Celltrion (068270.KS) is seeing a rapid improvement in profitability as its direct sales system in the United States takes hold alongside the launch of high-margin products. With revenue growing faster than research and development (R&D) spending, the R&D-to-revenue ratio is declining, suggesting a stronger financial structure ahead. Industry watchers also expect strong sales of new biosimilar products in the second half of this year to accelerate the company's new drug development.
According to the Financial Supervisory Service's electronic disclosure system on Wednesday, Celltrion's first-quarter gross profit (on a consolidated basis) reached 685.8 billion won, up 54.9% from 442.9 billion won a year earlier. Cost of sales, by contrast, rose only 15.1% over the same period, from 399 billion won to 459.1 billion won, meaning revenue growth significantly outpaced cost growth. The gross profit margin, the share of revenue accounted for by gross profit, climbed 7.3 percentage points from 52.6% to 59.9%. The figures show that the quality of revenue improved sharply as Celltrion posted record first-quarter sales of 1.145 trillion won.
The improvement reflects increased sales of higher-margin products and the successful establishment of the U.S. direct sales system. Celltrion completed its transition to direct sales for all products in Europe in the second half of 2022 to maximize profitability by internalizing its distribution structure. It then made the same shift in the United States in 2023. Direct sales offer pricing advantages over indirect sales. "With direct sales channels, we can adjust supply prices according to market conditions," a Celltrion official said. "Indirect sales, on the other hand, require us to factor in distributor contracts, market prices in each country, deductions, and partner margins."
The operating leverage effect from U.S. direct sales has also begun to materialize. First-quarter selling and administrative expenses came in at 363.9 billion won, up 24% from 293.5 billion won a year earlier. But because revenue grew 36% over the same period, the ratio of selling and administrative expenses to revenue actually fell from 34.9% to 31.8%. This means that while fixed costs have risen due to the shift to direct sales, revenue is growing faster. Celltrion also cited the full elimination of one-off costs incurred after the merger with Celltrion Healthcare, the completion of high-cost inventory drawdown, the end of development cost amortization, and improved production yields as drivers of the profitability gains.
As Celltrion's revenue grows rapidly, its capacity to accelerate new drug development is also strengthening. R&D spending rose 18.7% from 103.1 billion won in the first quarter of last year to 122.4 billion won in the first quarter of this year. Yet the R&D-to-revenue ratio fell from 12.3% to 10.7% over the same period, giving the company room to ramp up new drug R&D spending more quickly. Celltrion recently entered the patient dosing stage of Phase 1 trials for all three of its antibody-drug conjugate (ADC) new drug candidates under development. Its next-generation obesity drug candidate, CT-G32, has begun toxicity testing in primates and is preparing to enter clinical trials.
The industry is paying particular attention to the prospect of stronger second-half earnings for Celltrion. The biosimilar business, Celltrion's main focus, tends to see revenue expand toward the latter half of the year. Major European tenders are concentrated in the second and third quarters, initial supply volumes from those tenders are delivered in the second half, and inventory demand from medical institutions rises toward year-end. Even so, having already posted record results in the off-season first quarter, the company is on track to achieve its annual revenue target of 5.3 trillion won.
Growth in high-margin new products is also steep. The most notable item is Zymfentra (sold as Remsima SC in markets outside the U.S.), the world's only subcutaneous (SC) formulation of infliximab. According to Celltrion, Zymfentra recorded its highest-ever quarterly prescription volume in the first quarter, up 185% year-on-year. With insurance reimbursement coverage secured for more than 90% of the market and now in its second year of sales with rising recognition among medical staff and patients, the company expects Zymfentra's growth to continue into the second half. Steqeyma has also seen prescriptions rise, capturing a 10.2% market share within a year of its launch.
"The fact that high-margin new products launched last year following patent settlements will be sold in more countries is another factor raising expectations for second-half earnings growth," a Celltrion official said. "Aptozma's subcutaneous formulation and Omlyclo will be newly launched in the U.S. market this year, providing additional momentum for revenue growth."
