Upbeat on Biosimilar Sector
The author is an analyst of Shinhan Investment Corp. He can be reached at shawn1225@shinhan.com. -- Ed.
Recommend OVERWEIGHT on new product launches and favorable conditions
We initiate our coverage on the biosimilar sector with an OVERWEIGHT rating. Our positive view is based on forecasts for: 1) sharp earnings growth for domestic biosimilar makers amid favorable market conditions; 2) low YoY base and new product effect; and 3) operating leverage effect from sales growth.
Earnings to catch up with market expectations in 2020
We expect earnings of biosimilar companies to finally catch up with market expectations in 2020, with: 1) new products like Celltrion’s Remsima SC and anticancer biosimilars scheduled for market release; 2) US biosimilar market set to sharply expand; and 3) US policy environment turning favorable.
Among the biosimilar launches slated for 2020, the spotlight is on Celltrion’s Remsima SC. This first subcutaneous (SC) version of Remsima should contribute greatly to earnings by helping to retain existing patients and attract new ones. Meanwhile, biosimilar drugs should perform well in the US market for anticancer drugs with rebates offered by original drug makers limited and new patients accounting for a large portion of the market. In line with the country’s policy changes gearing toward lowering drug prices, growing preference for biosimilars should drive overall growth of the market.
Sector top pick: Celltrion Healthcare
We recommend Celltrion Healthcare as our top pick in the biosimilar sector. The company should see its sales and profit rise sharply in 2020 on new product launches and switch to direct sales. We also like Celltrion on forecasts for across-the-board sales growth and COGS ratio improvement. Samsung Biologics is in our focus as it is expected to see a rise in capacity utilization at all plants and earnings growth at Samsung Bioepis.