KOREA

June 15, 2011

Company Visit

KOSDAQ

BUY (maintain)

Celltrion (068270)
Poised to Secure Early-Mover Advantages in Global Market

Hyerim Kim Analyst Pharmaceuticals, Cosmetics 82-2-2003-2914 hyerim.kim@hdsrc.com Aleum Lee RA

82-2-2003-2932 aleum.lee@hdsrc.com Current price (Jun 14) Fair value Reuters code Bloomberg code Industry/Sector Rating Market cap Ordinary shares issued Free float KOSPI KOSDAQ Avg T/O Vol (60d) Avg T/O Val (60d) Foreign ownership 3yr CAGR of adj. EPS (10-12) Markets 3yr CAGR of adj. EPS 52wk high/low Beta (12M, daily return) KRW37,950 KRW48,000 068270.KQ 068270 KS Pharmaceuticals Overweight USD4.0bn 116,514,312shrs 59.4% 2,076.83 462.29 872,880shrs USD28.4mn 32.8% 48.3% NA KRW39,200 KRW18,500 0.9 Major shareholders Celltrion Holdings etc. 29.3%

Herceptin biosimilar sales in advanced markets to bolster 2Q11 results Two biosimilar products to complete global clinical trials in 4Q11 Poised to secure early-mover advantages in global biosimilar market Maintain fair value at KRW48,000; Kept as industry top pick

Herceptin biosimilar sales in advanced markets to bolster 2Q11 results

2Q11 OR is projected to jump 70%YoY to KRW72.9bn and OP 38%YoY to KRW41.4bn, matching the market consensus OR of KRW70.6bn and OP of KRW41.9bn. CT-P06 (biosimilar to the breast cancer treatment Herceptin) sales to marketing partners in advanced markets seem to be faring well. 2Q11 OP margin is projected to drop to 56.8% from 65.4% in 1Q11, since R&D investments should increase for the development of follow-up biosimilar products and new biologics. With solid sales of CT-P06 in 1H11 and CT-P13 (biosimilar to the arthritis treatment Remicade) in 2H11 to marketing partners in advanced markets, 2011 OR and OP are projected to jump 58%YoY and 59%YoY, respectively, continuing on a brisk uptrend.

Two biosimilar products to complete global clinical trials in 4Q11

Following CT-P13, CT-P06 also almost finished recruiting volunteers for clinical trials. It appears that clinical trials are proceeding as scheduled across 20 some countries around the world. Global clinical trials for these two products are slated for completion in 4Q11 and, after approval, they are expected to be launched in emerging markets including Korea, India, and South America in 1H12, in Eastern Europe in 2013, and all EU countries in 2014, when related patents are set to expire.

Price performance Absolute Relative

% 100 80 60 40 20 0

1M 12.6% 23.6%

3M 19.2% 29.6%

6M 9.4% 21.8%
KRW 40,000 35,000 30,000 25,000 20,000

FY-end OR (KRWbn) OP (KRWbn) EBT (KRWbn) NP (KRWbn) EPS (KRW) Adj. EPS (KRW) PER* (x) PBR (x) EV/EBITDA (x) ROE (%)
Source: Company data, Hyundai Securities

12/08A 83.7 30.8 17.6 14.6 339 634 26.8 - 3.6 6.0 29.3 11.9

12/09A 145.6 71.8 66.4 58.5 573 570 34.5 - 17.7 7.4 21.2 23.2

12/10A 180.9 106.6 109.8 108.3 981 983 35.7 - 15.7 5.6 33.5 20.3

12/11F 286.1 169.2 171.7 157.9 1,421 1,421 26.7 5.7 25.3 18.4

12/12F 379.1 224.7 227.7 206.7 1,860 1,860 20.4 4.9 19.2 19.9

Relative performance (LHS) Stock price (RHS)

-20 15,000 6/10 8/10 10/10 12/10 2/11 4/11 6/11

For explanations of equity research ratings and disclosures, please refer to the compliance section at the end of this report.

Celltrion

Fig 1: 2Q11 results to be sound overall

(KRWbn) OR OP EBT NP Margin (%) OP EBT NP 2Q11F 72.9 41.4 42.2 38.0 56.8 57.9 52.1 %YoY 69.9 37.9 41.8 30.7 %QoQ 21.4 5.4 7.4 (5.2) 2Q10 42.9 30.0 29.8 29.1 70.0 69.4 67.7 1Q11 Consensus 60.0 39.3 39.3 40.1 65.4 65.4 66.7 70.6 41.9 42.3 37.9 59.3 59.9 53.6 %Diff. 3.2 (1.2) (0.2) 0.3 -

Source: Company data, Hyundai Securities

Still high chances of securing early-mover advantages in global biosimilar market

Korean companies are making proactive efforts in biosimilar development. Samsung Biologics is investing in biosimilar facilities and started clinical trials for SAIT101 (biosimilar to the non-Hodgkins lymphoma treatment Rituxan). Hanwha Chemical (009830) signed a license-out contract with Merck in the US for HD203 (biosimilar to the arthritis treatment Enbrel). Against this backdrop, expectations are growing for growth of the global biosimilar market and Korean drug makers successful global forays. Celltrion waged preemptive biosimilar investments and achieved a rapid development pace, aided by: 1) strong competitiveness in clinical trials aimed at the global market; and 2) license agreements with 17 global pharmaceutical companies. Accordingly, we believe Celltrion has a strong chance of making it in the global biosimilar market going forward.

Fig 2: Status of biosimilar business at major domestic drugmakers

Capacity (liter) Celltrion Hanwha Chemical Samsung Biologics LG Life Sciences
Note: Based on output forecast at end-2012 Source: Company data, Hyundai Securities

No. of biosimilars in pipelines 8 4 1 3

Global alliance - License contracts signed with 17 global partners including Hospira - HD203 licensed out to Merck of US - Quintiles, a global CRO, holds a 10% stake -

140,000 7,000 30,000 15,000

Fig 3: Biosimilar pipelines at major domestic drugmakers

Company Celltrion Product CT-P06 CT-P13 CT-P10 CT-P05 Hanwha Chemical HD203 HD201 Samsung Biologics LG Life Sciences SAIT101 LBEC0101 Ingredient Trastzumab Infliximab Rituximab Etanercept Etanercept Trastzumab Rituximab Etanercept Infliximab Adalimumab Original Herceptin Remicade Rituxan/ Mabthera Enbrel Enbrel Herceptin Rituxan/ Mabthera Enbrel Remicade Humira Developer Genentech J&J Genentech Amgen Amgen Genentech Genentech Amgen J&J Abbott & Eisai Indication Breast cancer Rheumatoid arthritis, etc. Non-Hodgkins lymphomas, etc. Rheumatoid arthritis, etc. Rheumatoid arthritis, etc. Breast cancer Rheumatoid arthritis, etc. Rheumatoid arthritis, etc. Rheumatoid arthritis, etc. Rheumatoid arthritis, etc. Note Global phase I, III clinical trials underway; To be launched in 1H12 Global phase I, III clinical trials underway; To be launched in 1H12 Clinical trials scheduled in 2H11 Clinical trials scheduled in 2H11 Domestic phase III clinical trials under way; To be launched in 2013 In pre-clinical test; To be launched in 2014 In phase I clinical trials; Facilities to be completed in 2013; Production to begin in 2016 Domestic phase III clinical trials under way In pre-clinical test In pre-clinical test

Source: Company data, Hyundai Securities

HYUNDAI Research

Celltrion

Maintain fair value at KRW48,000; Kept as industry top pick

Celltrions share price has outperformed the market by 29% over the past three months, buoyed by expectations for global advancements via the launch of 2G antibiotics biosimilar. We believe Celltrion harbors ample mid/long-term investment merits as a biosimilar manufacturer in view of: 1) the strong growth potential of the global biosimilar market; 2) its possible market dominance via preemptive product launches; and 3) ample biosimilar pipelines; and 4) effects of capacity addition. We maintain Celltrion as our industry top pick and maintain a fair value of KRW48,000 (2012 PER of 26x).

Hyundai Securities has not disclosed the material contained in this report to any institutional investor or third party prior to its publication. The author(s) confirms that the material contained herein correctly represents his/her/their opinion and that it has been prepared without any undue influences or interventions. Hyundai Securities Co., Ltd. or any of its affiliates has not taken part in public offerings of the company(ies) covered in this report for the past 12 months. The author(s) of this report does not have any interest in the company(ies) covered herein. Rating: Sector: Overweight (+10% or more), Neutral (-10 - +10%), Underweight (-10% or more) Company: Strong BUY (+30% or more), BUY (+10 - +30%), Marketperform (-10 - +10%), Underperform (-10% or more) Strong BUY = 4, BUY = 3, Marketperform = 2, Underperform = 1, Blackout/Universe Exclusion = 0 (Share price , Fair value

KRW 50,000 40,000 30,000 20,000 10,000 09/6

Celltrion

Rating 4 3 2 1 0 11/6

, Rating )

All Hyundai Securities Research is available via the following electronic databases: Bloomberg, Thomson Reuters, FactSet. Contact your Hyundai Securities sales representative for access. This report has been prepared for informational purposes only, and does not constitute an offer or solicitation of a contract for trading. Opinions in this report reflect professional judgment at this date based on information and data obtained from sources we consider reliable. However, we do not guarantee that the information and data are accurate or complete, and, therefore, this report is subject to change without prior notice. Individual investment should be made based on each clients own judgment, and we expressly disclaim all liability for any investment decisions and any results thereof. This report is a copyrighted material of Hyundai Securities Co. and, thus, it may not be reproduced, distributed, or modified without the prior consent of Hyundai Securities Co. This report is not prepared for academic purposes, and any third party wishing to quote from it for academic publications should receive the prior consent of Hyundai Securities Co.

10/6

HYUNDAI Research