Argentina – South Korean bio-pharmaceutical company Celltrion's recent liquidation of its local subsidiary in Argentina has fueled speculation about a potential restructuring of its overseas business strategy, including in Latin America. With profitability of Latin American subsidiaries, which have suffered from chronic deficits, emerging as an urgent issue, some observers are suggesting Celltrion might be undertaking an overall adjustment of its international operations. Celltrion, however, has dismissed these claims, stating, "We merely closed a paper company that was not actually conducting business; there is no fundamental change in our overseas business direction."

 
Latin American Market Entry: Spearheading Biosimilar Expansion

The Celltrion Group actively entered the Latin American market in the late 2010s. Celltrion Healthcare, which was responsible for the sales of Celltrion products at the time, established local subsidiaries in Colombia and Chile in 2018, followed by additional entities in Argentina and Peru in 2019. The ownership structure involved Celltrion Healthcare holding a 100% stake in the Colombian subsidiary, which in turn held 100% stakes in the Chilean, Argentine, and Peruvian subsidiaries. After Celltrion absorbed Celltrion Healthcare, these Latin American subsidiaries naturally came under Celltrion's control.

In the late 2010s, Celltrion Healthcare focused on the Latin American market primarily with Truxima, a biosimilar to the blood cancer treatment 'MabThera.' In 2019, a Celltrion Healthcare official stated, "Most Latin American countries adhere to the principle of free provision of medicines, so governments, as the main purchasers of pharmaceuticals, prefer to buy medicines that can contribute to reducing health insurance expenditures." They added, "As Latin American countries' preference for biosimilars, which combine medical efficacy, safety, and price competitiveness, is growing, we planned to further strengthen our marketing activities through the establishment of additional subsidiaries to maintain the growth momentum of the Celltrion Group's biosimilars." This strategy was based on the understanding of the Latin American market's high demand for biosimilars and its characteristic government-led bulk purchasing.

 
Chronic Deficits: The Shadow Over Latin American Operations

Despite ambitious entry, Celltrion's Latin American operations have not yet yielded significant profits. Celltrion Colombia and its subsidiaries recorded sales of 27.9 billion KRW (approximately $20.5 million USD) last year but posted a net loss of 143.67 million KRW (approximately $105,700 USD). In the first quarter of this year, sales were 7.9 billion KRW (approximately $5.8 million USD) with a net loss of 1.2 billion KRW (approximately $882,000 USD), showing a decline in profitability despite increasing sales. Total sales from the Latin American region in the first quarter of this year amounted to 27.1 billion KRW (approximately $19.9 million USD), which is only about 3% of Celltrion's total consolidated sales of 841.9 billion KRW (approximately $619 million USD) for the same period. This indicates the negligible contribution of Latin American operations to Celltrion's overall revenue. Particularly, due to the nature of bio-pharmaceuticals, initial investment costs are high, and the market structure, which is centered around government tenders, leads to fierce price competition, making profitability difficult to secure.

Against this backdrop, it has been confirmed that Celltrion recently liquidated its local subsidiary in Argentina, 'Celltrion Healthcare Argentina.' A Celltrion official explained, "The Argentine subsidiary was set up as a paper company to be utilized later if there were any plans, but it was never actually operated." They added, "We had planned to liquidate the Argentine subsidiary before, but it was postponed due to other pending issues." This stance suggests it was merely the 정리 (tidying up) of a dormant, non-operating entity.

 
Continuing Losses in Overseas Subsidiaries, Raising Possibility of Business Adjustment

However, some view the liquidation of the Argentine subsidiary as a sign that Celltrion might be adjusting its overall overseas business structure. This is because not only the Latin American subsidiaries but also local subsidiaries in Europe and the United States are struggling with deficits. Celltrion Hungary, 'Celltrion Healthcare Hungary,' and its subsidiaries recorded a large net loss of 165.6 billion KRW (approximately $121.8 million USD) in the first quarter of this year. As the Hungarian subsidiary has multiple European local subsidiaries under its umbrella, the overall sluggishness of the European market is presumed to have had an impact. Celltrion's US subsidiary, 'CelltrionUSA,' also continued to post losses, recording a net loss of 25.6 billion KRW (approximately $18.8 million USD) in the first quarter of this year. It is also known that some of the Hungarian subsidiary's sub-subsidiaries, like the Argentine entity, have no substantive role, leading to speculation that additional subsidiary closures could occur.

A Celltrion official added, "The Colombian subsidiary serves as the control tower for the Latin American region. The liquidation of the Argentine subsidiary will not bring about a change in our Latin American business." According to Celltrion's explanation, this implies that only unnecessary entities that do not affect actual business operations have been liquidated, and the broad framework of overseas business remains unchanged. However, with the Argentine subsidiary's liquidation, the prevailing assessment is that it will be difficult to expect a major expansion into the Argentine market in the future.

 
Celltrion Eyes Southeast Asian Market

Amidst these developments, Celltrion's establishment of a local subsidiary in Indonesia this year is noteworthy. Until now, Celltrion had no particular business ties with Indonesia. The only significant event was the emergency use approval of its COVID-19 antibody treatment 'Regkirona' by the Indonesian Food and Drug Authority in 2021. However, it is reported that interest in the Indonesian market has significantly increased recently. Celltrion also signed a product distribution agreement with a local pharmaceutical company in Indonesia last year. This has bolstered predictions that Celltrion will focus more on the Southeast Asian market than on the Latin American market in the future.

Not just Celltrion, but the entire South Korean business community is showing keen interest in the Southeast Asian market. Its population of hundreds of millions and rapidly growing economies make Southeast Asia an attractive market. Indonesia, in particular, is a massive market with a population exceeding 280 million. Celltrion already has local subsidiaries in the Philippines and Vietnam. The Philippine subsidiary recorded sales of 1 billion KRW (approximately $736,000 USD) and a net profit of 200 million KRW (approximately $147,000 USD) in the first quarter of this year, while the Vietnamese subsidiary achieved sales of 51.48 million KRW (approximately $37,800 USD) and a net profit of 1.07 million KRW (approximately $787 USD). While the amounts are not large, recording a profit in an overseas business environment where many subsidiaries are in deficit is encouraging. Especially considering that the Vietnamese subsidiary was established last year, its profitability despite being in its early stages of business suggests future growth potential.

A Celltrion official explained the establishment of the Indonesian subsidiary as "part of efforts to enhance the influence of Celltrion products in the Southeast Asian market" but also drew a line, stating that "the specific business direction has not yet been confirmed."

 
Diversification of Overseas Market Strategy and 'Selection and Concentration'

Celltrion's liquidation of its Argentine subsidiary and establishment of an Indonesian subsidiary might imply more than just a simple restructuring of entities. It can reasonably be interpreted as part of a 'selection and concentration' strategy aimed at reallocating resources by withdrawing from less profitable markets or enhancing efficiency, and shifting focus towards emerging markets with high growth potential.

Particularly, the bio-pharmaceutical market requires a deep understanding of local markets and tailored strategies, as regulatory environments, health insurance systems, and government procurement methods vary significantly by country. While the Latin American market faces challenges in securing profitability due to high price sensitivity and a government-centric tender structure, the Southeast Asian market is an area expected to see increasing demand for pharmaceuticals driven by gradual economic growth, expanding medical infrastructure, and a growing middle class.

In the long term, it remains to be seen whether Celltrion can strengthen the profitability of its overseas businesses and establish a stable growth foundation through customized strategies that consider the characteristics of each regional market. Whether this restructuring of overseas operations, which prioritizes strengthening internal capabilities over mere outward expansion, will succeed will significantly impact Celltrion's future global competitiveness.

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