Time to Reevaluate Biosimilar Industry
The author is an analyst with NH Investment & Securities. He can be reached at william.ku@nhqv.com. -- Ed.
With higher global demand for biosimilars and healthy earnings at global leading bio CDMO players translating into accompanying share price hikes, we believe that the time is ripe for a need to re-evaluate the biosimilar industry. With the US biosimilar market set to enter a full-fledged growth phase from this year, we raise our TP on Samsung Biologics from 520,000 to W630,000.
▶Global peers’ share prices are climbing
By sales, the global bio contract development and manufacturing organization (CDMO) market ranking order is Lonza first, Samsung Biologics second, and Wuxi Biologics third. In terms of capacity for animal cell culture facilities, the global rankings order is Samsung Biologics (360,000L) first, Lonza (200,000L) second, and Wuxi Biologics (50,000L) third. As of Feb. 12, one-month stock returns are clocking at a brisk +21.4% for Samsung Biologics, +16.8% for Lonza, and +17.5% for Wuxi Biologics. Also rapid were 2019 y-y sales growth figures for bio CDMO businesses, pacing at +57.7% for Samsung Biologics, +34.2% for Lonza, and +44.8% for Wuxi Biologics. In line with more global bio venture launches, demand for CDMOs has been expanding and earnings at major players have been soaring. Against this backdrop, valuations re-ratings look to be in order for global bio CDMO players.
Adhering to a Buy rating, we raise our TP on Samsung Biologics from W520,000 to W630,000. Reflecting a change in 52-week beta from 1.2 to 1.1, we have adjusted our WACC assumption from 7.0% to 6.4%. We believe that these more aggressive assumptions are justified by the recent global risk-on environment. Using a SOTP valuation method, we calculate EV at W42.1tn, combining: 1) operating value of W31.1tn (DCF valuation method); and 2) the value of the firm’s 50% stake in subsidiary Samsung Bioepis (W11.0tn).
▶Pay attention to Pfizer’s earnings conference call
Pfizer recently strengthened its biosimilar portfolio, launching both its Rituxan biosimilar and its Herceptin biosimilar in the US market. Unlike Inflectra (Remicade biosimilar), which showed poor initial performance, Pfizer is expressing confidence in the early US market penetration of its anticancer biosimilars. Given this development, we see signs of changes in the US biosimilar market landscape.
Biogen’s earnings release for last quarter revealed that 4Q19 EU market sales of Samsung Biologics’ Imraldi (Humira biosimilar) and Benepali (Enbrel biosimilar) reached US$52.0mn (+211.4% y-y) and US$126.0mn (+0.6% y-y), respectively. This year, Samsung Biologics is to beef up its anticancer biosimilar portfolio through its planned US launches of SB3 (Herceptin biosimilar) in 1H20 and SB8 (Avastin biosimilar) in 2H20. The US biosimilar market is expected to enter a full-fledged growth phase from 2020, ushered in by the planned releases of several new products.