Celltrion ( KQ)

Transcription

1 Celltrion ( KQ) Buy (Initiate) Target Price (12M, W) 36,000 Share Price (09/03/12, W) 29,650 Expected Return (%) 21.4 EPS Growth (12F, %) 2.7 Market EPS Growth (12F, %) 12.7 P/E (12F, x) 29.9 Market P/E (12F, x) 10.2 KOSDAQ Market Cap (Wbn) 5,178 Shares Outstanding (mn) 175 Avg Trading Volume (60D, '000) 1,092 Avg Trading Value (60D, Wbn) 33 Dividend Yield (12F, %) 0.0 Free Float (%) Week Low (W) 26, Week High (W) 49,700 Beta (12M, Daily Rate of Return) 0.65 Price Return Volatility (12M Daily, %, SD) 2.9 Foreign Ownership (%) 26.3 Major Shareholder(s) Celltrion Holdings et al. (41.42%) Price Performance (%) 1M 6M 12M Absolute Relative Likely to benefit from first-mover advantages Set to launch the world s first Remicade biosimilar Low COGS-to-revenues ratio; Strong price competitiveness Initiate coverage with Buy and TP of W36,000 We initiate our coverage on Celltrion with a Buy rating and a target price of W36,000. We derived our target price by applying a P/E of 30.9x to the weighted average of our 2012 EPS (W991) and 2013 EPS (W1,290) estimates. In calculating our target multiple, we applied a 30% premium to CelltrionÊs three-year average P/E of 23.8x, as the company is likely to launch the worldês first Remicade (a rheumatoid arthritis treatment) biosimilar. Our recommendation is premised on: 1) CelltrionÊs leading role in the biosimilar market, 2) the companyês potential for achieving first-mover advantages (as it has obtained approval for a Remicade biosimilar), and 3) the companyês solid price competitiveness (arising from its low COGS-to-revenues ratio (20%p lower than the average ratio of other generic drug makers) and direct development and sales of biosimilars). The world s first Remicade biosimilar Celltrion, a developer and producer of protein drugs, has gained traction since its founding thanks to the strength of its biosimilar pipeline. We expect Celltrion to roll out a Remicade biosimilar (CT-P13) in the domestic market in October. And the company plans to file for approval in emerging markets in an attempt to expand into the pharmerging market. We believe that emerging markets are more favorable for the company in terms of competition and patent issues than advanced markets. And, given that the antibody drug biosimilar business is in its budding stages in emerging markets, we believe that Celltrion will display strong growth (depending on the companyês marketing success). We forecast Celltrion to post revenues of W355.3bn (up 27.5% YoY) and an operating profit of W213bn (up 17.2% YoY) in Competitive prices should enable quick penetration of the pharmerging market CelltrionÊs selling prices are likely to be competitive. The prices of biosimilars in the pharmerging market vary depending on government policies, insurance companies, and patients. Celltrion plans to offer biosimilar products at prices 30~50% lower than those of the original drugs on which they are based. In light of the companyês price competitiveness, we expect the company to quickly penetrate the pharmerging market. Share price 120 KOSDAQ /11 12/11 4/12 8/12 Earnings & Valuation Metrics FY Revenue OP OP Margin NP EPS EBITDA FCF ROE P/E P/B EV/EBITDA (Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (x) (x) (x) 12/ / /12F /13F , /14F , Note: All figures are based on non-consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, estimates 63

2 1. Investment considerations A) At the frontier of the biosimilar market Making the quickest progress in the biosimilar market Although the biosimilar market has strong growth potential, the market also has downside risks such as potential competition. As such, biosimilar players need to quickly achieve firstmover advantages in order to find success. Celltrion is showing the fastest progress in the development of products (i.e., CT-P13 (a Remicade biosimilar) and CT-P06 (a Herceptin biosimilar)). And the company can utilize the global sales networks of its global partners. Furthermore, Celltrion Healthcare (which is in charge of the companyês overseas operations) has built sales networks with pharmaceutical firms in 11 countries. Figure 71. CelltrionÊs global marketing partners Hospira (North America, EU) EGIS (18 countries) Perrigo (Israel) IHL (Thailand) Hikma (17 countries) NK (Japan) CYH (Taiwan) Oli-Med (18 countries) Adcock (6 countries) Hospira (Australia, New Zealand) Source: Celltrion, 64

3 B) The world s first approval for a Remicade biosimilar CT-P13 likely to go on sale in 2H In July 2012, Celltrion received approval for domestic sales of CT-P13 from the Korean Food and Drug Administration (KFDA). This represents the worldês first approval for a Remicade biosimilar. The KFDA granted its approval for various indications, including rheumatoid arthritis, ankylosing spondylitis, ulcerative colitis, Crohn's disease, and psoriasis. As such, CT-P13 is slated to go on sale starting in October. Given that the company plans to file for approval for the drug in Brazil, Canada, Australia, and Mexico, its entry into the pharmerging market is likely to pick up speed. Among the eight biosimilars in CelltrionÊs biosimilar pipeline, CT-P13 and CT-P06 have completed their Phase 3 clinical trials. And CT-P13 obtained approval from the KFDA (before CT-P06 did). 1) CT-P13 is making the quickest progress among CelltrionÊs pipeline drugs. In early November 2011, the company announced the completion of global-level Phase 3 clinical trials for the drug. According to IMS Health, the domestic Remicade market was worth only W13.5bn as of 2010 but showed strong growth of 65% YoY that year. The rollout of CT-P13 rollout will be the companyês first product launch. 2) CT-P06 is a biosimilar for Herceptin, a breast cancer treatment that generated global revenues of a whopping US$5.2bn in Celltrion announced that it completed globallevel (mostly in Europe) Phase 3 clinical trials for CT-P06 in December If things go smoothly, this drug will likely become the first Herceptin biosimilar to be on sale in multiple countries. 3) CT-P10, a Rituxan biosimilar, will be the third Celltrion drug to enter domestic clinical trials. Given that the company received approval to commence Phase 1 clinical trials at end- November 2011, if things go smoothly, multinational Phase 1 and 3 clinical trials are likely to begin in Rituxan is a globally successful non-hodgkinês lymphomas treatment that generated global revenues of US$6bn in It should be noted that, in March 2011, Samsung Electronics became the first firm to win approval for domestic Rituxan biosimilar trials. Table 34. CelltrionÊs biosimilar R&D pipeline Project Ingredient Product Indication Scheduled launch date CT-P06 Trastuzumab Herceptin Breast cancer 2012 CT-P13 Infliximab Remicade Rheumatoid arthritis 2012 CT-P10 Rituximab Rituxan Non-HodgkinÊs lymphoma 2014 CT-P05 Etanercept Enbrel Rheumatoid arthritis 2014 CT-P15 Cetuximab Erbitux Large intestine cancer 2015 CT-P14 Palivizumab Synagis RSV 2015 CT-P17 Adalimumab Humira Rheumatoid arthritis 2016 CT-P16 Bevacizumab Avastin Colorectal cancer 2016 Source: Celltrion, 65

4 Table 35. Development status of major R&D pipeline: Celltrion vs. competitors Biosimilar Company Development stage Market Note Isu Abxis Pre-clinical Korea, emerging markets Plans to submit IND by 1H12, production yield of 6g/liter Biocon Pre-clinical Global Global distribution partner for Mylan's antibody biosimilar Global distribution partner for Pfizer's insulin biosimilar Herceptin GTC Bio Pre-clinical Global Produced from transgenic goat milk Development status has not been disclosed PlantForm Corp Pre-clinical Europe Produced from genetically modified tobacco Production cost is only 5% of original drug Scheduled to be released in Europe in Celltrion Completed phase III EU, Korea, emerging markets Expected to launch in 2012 Aprogen Pre-clinical Korea, Japan Remicade LG Life Sciences Pre-clinical Korea, emerging markets Celltrion Expected to launch EU, Korea, emerging markets Expected to launch in 2012 Shanghai CP Guojian Approved China, Brazil Agreement with Brazil EMS SA for production and marketing in Brazil Shanghai Celgen Approval requested China Expected to be approved, and start manufacturing in S Bio Pre-clinical China, emerging markets Currently developing NuEPIAO, a biosimilar of 2nd generation erythropoietin, expected to push into emerging markets such as Turkey, South America Avesthagen Phase I India Phase I trials for AVDESP initiated in India in Mar 2011 Zenotech Phase I India Clinical trials being initiated by CRO Clinsys Cipla Phase III India Phase III initiated in India Protalix Biotherapeutics Pre-clinical Global Plant cell-expressed recombinant anti-tnf fusion protein Hanwha Chemical Phase III Korea, Turkey Made pact with US Merck to produce and market world-wide Enbrel excluding Korea and Turkey Expected to launch in 2013 LG Life Sciences Phase I Korea, emerging markets Failed Phase I trials and expected to re-initiate Phase I trials Green Cross Pre-clinical Korea Genexine Pre-clinical Korea Biobetter of Enbrel, decreases side effects Mycenax Phase III Korea, Japan, Taiwan Phase III in Korea, Phase III in Taiwan Marketing partnership agreement with Macter (Pakistan) for distribution in the Middle East Marketing partnership agreement with Sollievo (Columbia) for distribution in South America Celltrion Pre-clinical Europe, Korea, emerging Expected to launch in 2014 markets Teva-Lonza Phase I / Phase II UK, Italy, Spain, Czech, Hungary Indication: Non-Hodgkin's Lymphoma Primary endpoint: enrollment of 60 patients Rituxan Teva-Lonza Phase I Belgium, Spain, Italy, Latvia, Estonia, Hungary, Poland, Russia, Ukraine Sandoz Phase I / Phase II Argentina, Austria, Brazil, France, Germany, India, Italy, Spain, Turkey Indication: Rheumatoid Arthritis Secondary endpoint: enrollment of 200 patients Indication: Rheumatoid Arthritis Secondary endpoint: enrollment of 164 patients Zenotech Phase III India Indication: Non-Hodgkin's Lymphoma First patient enrollment: Feb Secondary endpoint: patient sample size 50 Biocon Phase I / Phase II India Indication: Non-Hodgkin's Lymphoma Developed with Vaccinex, a US company Dr. Reddy's Launched India, Peru, Russia, emerging markets Indication: Non-Hodgkin's Lymphoma/Rheumatoid Arthritis Marketed since April 2007, world's first monoclonal antibody biosimilar, currently marketed in India, Peru, Vietnam, and Middle Eastern Countries Aprogen Pre-clinical Korea Plans to complete Phase III trials in 2013 To be launched in Korea in 2014 Biocad Phase I Russia, CIS Indication: Non-Hodgkin's Lymphoma Received approval from the Roszdravnadzor in Feb Samsung-Quintiles Phase I Global Samsung to construct a 30,000L facility in Incheon, expects to reach full operation by 2013, biosimilar commercial production in 2016 Viropro-Spectrum Pre-clinical US Spectrum signed an agreement with Viropro to develop Rituximab biosimilar GTC Bio Pre-clinical Global Developing anti-cd20 monoclonal antibody produced from transgenic goat milk Celltrion Phase I Europe, Korea, emerging Expected to be launched in 2014 markets Source: Company data, US National Institutes of Health, 66

5 C) Competitive prices should enable quick penetration of the pharmerging market Strong price competitiveness on low COGS-to-revenues ratio CelltrionÊs COGS-to-revenues ratio is 20%p lower than the average ratio of other generic drug makers. This low ratio suggests that the company possesses strong price competitiveness. Even if we were to include projected amortization expenses related to CT- P13, the companyês COGS-to-revenues ratio would still be 10%p lower than the peer average. Celltrion Pharma holds the domestic sales rights for biosimilars developed and produced by Celltrion. And overseas operations are managed by Celltrion Healthcare, which holds the overseas sales rights for CelltrionÊs biosimilars and sells them through global partners. Celltrion Healthcare has mainly forged partnerships with firms based in countries that have yet to grant biosimilar-related patents. Partners in advanced markets include Hospira (the US) and Nippon Kayaku (Japan). Figure 72. Celltrion's business flow chart Overseas Celltrion Healthcare Global partners Domestic Celltrion Pharma Manufacture Distribution Source: Celltrion, Celltrion plans to file for approval in emerging markets. We believe that emerging markets are more favorable for the company in terms of competition and patent issues (than advanced markets). And, given that the antibody drug biosimilar business is in its budding stages in these markets, we believe that Celltrion will display strong growth (depending on the companyês marketing success). CelltrionÊs selling prices are likely to be competitive. The prices of biosimilars in the pharmerging market vary depending on the government policies, insurance companies, and patients. Celltrion plans to offer biosimilar products at prices 30~50% lower than the prices of the original drugs on which they are based. In light of the companyês price competitiveness, we expect the company to quickly penetrate the pharmerging market. 67

6 2. CT-P13 likely to be rolled out in 2H Likely to achieve firstmover advantages in the domestic market We anticipate CT-P13 to be rolled out in 2H. According to IMS Health, domestic revenues of Remicade amounted to W13.5bn in 2010 (up 61% from W8.4bn in 2009) and are projected to reach W25bn in In 2011, global Remicade revenues came in at US$8.9bn (sales in the US and China made up 61.5% of global sales, while sales in Japan and the rest of the world accounted for 8.6% and 29.9%, respectively). We project the domestic Remicade market to grow to W85bn in And we estimate CT- P13 to generate domestic revenues of W34bn (equivalent to 40% of the original drugês revenues) in light of CelltrionÊs first-mover advantages and the relatively low number of competing drugs in the market (vs. the market for Herceptin biosimilars). Meanwhile, in Japan and the rest of the world (excluding the US and China), if CT-P13 goes on sale in 2013, the drugês sales will likely be equivalent to a mere 15~30% of the original drugês sales. Although the price of CT-P13 will be 30~50% lower than that of Remicade, it will still be considered high. And the drug should face competition from similar products in certain countries. Figure 73. Remicade revenues by region (US$mn) 10,000 Others Japan 8,000 US & China 29.9% 6, % 34.4% 8.6% 4, % 4.9% 34.3% 5.0% 5.7% 7.2% 2, % 60.7% 61.2% 58.4% 61.5% Source: J&J, Merck, Mitsubishi Tanabe, 3. Valuation We initiate our coverage on Celltrion with a Buy rating and a target price of W36,000. We derived our target price by applying a P/E of 30.9x (30% premium to the companyês threeyear average of 23.8x) to P/E of to the weighted average of our 2012 EPS (W991) and 2013 EPS (W1,290) estimates. 68

7 Celltrion ( KQ/Buy/TP: W36,000) Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/11 12/12F 12/13F 12/14F (Wbn) 12/11 12/12F 12/13F 12/14F Revenues Current Assets Cost of Sales Cash and Cash Equivalents Gross Profit AR & Other Receivables SG&A Expenses Inventories Operating Profit (Adj) Other Current Assets Operating Profit Non-Current Assets 1,130 1,243 1,357 1,478 Non-Operating Profit Investments in Associates Net Financial Income Property, Plant and Equipment Net Gain from Inv in Associates Intangible Assets Pretax Profit Total Assets 1,405 1,625 1,879 2,207 Income Tax Current Liabilities Profit from Continuing Operations AP & Other Payables Profit from Discontinued Operations Short-Term Financial Liabilities Net Profit Other Current Liabilities Controlling Interests Non-Current Liabilities Non-Controlling Interests Long-Term Financial Liabilities Total Comprehensive Profit Other Non-Current Liabilities Controlling Interests Total Liabilities Non-Controlling Interests Controlling Interests 902 1,063 1,287 1,576 EBITDA Capital Stock FCF (Free Cash Flow) Capital Surplus EBITDA Margin (%) Retained Earnings ,166 Operating Profit Margin (%) Non-Controlling Interests Net Profit Margin (%) Stockholders' Equity 902 1,063 1,287 1,576 Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/11 12/12F 12/13F 12/14F 12/11 12/12F 12/13F 12/14F Cash Flows from Op Activities P/E (x) Net Profit P/CF (x) Non-Cash Income and Expense P/B (x) Depreciation EV/EBITDA (x) Amortization EPS (W) ,290 1,667 Others CFPS (W) 1,604 1,093 1,419 1,816 Chg in Working Capital BPS (W) 3,688 4,039 4,804 5,966 Chg in AR & Other Receivables DPS (W) Chg in Inventories Payout ratio (%) Chg in AP & Other Payables Dividend Yield (%) Income Tax Paid Revenue Growth (%) Cash Flows from Inv Activities EBITDA Growth (%) Chg in PP&E Operating Profit Growth (%) Chg in Intangible Assets EPS Growth (%) Chg in Financial Assets Accounts Receivable Turnover (x) Others Inventory Turnover (x) Cash Flows from Fin Activities Accounts Payable Turnover (x) Chg in Financial Liabilities ROA (%) Chg in Equity ROE (%) Dividends Paid ROIC (%) Others Liability to Equity Ratio (%) Increase (Decrease) in Cash Current Ratio (%) Beginning Balance Net Debt to Equity Ratio (%) Ending Balance Interest Coverage Ratio (x) Source: Company data, estimates 69