Seo Jung-jin's '12 Trillion Won Annual Sales' Dream... Throws the '3-Company Merger' as a Winning Move

Celltrion-Healthcare Merger Within This Year
Pharmaceutical Merger to Complete Next Year

Resolving Controversies Over Internal Transactions and Accounting Fraud
Overcoming Sales Decline Through Synergy

‘Eldest Son’ Seo Jin-seok to Solely Succeed
Reshaping Second-Generation Succession Structure Expected

Seo Jung-jin, Chairman of the Celltrion Group, has initiated the full merger within the Celltrion Group that he has been advocating since 2020. This move is seen as a bold strategy to overcome risks such as internal transactions and to advance as a global big pharma company encompassing both bio and chemical pharmaceuticals with an annual sales target of 12 trillion KRW by 2030.

According to the merger plan announced by the Celltrion Group on the 17th, the merger will proceed with Celltrion absorbing Celltrion Healthcare. The merger price is 148,853 KRW for Celltrion and 66,874 KRW for Celltrion Healthcare. Existing shareholders of Celltrion Healthcare will be allocated 0.449262 shares of Celltrion common stock for each common share they hold. The merger is expected to be completed within this year, followed by a second full merger with Celltrion Pharm in the first half of next year.

Chairman Seo explained at a briefing, "We thought that pursuing a simultaneous merger of the three companies would cause many procedural difficulties and complicate the interests among shareholders," and added, "We decided to merge Celltrion and Celltrion Healthcare as the first step." He expressed his firm intention not to waver from the vision of ultimately strengthening into a comprehensive pharmaceutical company that also includes chemical pharmaceuticals.

The three-company merger, first publicly revealed by Chairman Seo in January 2020 at the JP Morgan Healthcare Conference (JPMHC) with the statement, "If shareholders want, we will merge even next year," has finally taken shape. Although it seemed to stall when Chairman Seo stepped down from frontline management in March the following year, it resurfaced with his sudden return in March this year. At the press conference upon his return, Chairman Seo stated, "Preparation is almost complete," showing his determination to re-pursue the merger.

Short-term Sales Decline... Overcoming Risks and Synergies to Achieve '12 Trillion KRW Sales by 2030'

However, in terms of sales, a decline is expected to be more significant than synergy effects in the short term. The integrated Celltrion's sales after the merger are estimated to be around 2.3 trillion KRW this year. This is about half compared to last year’s sales of 2.284 trillion KRW for Celltrion and 1.972 trillion KRW for Celltrion Healthcare. This is due to the unique division of labor structure within the Celltrion Group. Celltrion develops, manufactures, and supplies biopharmaceuticals, while Celltrion Healthcare handles overseas distribution.

Since there is no direct equity relationship between the two companies, Celltrion’s pharmaceutical supply performance and Celltrion Healthcare’s overseas drug sales have been separately recorded as individual sales. Once the integrated Celltrion is launched, Celltrion’s pharmaceutical supply performance will be offset, inevitably causing a sharp drop in sales.

Although the Financial Services Commission’s Securities and Futures Commission judged last year that there was "no intentional wrongdoing," this has been a reason why the Celltrion Group has continuously faced controversies such as 'internal trading' and 'accounting fraud.' While it is just a transfer from the production department to the distribution department within the same company, because they are separate companies, sales are recorded separately, which is close to internal trading, and there are claims that the value decline of inventory assets was not reflected in the financial statements, inflating the value. However, once the merger is completed, such controversies will be resolved at once.

The concern over sales decline is planned to be overcome by sales growth through synergy. The group aims to achieve sales of 3.5 trillion KRW and EBITDA of 1.6 trillion KRW in 2024, and to increase sales to 12 trillion KRW by 2030. In particular, they plan to maintain growth in their core business of biosimilars while continuing new drug development to raise the sales proportion of new drugs to 40%.

Celltrion's 'Remsima SC (US name: Zimpentra)'
Photo by Lee Chunhee

The spearhead is 'Remsima SC' (generic name infliximab). Chairman Seo personally listened to local medical professionals and improved the infliximab drug, which previously only had an intravenous (IV) formulation, to a subcutaneous (SC) formulation that offers greater dosing convenience, making it the first and only one of its kind. The U.S. Food and Drug Administration (FDA) considered these advantages and recommended Celltrion to proceed with the new drug approval process first, which is currently underway.

Chairman Seo said, "Jimpentra (the U.S. new drug brand name for Remsima SC) is sold at a price at least four times higher and is protected by patents for 15 years, so there is little concern about price reductions due to the original product," and added, "It will be a market worth 700 billion KRW in 2024 and over 3 trillion KRW by 2030," identifying it as the most important future growth driver. Additionally, new drugs such as immuno-oncology agents and breast and stomach cancer treatments, aiming to enter phase 1 clinical trials next year, are also expected to generate sales by 2030. The group’s core product, biosimilars, aims to secure a portfolio of 22 products and achieve sales of 7 trillion KRW by 2030 through continuous business expansion.

The market response is positive. Hyemin Heo, a researcher at Kiwoom Securities, evaluated, "Celltrion Healthcare could not aggressively respond to biosimilars because it could not sell below the purchase price," and predicted, "Aggressive responses will be possible due to the merger." Donggeon Lee, a researcher at SK Securities, also forecasted, "Large-scale investments for aggressive new drug and new modality development will be possible," and added, "This will lead to enhanced competitiveness in the new drug business, which will serve as a new pillar alongside biosimilars."

No Significant Risk of Shareholder Buyout Rights... Succession Likely to be 'Unified with Eldest Son'

The biggest hurdle to overcome for the merger, the shareholder buyout rights, is expected to be easily cleared. This is a legally guaranteed right under the Commercial Act for shareholders opposing the merger to request the company to purchase their shares at a certain price. The group set the buyout prices at 150,813 KRW for Celltrion and 67,251 KRW for Celltrion Healthcare, with a total buyout limit of 1 trillion KRW, which corresponds to about 3.2% of the combined market capitalization of both companies. It is known that small shareholders generally oppose the merger, judging that total sales will decrease and stock price growth potential will be limited after the merger, so if buyout requests exceed the limit, the merger could be canceled, the companies also disclosed.

However, since the market prices on the day were 153,400 KRW for Celltrion and 69,500 KRW for Celltrion Healthcare, exceeding the buyout prices, the scale of buyout requests is expected to be small. Chairman Seo said, "The stock price is undervalued, so 1 trillion KRW should be sufficient," and added, "We have contingency plans for cases where buyout requests exceed 1 trillion KRW," showing strong determination to complete the merger even if the limit is exceeded. Celltrion Pharm also started the day at 81,800 KRW, up 5.4% from the previous closing price.

Another key point of the merger is the second-generation succession. The merger naturally appears to reorganize the succession structure. Among the 12 directors expected for the integrated Celltrion, four are inside directors, including Vice Chairman Ki Woo-sung of Celltrion, Vice Chairman Kim Hyung-gi of Celltrion Healthcare, and Seo Jin-seok, Chairman Seo’s eldest son and chairman of the Celltrion board, who are leading group management alongside Chairman Seo. The name of Seo Jun-seok, chairman of the Celltrion Healthcare board and the second son, was not included.

Currently, Chairman Seo Jin-seok is listed as an inside director in major affiliates excluding Celltrion Healthcare, such as Celltrion Holdings, Celltrion Pharm, and Celltrion Skincure. With this merger, he will be involved in the management of all affiliates, indicating a shift to a sole succession structure. While Chairman Seo has expressed trust in Seo Jin-seok, saying, "The eldest son seems to have grown a lot," Seo Jun-seok is analyzed to have been sidelined in the succession due to the controversy caused by his disappearance incident in March. However, since Chairman Seo has emphasized the separation of ownership and management, there is also a prospect that management will be entrusted to professional managers while Seo Jin-seok will hold ownership only.

This content was produced with the assistance of AI translation services.