celltrion inc (068270): fundamental stock analysis
DESCRIPTION
Celltrion Inc is a biopharmaceutical company specializing in development of biosimilars for monoclonal antibody drugs. Celltrion Inc’s biosimiliar portfolio is targeting drugs with patent expirations in the next few years, including Herceptin (breast cancer) and Rituxan (non‐Hodgkins lymphoma). Celltrion Inc’s biosimilar for the drug Remicade (rheumatoid arthritis) has already been approved in the European Union.TRANSCRIPT
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CelltrionInc068270KS
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LegalDisclaimer
Thisreportisforeducationalpurposesonly.Nothinginthisdocumentoranyinformationhereinshouldbeconstruedasanoffer,invitation,marketingofservicesorproducts,advertisement,inducement,orrepresentationofanykind,norasinvestmentadviceorarecommendationtobuyorsellanyinvestmentproductsortomakeanytypeofinvestment,orasanopiniononthemeritsorotherwiseofanyparticularinvestmentorinvestmentstrategy.Anyexamplesofstrategiesortradeideasareintendedforillustrativepurposesonlyandarenotindicativeofthehistoricalorfuturestrategyorperformanceorthechancesofsuccessofanyparticularstrategy.Thisreportandanystatementsmadeinconnectionwithitaretheauthorsopinions,whichhavebeenbaseduponpubliclyavailablefacts,information,andanalysis,andarenotstatementsoffact.Youshouldassumethatasofthepublicationdateofthisreport,theauthorhasashortpositioninallstocks(and/oroptions,swaps,andotherderivativesrelatedtothestock)andbondscoveredherein,andthereforestandstorealizesignificantgainsintheeventthatthepriceofeitherdeclines.Theauthorintendstocontinuetransactinginthesecuritiesofissuerscoveredonthisreportforanindefiniteperiodandmaybelong,short,orneutralatanytimehereafterregardlessofher/hisinitialrecommendation.
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TableofContents Summary IntroductiontoCelltrion CompanyHistory SummaryoftheBullCase AccountingIssues
Peercomparison Corporatestructure Aconsolidatedview Inventorybuild Revenuerecognition Relatedpartytransactions Revenuedoublecounting Disguisingleverageassales Sharepledges Expensecapitalization Celltrionseconomicincome 2014update SamsungSecuritiesInitiation Auditorchronology
AcomparisontoDaewoo Otherrelatedpartyissues ThemarketopportunitiesofCelltrionsproducts
Remsima Herceptinbiosimilar
Conclusion
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SummaryAccountingissuesatCelltrionInchavedoggedthecompanythroughoutitshistory.Itappearsthattheirregularitiesuncoveredin2011bythelocalKoreanresearchfirm,CenterforGoodCorporateGovernance,haveonlyworsenedovertime1.Thelastseveralyearssawthecompanyanditsprivateaffiliatestakeonadditionalleverageintheformofpledgedshareloans,equityinjections,andwhatwebelieveishiddendebt,anditappearsthatthisleveragehasproppedupthesalesgrowthatthepubliclytradedentity.
Ironically,webelievethatitispreciselybecauseCelltrionIncisonthecuspofrealizingactualendmarketsalesthatthissituationwillcometoahead.WeestimatethatCelltrion Inchasalreadyprebooked2outof3ofitsfullypenetrated,peaksalesyears.ThisimpliesthatwhenproductsareactuallylaunchedinearnestintheUnitedStatesandEurope,CelltrionInc willhavetofacethefactthatasignificantportionofitsinventorythatwasintheorypresoldisactuallyexpiredandobsolete.
Itappearsthattheaccountingissuespresentedinthisreportareonlythetipoftheiceberg.Celltrionexecutives,asexDaewooemployees,shouldbewellversedinthemanyconvolutedmethodologieswithwhichtocommitaccountingfraud.AndevenasuperficialcomparisonofthetwocompaniesshowsCelltrionandDaewoosmanysimilarities.Thisreporthasnotevendelvedintothemany otherrelatedpartiesintheCelltrioncomplex.WebelievethatthereisamuchgreaternetworkofDaewooesqueaffiliatesbothdomesticallyandinternationally.
WebelievethisiswhyCEOandfounderJJSeo failedtoattractstrategicbiddersoverthelasttwoyearsinhispublicstakesaleinCelltrionInc evenafterCelltrion Incs biosimilarRemsima wasapprovedintheEuropeanUnion2.
Finally,itappearsthatthemarketpotentialforCelltrionIncsmainproductsislimitedinfinancialandtimescope.CelltrionIncsrealeconomicsforitsproductsarelimitedbyitswholesaleagreementswithitsdistributorsandthewindowofprofitswillclose as soonascompetitorbiosimilarscometomarket,includingoneownedbyCelltrionslargestdistributionpartner,Pfizer/Hospira.
1. ReportbytheCenterofGoodCorporateGovernance10/11/112. WallStreetJournal,Celltrions FounderSaysInvestorsDontUnderstandtheCompany,4/26/13
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IntroductiontoCelltrionBusinessDescription:CelltrionIncisabiopharmaceuticalcompanyspecializingindevelopmentofbiosimilarsformonoclonalantibodydrugs.CelltrionIncsbiosimiliarportfolioistargetingdrugswithpatentexpirationsinthenextfewyears,includingHerceptin(breastcancer)andRituxan(nonHodgkinslymphoma).CelltrionIncsbiosimilarforthedrugRemicade(rheumatoidarthritis)hasalready beenapprovedintheEuropeanUnion.
Leadership: JungJinSeo(JJSeo)hasservedastheChairmanandCEOofCelltrionIncsince2002.JJSeooverheardaconversationaboutbiosimilarsinthelobbyofaSanFranciscohotelwhichinspiredhimtostartthebusiness1.PriortoCelltrionInc,JJSeowastheStandingAdvisortotheGroupChairmanofDaewoo,WooChoongKim,from1993to1999.JJSeowasalsoinchargeofDaewooMotors2.Daewoocollapsedin1999inoneofthebiggestaccountingfraudsinhistory,committingadeceptionworthUSD15.3billion3.In2013,JJSeowasinvestigatedbytheKoreanfinancialregulatorsformultiplecountsofstockmanipulationfrom2011to2013relatedtoCelltrion Inc4.
PublicScrutiny: In2011,alocalKoreanorganization,theCenterforGoodCorporateGovernance,publishedareportquestioningCelltrionIncsgovernanceandpractices.In2012,theWallStreetJournalfollowedupwithapieceontherevenuerecognitionissuesatCelltrionInc.
1. TheFinancialTimes,KoreasBiotechComebackKid,3/18/122. BloombergBusinessProfile3. NorthwesternJournalofInternationalLawandBusiness,AForensicStudyofDaewoo'sCorporateGovernance:DoesResponsibility fortheMeltdownSolelyLiewith
theChaebolandKorea?4. BloombergBusiness,CelltrionCEOFacesShareManipulationProbeinSouthKorea,10/8/13
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IntroductiontoCelltrionFinancials:CelltrionInc.(068270KS)isvaluedatKRW6,815BN(USD6,190MM)ofmarketcapitalization.Thesharestradesat35x2013salesand54x2013EBITDA.Basedonprelim2014results,sharestradeat17x2014sales.
Despiteitslargemarketcapitalization,allbulgebracketbankshavedroppedcoverageofthecompany.Incidentally,twoofthethreelocalKoreanbankswhopublishresearchonCelltrionIncaredebtholdersofCelltrionHoldings(CelltrionHoldingsdebtiscollateralizedbysharesofCelltrionInc)1.
Historical5yearfinancialandstockperformancebelow2:
1. Companyfilings2. Bloomberg
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AHistoryofCelltrion
2002:CelltrionIncwasfoundedin2002byaGenentechspinoffcalledVaxgen.VaxgenpartneredwithagroupofKoreaninvestors(NexolCorp,KoreaTobaccoandGinsengCorp,andJ.StephenandCo.VentureLtd.).TheoriginalmissionofCelltrionIncwastodevelopanAIDSvaccine.
2005:CelltrionIncreceivedacontracttomanufactureOrenciaforBristolMyers.
2008:CelltrionInclistsonKOSDAQthroughareversemerger.ValorEconomicoreportedthatCelltrionIncplannedtoinvestUSD329mminanethanolmillinthetownofBarra,Brazil.Theprojectwasexpectedtostartin2011.
2009:CelltrionIncwonaKRW213billion(USD183mm)ordertosupplybreastcancerandarthritisdrugstoHospira.
2010:TamasekinvestsinCelltrionGSC.BristolMyerscontractmanufacturingrelationshipterminated.
2011:LocalKoreanpressallegesaccountingissuesatCelltrionInc.OneEquity(JPMorgan)investsinCelltrionHealthcare.
2012:WallStreetJournalallegesaccountingissuesatCelltrionInc
2013:Remsima(biosimilarforRemicade)approvedbytheEuropeanMedicinesAgency.CelltrionIncCEOfacesstockmanipulationinvestigationbyKoreanregulators.
2014:CelltrionIncfilesforFDAapprovalofRemsima
Source:FinancialTimes,CompanyWebsite
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BullCase:CelltrionIncisaleaderintheburgeoningbiosimilarsmarketBiosimilarsdefinition:Abiologicmedicineisalargemoleculederivedfromlivingcellsandusedinthetreatmentofdisease.Biosimilarsaresimilartobutnot identicalcopiesoftheoriginatorbiologic.Biosimilarsaredeterminedtobesimilartoanoriginalbiologicintermsofstructuralcharacteristics,safety,andefficacy1.
ThebullcaseforCelltrionInc: WithanUSFDAapprovedproductionfacility,consistenttrackrecordinmanufacturingqualifiedbiodrugs,andsolidmarketingpartnershipsacrosstheglobe,weexpectCelltriontobealeadingbiosimilarandnewbiologicaldrugdeveloper/manufacturerintheglobalbiopharmaceuticalmarket.GiventheexpectedpatentexpirationsinEuropeandtheUSincomingyears,webelieveCelltrionisfullyleveragedtothefastgrowingglobalbiosimilarmarket...Thecompanyalreadyhassignedsalescontractwithdistributorsacrosstheglobalmarket,targetingamarketshareof50%intheemergingmarketsand20%inthedevelopedmarkets(exUS)by2015. JPMorganInitiationonCelltrionInc4/18/2011
EarlyinitiationsonCelltrionIncfocusedonthehugemarketopportunityinreplicatingbiopharmaceuticals.Thebelowtables illustratethemarketsizesofbiopharmaceuticalstargetedbyCelltrionIncspipeline:
Pastaccusationsofaccountingmanipulationdismissedbyinvestors:Botha2011localKoreanreportbytheCenterforCorporateGovernanceand a2012WallStreetJournalarticlepointedoutthelackofendsalesatCelltrionIncandthebuildupofinventoryatCelltrionHealthcare3. However,thesubsequentEuropeanUnionapprovalofRemsimain2013pushedtheseconcernstothebackgroundasinvestorslookedforwardtothedruglaunchandfutureendmarketsales.
1. AmgenBiosimilarsOverview(http://www.amgen.com/pdfs/misc/Biologics_and_Biosimilars_Overview.pdf)2. WallStreetJournal,TheTaleBeneaththeTopLineatCelltrionInc,10/28/12
Source:CLSACelltrionIncInitiation7/15/10
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SummaryofAccountingIssuesWebelievethatthedismissalofaccountingissuesisnaveespeciallysincetheprematurerecognitionofrevenuesatCelltrionInc.wasonlyonelayerofitsmultifacetedweb.ItappearsthatthesubsequentevolutionofeventshaveputCelltrionIncinanevenmoreprecariousfinancialposition.Thefollowingslideswilldemonstrate:
CelltrionIncsmarginsappearabnormallyhighcomparedtopeerdrugdevelopers. CelltrionIncscomplexcorporatestructureallowsforthecompanytodothefollowing:
CelltrionInc appearstobefundingitsaccumulatednegativecashwithamassivebuildupofleverage. CelltrionInchasminimalthirdpartysales.Themajorityofthesaleshavebeentoitselfwhichhasledtoinventorybuildup. Webelievethat57%oftheinventorystockpileatCelltrionHealthcaremaybeexpiredsincethedeterminedshelflifeof
Remsimais36months.Iffullyimpaired,CelltrionHealthcarewillcarryanegative equityvalue. Celltrion Inc.appearstohavealreadybookedmorethantwoyears offullyrampedendmarketsalesaspresalesfor
Remsima.CelltrionsabilitytorecognizefurthersalesfromRemsimaevenifmarketentriesandadoptionaresuccessfulappearstobeverylimited.
CelltrionIncandCelltrionHealthcareengagedinarbitraryconsolidationanddeconsolidationofrelatedpartieswhichservedtoboostsalesinbothcases.
Aggressivecapitalizationofbothresearchanddevelopmentexpenseandinterestexpense. Webelievethattheuseofpledgedsharesasloancollateralandtheuseofoutsidefinancingtofulfillcashneedscreatesan
ecosystemwherethesharepriceandfalsesalesaremutuallydependent.ThismayhavemotivatedmanagementtocommittoactionstopropupCelltrionIncshareprice.
91. HospiraJPMorganHealthcareConferencePresentation1/14/14
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AccountingIssues PeerComparisonCelltrionIncreportshighermarginsthanbranded,proprietarydrugdevelopers 1.ThemargindisparityisevenmoreastonishingwhenconsideringthatCelltrionIncspriceshouldbediscountedtoaccountforitswholesaleagreements.
CelltrionIncsreportedgrossmarginsare26%higherthanevenJPMsearliestbullishestimatesforfirstgenerationbiosimilar margins.
Source:Bloomberg
10Source:JPMorganInitiationonCelltrionInc4/18/2011
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AccountingIssues CorporateStructure
Source:Companyfilings
JJSeo
CelltrionHealthcare
CelltrionPharm(public)
CelltrionHoldings
CelltrionInc(public)
CelltrionGSC
93.9% 20.1% 32%
68.4%53.9%
Inordertounderstandtheaccountingdisparities,onemustfirstvisualizeCelltrionIncswebofrelatedparties.
BelowaretheidentifiedmaterialentitiesintheCelltrionsystemandownershipstructure. CelltrionHoldingisaholdingcompanywhichholdssharesinCelltrionInc. CelltrionInc(980employees)andCelltrionPharm(335employees)aremanufacturersofdrugs.CelltrionPharmisalso
responsibleforthemarketinganddistributionofCelltrionIncsdrugsinKorea. CelltrionHealthcare(96employees)marketsandsellsCelltrionIncsproductsoutsideofKorea. CelltrionGSC(5employees)suppliesfiltersforR&Dandmanufacturespharmaceuticalproducts,referencedrugsfor
R&D,andcomparatorsforclinicaltrials,andprovidescoldchainservicesforpharmaceuticalproductswhichrequirespecifictemperaturecontrol.
CelltrionHealthcareleasesitswarehousefromCelltrionHoldings.CelltrionHealthcareisdownstairsfromCelltrionInc.andsalesarebookedassoonasproductsentertheCelltrionHealthcarewarehouse.
2.7%
OwnershipStructureoftheCelltrionSystem
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AccountingIssues AConsolidatedViewWhenfinancialsareconsolidatedacrosstheCelltrionsystemofcompanies,itappearsthattheconsolidatedholdingproducesalargenegativecashflowstreamwhichisfundedbycashfromfinancing.
PositivenetincomeatCelltrionInc(listco)issupportedbygrowingleverageintheCelltrionsystem.
TheCelltrionsystemasawholeproducesalargenegativefreecashstream
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AccountingIssues Inventory
1. Est35%avggrossmarginforCelltrionHealthcare/Est50/50splitofRemsimaretailpricewithHospira
ThemajorityofCelltrionIncssalesaretoCelltrionHealthcarebythecompanysownadmission.
AhugeamountofinventoryhasbeenbuildingintheCelltrionsystemwithverylittlesoldtotrueendcustomers.TheinventoryatCelltrionHealthcarealoneequatetoapproximatelyUSD3bnofendsales1.
ThemajorityofinventoryisatCelltrionHealthcare.
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BullswouldarguethattherelationshipbetweenCelltrionIncandCelltrionHealthcareishealthybecauseCelltrionHealthcareisbookingpreapprovedsalestoendcustomerslikeHospira,CelltrionslargestworldwidedistributorinkeymarketsliketheUnitedStatesandEurope.However,newdisclosuresfromHospirashowverylittleinventoryreceivedfromCelltrionHealthcareaswellastinyamountsofcashpaidoutrelativetoCelltrionHealthcaresrecognizedrevenue,raisingdoubtsaboutthevalidityoftheprebookedsales.
Oddly,Hospiraappearedtotakeaninventorywritedowninthe3rd quarterof2014onitsinventoryreceivedfromCelltrionHealthcare,mostofwhichwasreceivedin2014.Inthesamequarter,HospirachangedtheirdisclosurearoundCelltrionadvancesandinventory.
AccountingIssues Inventory
Source:Hospirapublicfilings
ImputedwritedownoninventoryreceivedfromCelltrionHealthcare
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Increaseininventoryreserveonequarterbeforewritedown
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AccountingIssues Inventory
1. http://www.ema.europa.eu/docs/en_GB/document_library/EPAR__Public_assessment_report/human/002576/WC500151486.pdf2. http://www.ema.europa.eu/docs/en_GB/document_library/EPAR__Product_Information/human/000278/WC500074922.pdf
Despitethemassiveincreaseininventory,inventoryreserveisactuallydeclining(from10.5%ofgrossinventoryin2010to2.4%in2013).Meanwhile,thestockpileoffinishedproductisbuildingupandgettingolder.AssoonasCelltrionIncrecognizessalestoCelltrionHealthcare,theclockshouldstarttotickontheshelflifeofthebiosimilarproducts.TheEuropeanMedicinesAgencydeterminedtheshelflifeis36monthsforRemsima1 and48monthsforHerceptin2.
Usingpubliclyavailablesalescontracts,itappearsthatlargeportionsofinventorypurchasedbyCelltrionHealthcarefromCelltrionInciscurrentlyexpiredgiventheshelflifeofthedrugs.
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Source:Celltrionpubliclydisclosedsalescontracts
2013Expiration 2014Expiration
2015Expiration
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AccountingIssues InventoryIntheory,CelltrionHealthcareshouldhavewrittendown57%ofitsinventoryattheendof2014.ThiswouldhaveresultedinnegativeequityvalueforCelltrionHealthcare,whoisrumoredtobeseekingIPOintheKoreanmarket.
Webelievethiswritedownmayhavecripplingimplications fortheentireCelltrionsystemsinceCelltrionIncdependsonHealthcareasitslargestandeffectivelyonlybuyerat99%ofsales.CelltrionHealthcaresfinancialhealthiscrucialinraisingequityanddebtfinancingfromoutsidetheCelltrionsystem.AcollapseinHealthcaresfinancialmetricscouldcutoffitsexternalfundingandthereforecutoffthesourceforCelltrionIncssales.
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CelltrionHealthcare
CelltrionInc(public)
CelltrionGSC
Temasek
EquityInvestment
LOAN
Paymentforproductpurchases
Source:Companyfilings
OneEquity(JPMorgan)
ExistingInvestors(IncJJSeo)
EquityInvestment
EquityInvestment
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AccountingIssues RevenueRecognition
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Source:Celltrionpubliclydisclosedsalescontracts
ThesamesalescontractsshowthatCelltrionIncalreadyrecognized2.3yearsofRemsimaglobalsales assuming30%marketpenetrationata30%discounttothebrandeddrug1.Themagnitudeofthisisimportantbecause: Competitorbiosimilarswillhitthemarketinlate2017/2018,includingabiosimilarfromPfizer2.Pfizer/Hospirawillbehighly
incentivizedtofocusdistributiononthewhollyowned,internallydevelopedbiosimlar.Therefore,webelievethatCelltriononlyhasathreeyearwindowbetween20152018duringwhichtorealizeitsfullyloadedsales.
TheaboveassumptionlikelygivestoomuchcredittoCelltrion Inc.Typically,generics/biosimilarstakeyearstorampmarketpenetration.Forexample,inSouthKorea,ithastakenRemsima2yearstoreach20%marketpenetrationatapricingdiscountof2550%discounttoRemicade3.
1. HospiraestimatesmarketpotentialbasedonHospiradistributionfootprint.Assume50/50splitofproceedsbetweenHospiraandCelltrionHealthcareandaveragegrossmarginof35%onHealthcarepurchasesfromCelltrionInc.
2. Pfizerdisclosures3. MiraeAssetResearch2/24/15Report
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AccountingIssues RelatedPartiesCelltrionHealthcaressalesaretorelatedparties,includingcompanieswhichwereconvenientlyrecentlydeconsolidated.
In2013,CelltrionHealthcaredeconsolidated100%ownedequitymethodsubsthathadbeenpreviouslyconsolidatedin2012(CTHCHungaryKFT,CTHCPhilippines,CTHCDistribuiodeProdutosFarmacuticosdeBrasil).Thisarbitrarydeconsolidationboostedrevenuesby236%in2013.In2013relatedentitiesincludingCelltrionPharmrepresented78%ofsales forCelltrionHealthcare.
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IfHealthcarehadnotdeconsolidatedtheserelatedparties,HealthcarewouldhavenegativeEBITDAin2013.
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AccountingIssues RelatedParties
Source:Hungariancompanyfilings.Additionally,KoreanfilingsconfirmthatCelltrionHungaryowesKRW45.5bntoCelltrionHealthcare.
Webelievetherecentlydeconsolidatedsubsidiariesarealsoinvolvedintheinventorystuffing.Celltrion Hungaryhasnotsoldanyofitsinventory.PurchasesarefundedusingpayablestoCelltrionHealthcare.
Additionally,intheHungariandisclosures,itisstatedthattheinventorywhichisattributedtotheHungariansubsidiaryisactuallystillsittinginSouthKorea,unshipped.
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AccountingIssues RevenueDoubleCounting
Source:Companyfilings
In2014,CelltrionPharmwasconsolidatedintoCelltrionInceventhoughCelltrionInconlyowns32%ofCelltrionPharm.ThismeansCelltrionIncisliterallysellingproducttoitself.
TheconsolidationmeansthatCelltrionIncgetstorecognizerevenuetwice.CelltrionIncsellsproducttoHealthcarewhosellsittoPharm.WhenPharmsellsittothirdparties,CelltrionIncrecognizestherevenueagainbecausePharmisnowconsolidated.
JJSeo
CelltrionHealthcare
CelltrionPharm(public)
CelltrionHoldings
CelltrionInc(public)
Productsale RevenueRecognized1x Productsale
32%/Consolidated
Thirdparties
Productsale RevenueRecognized2x
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Source:Companyfilings
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DisguisingLeverageasSales
ThisexampleisCelltrionsstandardfinancingapproachthatthepublicisfamiliarwith.CelltrionIncusesitsrelatedentitiestobringliquidityintotheCelltrionsystem.Here,CelltrionHealthcareactedasafinancingvehicleforCelltrionInc. InDecember2011OneEquity,theformerJPMorganprivateequityvehicle,investedKRW254billionintoCelltrion
Healthcare,thedistributioncompany. ExistinginvestorsincludingJJSeoinvestedKRW180billion. CelltrionHealthcarereceivesfinancingtopayforpurchasesfromCelltrionInc.The2011liquidityinjectionallowed
Healthcaretomake80%ofits20122013purchasesfromCelltrionInc.
JJSeo
CelltrionHealthcare
CelltrionPharm(public)
CelltrionHoldings
CelltrionInc(public)
OneEquity(JPMorgan)
KRW254bnKRW180bn
ExistingInvestors(IncJJSeo)
Paymentforproductpurchases
Source:Companyfilings 21
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DisguisingLeverageasSales
Overtime,thisstandardfinancingmodelhasmushroomedinscaleandcomplexityasmoreinvestorsandintercompanyloansareintroduced.Inthisexample,CelltrionGSCactsasafinancingvehicleforCelltrionInc. InJune2013,TemasekHoldingspurchasedaKRW85.5billionstakeinCelltrionGSC. CelltrionGSCthenloanedKRW46.5billiontoCelltrionHoldings.ThisloanisalmostanexactplugforCelltrionHoldings
cashneedsin2013.CelltrionHoldingscashbalancedeclinedbyKRW44.4bnin2013toalmostzero.JJSeoprovidedaguaranteeforthisloancollateralizedby37,000shares ofCelltrionHealthcareshares.
CelltrionGSCalsoloanedKRW54.6billiontoCelltrionHealthcaretosupportfurtherpurchasesfromCelltrionInc.Thisloanfinanced~22%ofHealthcares2013purchases.
JJSeo
CelltrionHealthcare
CelltrionPharm(public)
CelltrionHoldings
CelltrionInc(public)
CelltrionGSC
Temasek
KRW85.5bnInvestment
KRW46.5bnloan
KRW54.6bnloan
Paymentforproductpurchases
Source:Companyfilings 22
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DisguisingLeverageasSales
Inthemostegregiousexample,themoneytravelsfullcirclethroughtheentities.CelltrionIncloanedmoneytoCelltrionPharm,whopaysCelltrionHealthcare,whothenpaysitbacktoCelltrionInc(Q2Q32013).NotethatthistransactionoccurredbeforePharmwasconsolidatedintoCelltrionInc. CelltrionIncloanedKRW50bntoCelltrionPharmaswellaspurchasesKRW60bnofPharmsbondsandwarrants. CelltrionPharmusespartoftheseproceedstopayoffKRW63bnofpayablestoCelltrionHealthcarewhichHealthcare
usestomakefuturepurchasesfromCelltrionInc.
JJSeo
CelltrionHealthcare
CelltrionPharm(public)
CelltrionHoldings
CelltrionInc(public) KRW50bn
loan+KRW60bnpurchaseofbondsandwarrants
KRW63bninpayables
Paymentforpurchaseofgoods
23Source:Companyfilings
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SharePledgesCelltrionIncsharesarebeingusedascollateralbytheChairmanandrelatedparties.
CelltrionHoldingsused10mmsharesofCelltrionIncascollateraltotakeout19loansworthKRW237billionfromWooriBank,DaewooSecurities,andNonghyupBankbetweenJune2006andMarch2013.
CelltrionGSCborrowedKRW174.7billionusing6.94mmofCelltrionIncsharesascollateral.
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SharePledgesWebelievetheCelltrionsystemisthereforereliantonstockpriceperformancetoensurecontinuedinjectionofcashintoitssystem.ThisinterdependenceexplainstheactionsmanagementhastakeninthepasttopropupCelltrionIncsstockprice.Ifthestockgoesdown,thesharepledgesandtheassociatedliquiditywouldbewithdrawnandthesystemwouldcollapse.
TheseexcerptsfromCelltrionIncsownshareholderletterexpressesthecompanysdesperationtopreserveshareprice:
ThesystematicentanglementmayexplainwhyCEOJJSeowaswillingtofaceregulatoryactiontopropuptheshareprice.JJSeo alsopubliclyputhisCelltrion Inc stakeupforsaleinearly2013.Nostrategicbidderscameforwardaftertwoyears,evenafterRemsima wasapprovedintheEuropeanUnionin2013.
Source:CelltrionIncShareholderLetter11/23/12
Aproposedmeasureagainstshareholderswhoarelendingshares
Unsubstantiatedscaretacticstodiscouragesharelendingbyshareholders
25Source:KoreaHerald,10/8/13
Source:WallStreetJournal,4/26/13
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AggressiveCapitalizationofExpensesEvenassumingallofCelltrion Incssalespracticesarelegitimatesalestorealendmarketcustomers,CelltrionIncsaggressiveaccountingstillneedstobeexamined.
ItappearsthatCelltrion IncusesanaggressivecapitalizationpolicytounderreportR+Dexpenseandinterestexpense.Accordingtoreported2013earnings,CelltrionIncistradingat68x2013EPS.IfthetrueR+Dandincomeexpenseswerereported,CelltrionIncwouldreportnegativenetincome andthemajorityofthereportednetincomefrom20092013wouldbewipedout.
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Source:Companyfilings
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EstimatedEconomicEarningsoftheEntireCelltrionSystemAnincomestatementbasedonCelltrionssalestoallNONRELATEDPARTIESpaintsanoutcomewhichismuchclosertothemagnitudeofthenegativecashflowsintheCelltrionsystem.Optically,CelltrionIncsenterprisevalueiscurrentlyamultipleof35x2013sales/17x2014sales.However,ifonlytrueendmarketsalesareconsidered,thismultipleskyrocketsto96x2013sales.
Additionally,thisanalysisactuallyovercreditsCelltionIncbecauseitgivescreditto100%ofCelltrionPharmsendsaleswhileCelltrionInconlyowns32%ofCelltrionPharm.
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2014Update
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Korea
Source:MiraeAssetResearch2/24/15Report
CelltrionPharmreportedsellingKRW5.366bnofRemsimainthefirst9monthsof2014.
Tonote,MerckwasforcedtodiscountRemicadeby30%whenRemsimalaunchedbasedonpricinglawsinKorea.
Additionally,patientsreceivesubsidiesontheRemsimafromtheKoreaMedicalAssistanceFoundation.Theslidingscaleof2550%discountforthesubsidyisshownbelow:
Source:MiraeAssetResearch2/24/15Report
Source:WooriInvestments9/3/2012Report
ThissubsidyactuallycomesfromCelltrionIncitself. CelltrionIncsignedanMOUin2012withtheKoreaMedicalAssistanceFoundationtomakedonationstothefoundationtobeusedtosubsidizeRemsima.
Optically,Remsimaisata5%discounttoRemicadeintheKoreanmarket.However,thetruemarketpricinghasactuallydeclinedbyatotalof5067%sinceRemsimalaunch,whichinpartexplainsthesmallmagnitudeofCelltrionPharmRemsimasales.Evenwiththissteepdiscount,Remsimaonlyachieved20%marketshare2yearsafterlaunch.
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2014Update
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Norway InNorway,Remsimawasintroducedin2014.In2014,thediscounttoRemicadewas39%.In2015,thediscountincreased
to72%1. In2014,the39%discounttoRemicadeallowedRemsimatoachievejustundera10%marketshare 2. InJanuary2015,afterthe72%pricediscount,Remsimasharerosetoonly29% 3.
Japan: RemsimaenteredtheJapanmarketinNovember,2014.BytheendofJanuary2015,Remsimahadachieved.5%market
share.PricediscountinJapantoRemicadeis33% 4.
Hungary: In2014,RemsimasalesinHungaryachieved4.6%marketshare.InJanuary2015,Remsimaachievedlessthan1%market
shareinHungary 5.
Hospira: InSeptember2014,HospiraenteredintoaconvertiblebondsubscriptionagreementwithCelltrionHealthcare.Hospira
purchasedaUSD200mmconvertiblebondwitha6%interestrate,injectingliquidityintoCelltrionHealthcare.CelltrionHealthcarecanpaytheinterestincashorinbiosimilarproduct.Inexchangeforthisloan,CelltrionHealthcaregrantedHospiraexclusiverightstomarketRemsimaandHerceptinbiosimilarsintheUS(usedtobecoexclusive)andothermajormarkets,includingthemajorityofEurope5.
1. BernsteinResearch2. JefferiesResearch3. IMSdata4. IMSdata5. IMSdata6. Hospirafilings,Q32014earningscall
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SamsungInitiation3/13/15
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DoesnotaccountforKRW846bn debtliability+KRW100bn ofminorityinterest
InMarch2015,SamsungSecuritiesinitiatedonCelltrion.Notonlydoestheanalystcompletelyignorethetwomajorissuesofprerecognizedrevenuesandexpiredinventory,buttheSamsunginitiationisfraughtwithmathematical errors.Onceweadjustedforthesematherrors,wereachedaDCFNAVforCelltrion whichis50%belowtheSamsungtargetprice.
TheanalystpresentedaDCFvaluationfilledwithobviouserrors:1. Hospiras revenuesplitisnotaccountedforatall.2. Koreancorporatetaxiscompletelyignored.3. ThecompanysdebtisnotsubtractedintheNAVcalculation.4. Itdoesnotaccountfor3yearsofrevenuethatwasrecognizedforproductssoldbutnotdelivered.Strangely,theSamsunganalyst
actuallyacknowledgesthis,evenifRemsima salesincreaseonafullscalethisyear,itwouldbeawhilebeforeCelltrion enjoyssalesgrowth.
Ifweadjustforthesesimpleassumptionerrors,wereachaNAVwhichis50%belowthetargetpricewhichispresentedinthis initiationreport.
CorporatetaxNOTincludedinNAVcalculations
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SamsungInitiation3/13/15
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Doesnotaccountfor50%Hospira revenuesplit
Doesnotincludetaxpayments
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AccountingIssuesObscuredThroughAuditors
WebelieveCelltrion isabletohideitssystemicproblemsofinventorybuildup,crossfunding,andlackoftruethirdpartysalesthroughusingdifferentauditorsforeachentityineveryyear.
Notably,Samyoung,theauditorforCelltrionGSCandCelltrionHoldings,wastheauditorforOullimElses,OullimNetworks,andOullimInfoTech.Allthreecompaniesweredelistedduetofraudulentaccounting 1.
AuditorsbyYear2009 2010 2011 2012 2013
CelltrionInc DeloitteAnjin SamilPWC SamilPWC SamilPWC SamilPWCCelltrionPharma Lian Lian Lian Lian LianCelltrionHealthcare SamYoung SamYoung SamYoung DeloitteAnjin DeloitteAnjinCelltrionGSC SamYoung SamYoung SamYoung SamYoung SamilPWCCelltrionHoldings SamYoung SamYoung SamYoung SamYoung
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1.http://www.hankyung.com/news/app/newsview.php?aid=2012082968471
Source:Companyfilings
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Daewoo Celltrion
Strongrelianceondebtfinancing
Holdingcompany isnottheprofitcenter
Powerfulchairman/weak controls
Inflatedrevenues
Manipulationofassetsandrevenuesthroughoverseas subs
Improved balancesheetthroughrelatedpartytransactions
Scamsubstoskirtaccountingrules
False revenues
Falseinventories
Offbalancesheetdebt
RevisitingtheDaewooStory In1999,theDaewooGroupcollapsedinthebiggestaccountingfraudinhistory. Daewooschairman,WooChoongKim,livedasafugitiveoverseasfor6yearsandreturnedin2005tofacecriminal
charges.Kimwassentencedto8.5yearsinprisonanddisgorgementof$USD17.9billion. HallmarksoftheDaewoostory:
DaewoopursuedaggressiveexpansionintotheautomobileindustryduringtheheartoftheAsianfinancialcrisis. Inordertofunditsexpansion,Daewoosdebtballooned. DaewooCorp,theholdingcompany,directedtheuseofoffshoreentitiesasconduitsforaccountingfraudin
ordertoinflateassetvaluesbyKRW22.9trillion(USD19.1billion)andhideimpairedcapital. InKorea,Daewooutilizedonshoreaffiliatestopurchaseovervaluedassetsabovemarketprices.Scam
subsidiarieswerealsousedtobypassaccountingregulations. DaewoousedunreportedaffiliatestotakeonmoredebtwhichprovidedequityinjectionsintothekeyKorean
entities.
Source:NorthwesternJournalofInternationalLawandBusiness,AForensicStudyofDaewoo'sCorporateGovernance:DoesResponsibilityfortheMeltdownSolelyLiewiththeChaebolandKorea?
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CelltrionManagementDaewooConnectionsandMisconduct JJSeostartedthecompanywith10formerDaewooexecutives1. JJSeo,ChairmanandCEOofCelltrionInc.
JJSeowastheStandingAdvisortotheGroupChairmanofDaewoo,WooChoongKim,from1993to1999.JJSeowasinchargeofDaewooMotors2.
JJSeoconvictedofstockmanipulationandinsidertrading.
TaeGuKim,ExecutiveDirectorofCelltrionPharm,PresidentofCelltrionGSC20082014,PresidentofCelltrionHealthcare20082010
ServedprisontimeforinvolvementinDaewoofraud.KimwasthepresidentofDaewooMotors3.
YJKim,theformerCEOofCelltrionPharm,wassentencedtothreeyearsinprisonforbreachoftrustduringhistenureasCEOwhichincludedtheembezzlementofKRW2.7bn4.
DaewooEngineeringandConstructionmanagedtheconstructionofCelltrionIncsfacilitiesin20022003.DaewoohadanagreementwithJJSeotocapitalizeCelltrionIncthroughbuyingsharesofCelltrionpreferredstock.Uponthecompletionoffacilityconstruction,Daewoowouldsellthesesamesharesbackatthepurchaseprice5.
1. TheFinancialTimesKoreasBiotechComebackKid2. BloombergBusinessProfiles3. NewYorkTimes,SouthKoreanCourtSentences7Daewood ExecutivestoPrison,7/25/014. Naver News,,12/11/095. Vaxgen 2007annualreport
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Source:KoreaTimes,10/8/13
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AdditionalRelatedPartyIssues
Tozai Holdings Samyoung,theauditorforCelltrionGSCandCelltrionHoldings,wasalsotheauditorofTozaiHoldings(037700KS)
1.Samyoungonlyaudits9companieswithanaggregatemarketcapitalizationof~USD900mm2. TozaiHoldingswasoriginallyaminingcompanywhichacquiredacompanycalledNovacell3. InFebruary2011,TozaisignedanagreementwithCelltriontoanalyzebiosimilars4. Laterin2011,Tozaiwasdelistedfromtheexchange,withchargesofaccountingfraudandstockmanipulation5. In2012,TozaichangeditsnametoProdizen.In2012,BrianKim,whowasanexecutiveatCelltrionfrom2009
2012,becametheCEOofProdizen6.
Tomato2SavingsBank In2010,Celltrion GSCmadeanequityinvestmentinTomato2SavingsBankandbecamea9.9%stakeholder.This
equityinvestmentwaswrittenoffin20137. In2009,Celltrion Inc hadaKRW14bn lineofcreditatTomato2SavingsBank7. In2009,Celltrion GSCtookaKRW11bn loanfromTomato2SavingsBank7. Tomato2SavingsBankwasshutdownbyregulatorsin2012duetoabankrunamidallegationsofillicitlending.
Oneofitscreditofficerscommittedsuicide8.
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1. Companyfilings2. Bloomberg3. http://www.gobizkorea.com/catalog/about.jsp?blogId=tozaiholdings&pageNo=1&pageVol=6&listStyle=L4. http://www.prnewswire.com/newsreleases/theoutlookforpharmaceuticalsinnortheastasia130126873.html5. http://www.fsc.go.kr/info/ntc_news_view.jsp?menu=7210100&bbsid=BBS0030&no=28219 and
http://alrha.news1.kr/articles/?11635476. http://dailymedi.com/news/news_print.html?section=1&category=8&no=7541517. Companyfilings8. WallStreetJournal,ThirdApparentSuicideinKoreaSavingsBankScandal,1/12/12
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AdditionalRelatedPartyIssues Freezone
Freezoneisafacilitiesmanagementandsecuritycompany1. FreezonesharesacorporateaddresswithCelltrionIncandCelltrionHealthcare1. CelltrionIncisFreezoneslargestcustomer,representing33%ofsales1. CelltrionWelfareFoundationowns30%ofFreezone1. ChoiSeungsikisthemajorityownerofFreezone,with35%1.HeisafriendandcollegeclassmateofJJSeo.Heis
theheadofsecurityattheBlueHouse,theofficialresidencyoftheKoreanheadofstate2.
CelltrionDBI WooshinSafetySystemsmanufacturesautoseatbeltsystems3. Upuntil2011,thebusinesswascalledCelltrionDBIandwas31%ownedbyCelltrionHoldingsand29%by
CelltrionInc3.ThemajorityshareholderwasitsfounderInpyoHong,whowasthechairmanoftheAssociationofVendorsforDaewooMotors.
Accordingtoinsiders,Celltrionboughtitsstakeinordertoimplantbiosensorsinseatbelts.Clearlytheywereaheadoftheirtime.
In2012,WooshinincreaseditsstakeinCelltrionIncfrom85kto121kshares.Asof2013itstillownedsharesinCelltrion Inc3.
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1. CorporateFilings2. http://www.konkuk.ac.kr/do/MessageBoard/ArticleRead.do?forum=people&id=5b0b04b&sort=63. Corporatefilings
Source:OwnershipinFreezonefromSaramin.co.kr(http://www.saramin.co.kr/zf_user/recruit/companyinfo/idx/3208344)
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AdditionalRelatedPartyIssues Celltrion Don
AsofQ32014,Celltrion Inc owns100%ofCelltrion Don,anagriclutural projectdevelopmentinRussia.Itisinthebusinessofsellingsquashesandgrains1.
371. CorporateFilings
Source:http://exclusivernd.ru/photos/1293
Source:http://www.perfectagro.ru/pdf/novosti/marga_2.pdf
Source:Vaxgen2007AnnualReport
Vaxgen Vaxgen isafailedAIDSandAnthraxvaccinedeveloperthatparticipatedinthefoundingofCelltrion. In2007,whenVaxgenwasstillreportingCelltrionIncasasegmentinitsSECfilings,Vaxgenreportednorevenuesfrom
CelltrionIncwhileCelltrionIncreportedpositiverevenuesinKoreaofKRW60bn1.
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AdditionalRelatedPartyIssues Celltrion PharmaUSA
Celltrion PharmaUSAisawhollyownedentityofCelltrion Pharm1.ThecompanyslistingintheCaliforniacompanyregisterisbelow:
Asearchoftheaddressshowsthatitisaunitinaresidentialapartmentcomplex:
381. CorporateFilings
Source:http://kepler.sos.ca.gov/
Source:Googlestreetview
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AdditionalRelatedPartyIssues IMMInvestment
In2014,Celltrion Inc madeaKRW2bn investmentinaventurefundcalledIMM1. SungBaeJi,CEOofIMMInvestmentisadirectoratCelltrion Inc asof2014.Hispreviousworkexperiencealso
includesSamil PriceWaterhouseCoopers,theauditorofCelltrion Inc andCelltrion GSC. Asitturnsout,IMMisinvestedinCelltrion Inc andCelltrion Healthcare.ThisVCfundholdsbothentitiesinits
currentportfolio.
391. CorporateFilings
Source:http://www.immvc.co.kr/c_port.asp
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AdditionalRelatedPartyIssues
AppleSecuritiesandInvestments:Celltrion Inc hashelda9.5%stakeinAppleSecurities&InvestmentLtdsinceitsfoundationin2008.Appleliquidatedin2014.
CelltrionST:AcompanyownedbyCelltrionHoldingsthatstandsforCelltrion SmartTechnologyandisacompanythatspecializesinthefieldofdigitalbroadcastingserviceandbiopharmaceuticalinformationsystem.Ostensibly,thecompanymanufacturesTVs.Theequityofthiscompanyhasbeenwipedout1.
DreamE+M(EntertainmentandMusic):AcompanyownedbyCelltrionHoldingsthatproducesKoreanTVshows1.
Hanskin:Askincarecompanywhichis80%owedbyCelltrionGSC1.
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Source:CelltrionSTWebpage(http://www.celltrionst.com/)
Source:HanskinWebpage(www.hanskin.com)
1.Companyfilings
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RemsimasMarketOpportunity
TotalMarketSize: RemsimaistargetingthemonoclonalantibodyRemicade,producedbyJohnsonandJohnson.Hospira(Celltrionslargestdistributionpartner)estimatesthattheglobalmarketvaluefortheRemicadebiosimilarisUSD5.8billion,withUSD4billionintheUnitedStates1.
CelltrionsRemsimahasreceivedapprovalinEuropewhereRemicadepatentsrolloffin20152.Remicadespatentrollsoffin2018intheUnitedStates.
1. HospiraJPMorganConferencepresentation2. FiercePharmaHospira,CelltrionachievemilestoneinEUwithOKforRemicadebiosimilar
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RemsimasMarketOpportunityMarketPenetration: SumantRamachandra,SVPandCSOatHospira(Celltrionslargestdistributionpartner)commentedontheshapeoftheadoptioncurveforRemsima.SumantexpectsbetteradoptionthanEpogen,butperhapsnotasstrongasNeupogen(GCSF)1.NotethatEpogenispriced3040%discounttobrandedandNeupogenispricedat~70%discounttobrandedandmarketshareissplitacross3largeplayers.
Source:BernsteinResearch
ImplicationforCelltrion:IfRemsimaislaunchedinbothEuropeandtheUnitedStates(USD5.8billioninannualmarketvalue)andRemsimaattains30%marketadoptionata30%pricediscountforthethreeyearsbetween20152018beforeothergenericshitthemarketCelltrionInc.wouldreceiveUSD426mmperannumfor3years(beforeothergenericcompetitorshitthemarket).CelltrionInc.hasalreadyprebooked2yearsofthefuture3yearsofsalesbetweentheyearsof2009and2013.
In2018,competitorbiosimilarsareslatedtoenterthemarket,includingPfizer/HospirasownproductwhichiscurrentlyinPhaseIII.PresumablyPfizerwillbeincentivizedtoprioritizetheirwhollyowneddrugatthatstagebecausetheyonlyreceive50%ofRemsimasalesundertheHospiradistributionagreement.
1. BernsteinResearch,Biosimilars:NotesfromLongViewonBiosimilarsConference;AtthePrecipiceDec9,201442
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RemsimasMarketOpportunityGeographies+Timing:
RemicadepatentexpiredinEuropein2015.CelltrionproductsareenteringthemarketwithHospiraasprimarydistributor.
CelltrionisapplyingforUSFDAapprovaltoentertheUS.TheFDAisplanningtodiscussthebiologicslicenseapplicationinameetingonMarch17,2015.
CelltrionhasfiledasuitinafederalcourtseekingdeclaratoryjudgmentthatJ+JsremainingpatentsonRemicadeareinvalidandunenforceable.ThismoveispatternedafterasimilarSandozstrategytoclearthepatentpathforitsownEnbrelbiosimilar(amoveshutdownbyaCaliforniafederaljudge) 1.
WhilethemarketviewsthisupcomingFDAhearingasverypositive,webelievethatPfizer/Hospiras motivationstosupportCelltrionsentryintobothEuropeandtheUnitedStatesaredebatable.
1. http://www.bioworld.com/content/celltrionhopesblazepathfirstusbiosimilarmab043
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PfizersIncentives BullsarenotconsideringPfizersincentiveswithregardstotheCelltrionrelationship.AsBernsteinResearchpointsout
HospirahasfourofitsownproductsandhalfadozenproductsfromCelltrion.Thetwointernalproducts(Neupogen,Neulesta,Epogen,Aranesp)willbecarriedoverandaccelerated.Rationally,thosewilldobettergloballyinPfizerhands.TheCelltrionproductsareessentiallyaonetoonereplicaofPfizerprogramsandinvolvematerialprofitsharing(undisclosedbutnotfarfrom50%)withCelltrion.Further,wewouldarguePfizer'sdevelopmentprogramismuchmorerobust.ItisverylikelytheregulatorswillaskPfizertodivest,oreveniftheydont wethinkPfizerwilllikelycutmostoftheCelltrionproducts.
PfizercurrentlyhasaRemicadebiosimilarproductunderPhaseIIIintheUnitedStates,withanestimatedlaunchattheendof2017.
InEurope,PfizerownsthedrugEnbrel,acompetitortoRemicadeforrheumatoidarthritis.PfizerisincentivizedtoavoidheavydiscountinganddistributionofRemsimatopreventcannibalizationofitsownbrandeddrug.
PfizereitherknowstoomuchortoolittleaboutCelltrion.
Ithinkjusttohighlight,[Hospiras]marketedrecombinantproductsarenotdependentonCelltrion.Theyweredeveloped,asweunderstand,byHospiraalone. JohnYoung,Pfizer
Wehaven'tsatdownwithCelltrionyet.WehavelookedatthecontractualrelationshipbetweenHospiraandCelltrion. IanRead,Pfizer
Pfizerismorelikelytotrustitsowndevelopmentandmanufacturingprocess.InPfizersownwords:So,wehavethreebiosimilarsthatareinongoingPhaseIIIstudies,rituximab,trastuzumaborHerceptinandHerceptinandinfliximaborRemicade.We'reusingourdecadelongexperienceinbiopharmaceuticalsciencetomakesurethathealthcareorganizationsandpatientwillfeelthattheyuseabiosimilarthathasthebestmanufacturingandanalyticaldatabehindit. PfizerattheCowenHealthcareConference3/3/15
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MerckSponsoredCompetitor Recently,attheCowenHealthcareConference(3/2/15),Merckpresentedtheirownbiosimilar pipelineinpartnership
withSamsungBioepis.SamsungBioepisisresponsiblefortheR+DwhileMerckwillmanufactureandcommercializetheproducts.ThepipelineincludesbiosimilarsforBOTHRemicadeandHerceptin.Withfilingtimelinesin20152016.
PresumablyasMerckisthedeveloperoftheoriginalbrandedRemicade,thebiosimilarversionwillbewellfasttrackedintheapproval,manufacturing,andmarketingprocess.
Source:Merckinvestorrelations
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HerceptinBiosimilarMarketOpportunity
1. Rochecompanyfilings2. http://www.roche.com/media/store/releases/medcor20121208.htmhttp://www.roche.com/media/store/releases/medcor20120611.htmhttp://www.roche.com/media/store/releases/medcor20130305.htm
TotalMarketSize: CelltrionsbiosimilartrastuzumabcandidateistargetingRochesblockbusterbreastcancerdrugHerceptin.Rochesannualworldwidesalesin2014ofHerceptinwasUSD6.856billion 1.
MarketPenetration: TheHerceptinbiosimilarpenetrationshouldbenegligibleduetochangeinstandardofcareforbreastcancer.Previously,thecombinationofHerceptinandchemotherapywasstandardforHER2positivebreastcancer.
RochesnewdrugPerjeta,whencombinedwithHerceptinandchemotherapy,hasbeenshowntoreduceriskofdeathby34%comparedtotreatmentswhereonlyHerceptinandchemotherapyareused 2.Perjeta+Herceptin+chemotherapywillpresumablybecomethestandardofcareforHER2positivebreastcancer.
Additionally,theHerceptinbiosimilarpipelineisquiterobust,withPfizer,Amgen,andSamsungallintestingphases(seenextslide).
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Herceptinbiosimilarsfaceamplecompetition
Source:BernsteinResearch
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ConclusionThepointsmadeinthisreportindicatethatCelltrion islikelytofacequestionsnotonlyfrominvestors whoreasonablymayaskwhetherthepossibilityofaFDAapprovalforRemsima isenoughtocompensatefortherisksofacompanywhichhasalreadyrecognizedthemajorityofsalesfromabestcaseregulatory,legal,andfinancialoutcome,andnowfacestheburdenofastaggeringandcomplexdebtloadsales butalsofromconsumers,regulators,partners,andtheKoreangovernment.
Consumersmaynotfinditagoodvaluetousemedicationwhichispotentiallyexpiredfarpastitsshelflife,andwhichtheavailablefactssuggestoriginatedinaconvoluteddistributionscheme,foronlya30%pricediscount.
Regulatorsmayquestionwhethertheycantrusttheclinicalresults,manufacturingprocess,andqualitycontrolofacompanythatthefactssuggestisproducingquestionablefinancials,engagingindeceptivepractices,andcreatingamassiveinventoryofexpireddrugs.
PartnerssuchasPfizer/Hospira mayquestionwhethertheyshouldcontinuetopartnerwithacompanyaboutwhichquestionsarebeingraisedaboutitsfinancialandoperationpractices.
AndtheKoreangovernmentmayconcludethatitdoesnotwishtocontinueprovidingsubsidiestoacompanyaboutwhichsubstantialquestionsarebeingraisedsuggestingthatitmaybedeceivinglocalshareholders.
481.Companyfilings