in 1Q24. At 50% penetration, the AD market size is estimated at US$25.7bn. Diagnosis infrastructure expansion should lead to greater market size.
III. Diagnostics market and changes in US: CLIA-certified labs and AI diagnosis
Losses for health insurance systems in many countries around the world are expanding, which should lead to growth of the diagnostics market. The significance of effective treatment based on accurate diagnosis, at a time when treatment costs need to be reduced amid populating aging, should rise going forward. In a diagnostics market expansion phase, the US (a large market) should present growth opportunities. We advise paying attention to Korean companies that are striving to enter the US market by acquiring CLIA-licensed labs and that show clear business models for services to which the AMA’s CPT codes can be assigned.
IV. Top picks
We recommend Samsung Biologics and HanAll Biopharma as top picks. A rebound in the global antibody market is essential for Samsung Biologics, a leading monoclonal antibody producer, to see valuation re-rating. Investors should pay attention to news on new drugs in the areas of AD, FcRn, and ADC. HanAll is targeting the markets for rare autoimmune diseases and also patients who have developed resistance to existing drugs with an entirely-new treatment mechanism (anti-FcRn).