[This Week's Stock of Interest] Celltrion Proves Itself With Earnings... New Product Growth and U.S. Momentum Drive Double Boost

Operating Profit in Q2 Surpasses Consensus, Marking Start of Full-Scale Profitability Improvement

Expansion of New Products, U.S. Launches, and New Drug Pipeline Fuel Growth Expectations

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Celltrion has once again demonstrated expectations for improved performance by announcing preliminary second-quarter results that exceeded market forecasts. Securities analysts noted that sales growth and profitability, driven by new products, are now in full swing and predicted that the growth trend would continue into the second half of the year. However, some securities firms also adjusted their target stock prices downward, reflecting the overall valuation burden on the biotech sector, despite Celltrion’s improved performance, highlighting differences in perspective.

On July 3, Celltrion announced that its consolidated preliminary results for the second quarter of this year showed sales of 1.3 trillion won and operating profit of 430 billion won. These figures represent increases of 35.2% and 77.3%, respectively, compared to the same period last year. The operating profit margin also rose to the mid-30% range. Compared to the average market consensus, sales exceeded expectations by 5% and operating profit by 8%.

The main driver behind these strong results was the “new product effect.” Sales of Omiclo, a biosimilar to Xolair, have been rapidly increasing following Remsima SC, Yuflyma, Truxima, and Zymfentra, significantly expanding the proportion of high-margin products. Korea Investment & Securities estimated that the new product sales ratio rose to 58%, with the gross profit margin (GPM) exceeding 62%.

In addition, revenue from contract manufacturing (CMO) of pharmaceuticals in the United States has started to be fully reflected, and results from the Eli Lilly manufacturing facility acquired last year have also contributed to external growth. In December last year, Celltrion acquired Lilly’s biopharmaceutical manufacturing facility in Branchburg, New Jersey, and secured a CMO contract worth approximately 678.7 billion won (473 million dollars) from Lilly.

Dalmi Lee, a researcher at SangSangIn Securities, analyzed, “With the acquisition of the Lilly plant and the CMO contract, approximately 200 billion won in annual revenue is expected to be recognized this year, with some reflected starting in the second quarter.”

Furthermore, profit margins are expected to improve due to a better cost-to-sales ratio. SangSangIn Securities forecast that Celltrion’s cost ratio would improve by 4.6 percentage points to 36.1% this year from 40.7% last year, resulting in an annual operating profit of 1.809 trillion won. This represents growth of about 55% compared to the previous year.

Most notably, the market’s attention is focused on momentum building up for the second half of the year. Securities firms consistently point out that Celltrion’s growth is accelerating faster than initially expected. As most new biosimilars were launched in the second half of last year, their contribution to this year’s second-half results is projected to be even greater.

In particular, the upcoming launches of Stekima and Aidenzelt in the U.S. are expected to further enhance the new product effect. Zymfentra is also reportedly continuing to post record prescription numbers in the U.S.

Expectations are also high for Omiclo. In Europe, where there are currently no competing biosimilars, Omiclo’s market share has been rapidly expanding. Its growth is expected to accelerate further after its U.S. launch in the fourth quarter of this year. The original drug for Omiclo, Xolair, is primarily indicated for chronic spontaneous urticaria, asthma, and food allergies. In the U.S. alone, this market is worth about 5 trillion won annually, and if Omiclo’s substitution effect is fully realized, it is evaluated as having significant potential to become Celltrion’s new growth engine.

New drug development is another key point of interest. In the second half of this year, Celltrion plans to announce Phase 1 clinical trial results for its c-MET target antibody-drug conjugate (ADC) “CT-P70” and Nectin-4 target ADC “CT-P71.” In addition, the company is pushing ahead with next-generation pipeline development, including the autoimmune disease treatment CT-P77 and a triple fusion protein anticancer drug, raising the possibility of being revalued as a new drug company beyond biosimilars.

As a result, there is a trend among securities firms to raise Celltrion’s target stock price. SangSangIn Securities raised its target to 290,000 won, reflecting improved profitability from new products and growth momentum in the second half, while Hyundai Motor Securities also increased its target to 270,000 won, citing faster-than-expected performance growth. Both firms raised their earnings estimates, stating that Celltrion’s growth story has become even more robust.

On the other hand, Korea Investment & Securities set its target price at 260,000 won, down 12% from before. The firm explained that this was not due to concerns about Celltrion’s performance but rather a reflection of market conditions. With the recent poor performance of biotech stocks and a decline in the KRX Healthcare Index, they applied an EV/EBITDA multiple that was 17% lower than before, resulting in a reduced target price.

In fact, Korea Investment & Securities actually raised its performance outlook for Celltrion for this year and next year. The firm forecast that Celltrion’s revenue and operating profit would reach 5.4068 trillion won and 1.8728 trillion won, respectively, in 2024—up 30% and 60% from the previous year, and both 3% higher than its previous estimates.

Haejoo Wi, a researcher at Korea Investment & Securities, said, “As quarterly guidance provided at the beginning of the year has been exceeded for two consecutive quarters, the full-year results are also highly likely to surpass previous forecasts. However, due to the overall slump in the biotech sector, we have slightly lowered our target price.”

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