Celltrion Healthcare IPO Set To Benefit From Biosimilar Successes

For investors in Celltrion Healthcare, the long wait seems to have been worth it.

After initially planning an initial public offering a few years ago, Celltrion Healthcare, the exclusive marketing, distribution and partnering arm of South Korea’s Celltrion Inc., has picked the perfect timing to launch an IPO amid the glow surrounding its parent from a series of biosimilar approvals in the US and Europe.

Earlier this week, Celltrion Healthcare received the green light from the Korea Exchange (KRX) to launch a float on the second-tier Kosdaq market, where Celltrion is already traded. The IPO, estimated to be worth KRW819.3bn ($714.9m) to KRW1.01tn, is set to be one of the largest ever on the Kosdaq bourse.

Although details of the IPO will be determined later, Celltrion Healthcare plans to price at KRW33,300 to KRW41,000 per share, the KRX said in a statement, and the offering is likely to take place in April.

As of the end of 2015, Celltrion's chairman Jung-Jin Seo, who is also chairman and CEO of Celltrion Healthcare, held the largest (46.47%) stake in Celltrion Healthcare, while JP Morgan Chase’s private investment arm One Equity Partners owned a 22.44% stake, and Singapore’s Temasek Holdings’ Ion Investment a 15.62% holding.

Past Delays

Celltrion Healthcare's IPO filing and approval come several years after it first unveiled plans in 2015 to launch an IPO in South Korea or overseas. Under an agreement reached when its overseas investors made investments in Celltrion Healthcare several years ago, the company had agreed to launch an IPO in 2014, but this timing was delayed.

In April 2015, Celltrion Healthcare said it was aiming to launch the planned IPO in South Korea or elsewhere after the US FDA gave the green light to Remsima/Inflectra, Celltrion’s biosimilar version of Janssen Inc.’s Remicade (infliximab), in order to benefit from improved market sentiment.

Celltrion Healthcare told Scrip that it eventually opted for a domestic IPO as it will be more favorable for the valuation of the company, noting that “The biopharma industry is valued relatively higher than other industries in the South Korean stock market.”

The company explained: “If we list shares overseas, we won't be able to closely communicate with investors as our headquarters is in South Korea. And we will have to spend more money to remain listed in the US market. We had also considered listing in Hong Kong, but the timing wasn't right as the Hong Kong market conditions weren't favorable. For all these reasons, we have decided to list shares in the Kosdaq market."

Celltrion Healthcare conducts the worldwide marketing, sales and distribution of biologic medicines developed by Celltrion through an extensive global network that spans more than 120 countries. At present, the company has reached global partnerships to market, sell and distribute Celltrion's three biosimilar products - Remsima/Inflectra, Truxima (rituximab) and Herzuma (trastuzumab).

Remsima/Inflectra, which received regulatory approval from the US FDA in April last year and the EMA in September 2013, is already available in 51 countries, and all Celltrion Healthcare’s products are manufactured at its own mammalian cell culture facilities, designed and built to comply with US FDA and EU GMP guidelines.

Analysts Positive

Analysts are generally positive on Celltrion Healthcare as its business outlook reflects its parent Celltrion's prospects. However, some worry that its debut on Kosdaq could somewhat weigh on the stock price of Celltrion, from which some investors may move their holdings to Celltrion Healthcare.

With Remsima/Inflectra's debut in the world's biggest market, the US, last November and its expanding presence in other parts of the world, Celltrion Healthcare's profitability is poised to improve sharply. In fact, Celltrion Healthcare's sales more than doubled and operating profit nearly tripled in 2015, when Remsima began to be sold in Europe, Hana Financial Investment said in a research report in February.

Following the US FDA's approval of Inflectra, Celltrion has forecast that its sales in 2017 would rise by 33% to KRW860.4bn and operating profit would surge by 57% to KRW488.6bn on the back of the product’s US commercial debut and continued market expansion in Europe.

Inflectra's US market entry is key as it is the first biosimilar of Remicade there. Competitor Samsung Bioepis Co. Ltd.'s biosimilar infliximab (SB2; submitted in the US in March 2016) is estimated to debut on the US market in 2018, so Inflectra's market exclusivity could be maintained for at least one year, Hana Financial noted.

Although other biosimilars such as Sandoz Inc. and Amgen Inc.'s versions of infliximab are also seeking entry into the US, Inflectra, thanks to its first mover status, is expected to account for about 30% of the overall infliximab market, Hana estimated.

"In the past, Teva has grown rapidly by launching first generics. We see the same picture from Celltrion," the investment firm said.

Pricing, Sales Outlook

Assuming Inflectra gains 15% of the Remicade market at a 15% discounted price, its sales could amount to more than $860m in North America alone, given that Remicade's sales in this region totaled $6.56bn in 2015, Hana said.

Celltrion's partner Pfizer Inc. said the biosimilar will be sold at a 15% discount to the original drug price; Celltrion said in October that it will initially provide about KRW260bn worth Inflectra to Pfizer through Celltrion Healthcare.

Sandoz’s Zarxio (filgrastim), the first biosimilar approved in the US, is also sold at a 15% discount to the original drug price and accounts for about 16% of the market a year and two months after its launch.

Celltrion is also rapidly expanding its presence in Europe following Remsima’s approval in June 2013. Although it varies by country, it holds about a 40% market share on average and the product is sold at about a 40% discount to its original drug price.

However, there is a risk that competition could toughen as Samsung Bioepis's biosimilar infliximab Flixabi (SB2) was approved by the EMA in May 2016. But given Remsima's first mover status in Europe, it could ultimately hold about a 30% market share in Europe, Hana predicted.

Celltrion has also acquired first mover status for Truxima, its biosimilar version of Genentech Inc./Biogen Inc.’s monoclonal antibody MabThera/Rituxan, in Europe by receiving a green light from the EMA in February, ahead of Sandoz which made a submission to the EMA in May 2016. (Also see "Celltrion's Truxima First Biosimilar MAB In Oncology To Win EU Approval" - Scrip, 22 Feb, 2017.)

Celltrion plans to submit Truxima in the US in the first half of this year. Assuming it is launched there in 2019, it will also have market exclusivity there versus its competitor for more than a year.

Dongbu Securities agreed that Celltrion will be able to enjoy its first mover status for a while given the positive biosimilar market sentiment, although further expansion of market share will be limited as competition increases.

From the editors of PharmAsia News.