Biologics to grow faster than traditional/chemical drugs

Biologics are diversified into biological medicines (vaccines, blood components), genetically modified drugs (antibody drugs), cell therapy, gene therapy drugs, etc. These drugs require intensive R&D and costly production facilities, which naturally pose a high entry barrier. They have fewer side effects vs. chemical drugs and demonstrate great efficacy against certain diseases. They also grant a long patent protection period for their developers. Naturally, it has become an area that attracts the attention of global pharmas. Biologics’ share of the entire pharmaceutical market is forecast to increase from 26% in 2017 to 30% in 2022, growing at an 8.7% CAGR vs. traditional/chemical drugs which are projected to grow at a 5.3% CAGR.

Biosimilars market to grow at a 40% CAGR

Biosimilars are a generic version of biodrugs and the market size is estimated at around KRW14tn as of 2017. The biosimilars market is forecast to grow at a CAGR of 40% until 2019 to reach KRW28tn, fueled by the patent expiries of major biodrugs and worldwide movements to reduce medical insurance deficits. Biosimilars take less time and cost to develop vs. biodrugs and are sold at higher prices vs. chemical drugs. Currently, Europe is leading the growth of the biosimilars market and within the next three years, the US will become a popular market too.

Forecasting Korean biologics investment based on US biologics investment trend

Investments in the biologics market are expected to increase steadily due to increasing prescriptions for immuno-oncology medicines and orphan drugs. According to the data released by the Biotechnology Innovation Organization, investments in biologics in the US from 2007 to 2016 amount to USD116bn (or KRW133tn). By investment stage, a total of USD43bn was invested at the venture stage (37% of total), USD16bn at the time of IPO (14%), and USD57bn at the post-IPO stage (49% of total). We believe this proportion will apply to the Korean biologics sector. By disease, tumors/anti-cancer drugs will likely make up the lion’s share, at around 30%, which is similar to the US.

Initiate coverage of Samsung Biologics and Celltrion Healthcare

We present Celltrion Healthcare as our top pick, as the company is slated to lead the growth of the global biosimilars market with a variety of momentum drivers until 2019. We believe Celltrion Healthcare will eventually grow into a company that can develop not only biosimilars but biobetters and biodrugs.