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Biotech Rally Needs a Health Warning

Biotech is bursting back to life in the U.S., and the enthusiasm is being felt across the Pacific. 

The crown jewel of the rally in Asia is South Korea’s Celltrion Inc., whose shares have soared 43 percent in the first month of 2018. While the surge has been driven partly by the stock’s impending upgrade from the small-and-mid-cap Kosdaq index to the benchmark Kospi, many investors are betting on Celltrion’s potential in biosimilar drugs — near-identical copies of another company’s medicines that can be manufactured once the original’s patent expires. 

Strong Medicine

Celltrion Inc. jumped 44 percent this year on buying by foreign investors

Source: Bloomberg

Testifying to investor appetite, the Korean firm in July sold shares in its marketing arm at the top of the marketed range. Celltrion Healthcare Co. has since risen 241 percent on the junior board. Combined, the two companies now have a market value of $55 billion.

Elsewhere, Samsung Biologics Co., which develops biosimilar drugs through subsidiary Samsung Bioepis Co., soared 172 percent in the past year. And India’s Biocon Ltd. has climbed 82 percent. 

The Asian biotech companies have a big market to aim at. Warren Buffett compared ballooning U.S. medical costs to a “hungry tapeworm” in announcing Berkshire Hathaway Inc.’s move into health care on Tuesday in partnership with Amazon.com Inc. and JPMorgan Chase & Co.

As of 2016, biologics totaled more than $130 billion in sales and accounted for nine of the 15 most sold drugs globally. In theory, if one goes off the patent cliff, incoming generic manufacturers should have no trouble snatching away cost-conscious patients. 

Market Tonic

The top seven biologics drugs generated over $60 billion in sales between them in 2016

Source: Nomura Securities

Of the top 10 biologic drugs, six have already lost their exclusivity in Europe. The U.S., by far the world’s largest market, isn’t too far behind. Biosimilar drugs can generate $50 billion in sales by 2025, estimates Nomura Securities. 

Look at Celltrion’s drug pipeline and it isn’t hard to see why the company is so well liked by foreign investors. The Korean drugmaker has already introduced two treatments to replicate Roche Holding AG’s cancer-fighting Rituxan and Johnson & Johnson’s top-selling arthritis remedy Remicade, the third- and fourth-most valuable biologics drugs. It’s also filed for approval of its cheaper version of Herceptin, another cancer-fighting drug marketed by Roche, which generated $7 billion of sales in 2016.

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