In a decision aimed at reinforcing its position in the pharmaceutical industry, Celltrion Inc. has announced its plan to absorb its affiliate company, Celltrion Healthcare.

Celltrion is listed on Kospi, and Celltrion Healthcare, Kosdaq. 

The established merger ratio stands at 1 : 0.4492620 (Celltrion : Celltrion Healthcare).

The merger agreement was signed on Thursday. After the shareholder confirmation on Sep. 1, the company will receive opinions of opposition to the merger from Sep. 25 to Oct. 20, and will hold a final shareholders' meeting on Oct. 23.

However, Celltrion Pharm will not be part of the merger this time around.

"As the first stage of the merger process we will merge Celltrion and Celltrion Healthcare," Celltrion Group Chairman Seo Jung-jin said in a press conference on Thursday. "After the merger is complete, the company will also merge with Celltrion Pharm within six months."

Seo added that it has decided on such a merger process as the merger between three entities was too complicated. 

Seo stressed that the merge date will be Dec. 28 and the new merged entity will start trading on the Kospi market on Jan. 12, 2024.

He said the merger underscores Celltrion's aspiration to transition from a biosimilar-focused entity to a leading global pharmaceutical powerhouse.

“From the integration of large-scale assets to improved cost competitiveness from unified product development, production, and sales functions, the merger is poised to enhance product differentiation and operational transparency,” Seo said. “This consolidation is expected to elevate investor trust and solidify Celltrion's role in the global market.”

Seo also expects that the merger will streamline their respective business units and foster a more efficient management structure.

As part of the Celltrion Group, both Celltrion and Celltrion Healthcare have enjoyed a close business relationship, with the former focusing on bio-pharmaceutical development and production, and the latter holding exclusive selling rights for products developed by Celltrion.

Seo stressed that the merger is also expected to drive financial improvements.

“The dissolution of Celltrion Healthcare's exclusive selling rights will simplify the sales structure, with post-merger revenue for Celltrion comprising sales from Celltrion Healthcare and existing Celltrion,” the Celltrion Chairman said. “Furthermore, the company anticipates an enhancement in sales margins, which will likely open new opportunities for the company to conduct diversified marketing strategies and a potential expansion into new markets with strong growth prospects.”

Notably, by vertically aligning their development, clinical, authorization, production, marketing, and sales departments, the combined entity aims to foster quicker decision-making and amplify product competitiveness, Seo added.

Seo stressed that while Celltrion Healthcare's purchase prices from Celltrion constrained its pricing flexibility, the merged entity is set to adopt the production costs of Celltrion, granting it the liberty to devise adaptable pricing strategies.

“This maneuver will enable aggressive market strategies, facilitating an expansion of sales territories and maximizing market share,” Seo added.

Seo also gave a positive outlook on overseas sales.

“Since my return, I have been traveling globally while heading the direct sales network in North America, including the U.S. and Canada, and I foresee that Celltrion Healthcare’s sales will amount to 2 to 3 trillion won this year,” Seo said. “We are cautiously targeting sales of 3.5 trillion won in 2024, with an earnings before interest, taxes, depreciation and amortization (EBITDA) margin of 40 percent in 2024.”

Seo stressed that he believes that the EBITDA margin will increase further in 2025 and 2026 as the simulation run by the company showed that the new entity will be able to create positive synergy.

The company seeking to become a new drug developer

During the press conference, Seo explained that the new merge entity will also actively develop new drug candidates.

“In addition to Zymfentra, which is expected to be approved as a new drug in the U.S. this year, the company aims to generate 40 percent of total sales from new products developed in-house and through license in agreements from 2030,” Seo said. “

Zymfentra is also known as Remsima SC in the EU.

“Zymfentra is the only subcutaneous formulation of infliximab in the U.S. with patient convenience and satisfaction,” Seo said. “With rapid growth expected, the company will aggressively market the product through its direct sales network in the U.S.”

In line with the company’s goal of expansion in the U.S. market, the company will build a third plant after the merger, which is expected to be commercially operational next year.

Seo also said that the company will also invest in the digital health space, which is synergistic with its current business capabilities, in the long term.

“Based on Celltrion's vast clinical and genomic data, the company is eyeing opportunities in the field of analytical diagnostic telemedicine,” Seo said. “Notably, we will actively explore new digital health technologies that can be useful in our business processes such as drug development, precision medicine, and clinical innovation.”

Regarding shareholders, Sep explained that the merger will maximize shareholder value.

“Shareholders of Celltrion Healthcare, as of the merger's cut-off date, are slated to receive 0.4492620 shares of Celltrion for every share they own,” Seo said. “With the anticipated operational and financial synergies, the merged company is confident about not just achieving growth in scale but also in profitability.”

Seo also stressed that under the merged entity the company aims to increase cash dividends, ultimately becoming a company that gives back 30 percent of its profits back to shareholders.

This approach, in the long run, is perceived to continuously augment the company's value, ultimately benefiting its shareholders, he added.

Seo went on to say that the merger will not lead to any employee restructuring.