HONG KONG – Newly capitalized, thanks to an IPO of its contract drug manufacturing arm that surged on its first day of trading, South Korea's Samsung Group is now looking to take a larger slice of the global biotechnology market pie.
In one of the largest and most-watched biotech offerings this year, Samsung Biologics Co. (KS:207940) raised $2 billion. Perhaps riding a rebound in markets across Asia on the day after Donald Trump's election win in the U.S., the stock rose as much as 8 percent on Nov. 10. The stock ended the day at KRW144,000 (US$124.85), up 6.67 percent.
Fund managers attributed the gains to the market-wide surge for drug companies. Trump's presidential win has removed some uncertainties and perceived risks for the industry caused by Hillary Clinton's stance to lower drug prices.
The IPO was an important move for Samsung, which continues to diversify from the group's battered core electronics businesses. Samsung has taken a major hit from the widely publicized overheating and explosions of its Galaxy Note 7. (See BioWorld Today, Aug. 17, 2016.)
Samsung Biologics plans to use its fresh capital to complete a $740 million biologics manufacturing plant in South Korea to work alongside two existing plants in Incheon's Songdo district. The new facility will have a capacity of 180,000 liters and is expected to be completed by September 2018. Samsung manufactures drugs for major pharmaceutical multinationals, including Bristol-Myers Squibb Co. and Roche Holding AG. (See BioWorld Today, Dec. 24, 2015.)
Biologics may be the group's future, according to Kim Tae-han, president and CEO of Samsung Biologics, who spoke at the Nikkei Global Management Forum in Tokyo this week.
"The global economy has been led by IT and electronics companies for the past 40 years. However, in the next 40 years, the global economy may be led by health care and biotechnology," he said. "It's exactly the reason why Samsung has selected the sector as its new growth engine."
Samsung's aggressive strategy to further expand its health care and biotech business is in line with South Korea's vision for the country's medical sector.
"The pace of global expansion of South Korean health care companies over the next five years will decide whether South Korea achieves its ambitious goal of being among the world's top seven powerhouse for pharmaceuticals and medical devices by 2020," noted the Economist Intelligence Unit (EIU) in a new white paper on South Korea's health care sector.
"South Korean companies can build on their current capabilities and market presence to multiply growth by expanding laterally through complementary businesses and vertically into higher-value market segments."
That seems to be exactly what Samsung is doing.
A GLOBAL BRAND
The brand is still mostly known for its electronics but was able to become a global leader in biopharmaceuticals in only five to six years. Kim attributed that to the company's decades of expertise in building factories for advanced semiconductors and petrochemical products.
"We could build the plants much faster than any other company in the world," said Kim. "While the biotech industry spends an average of 50 months to build one plant, we at Samsung can do that in only 25 months."
However, some analysts think Samsung Biologics may have overpriced its shares and question whether the company is really worth the $8 billion that the IPO price suggests.
The company has not been profitable. In the first half of this year, it had a net loss of $65.9 million. In 2015, it reported $176.6 million in operating losses.
Nevertheless, the company, now ranked third worldwide, is on its way to becoming the world's largest contract maker of biologics by 2018. By then, it is projected to account for 34 percent of global output and capacity.
"Conglomerates with a strong global brand, such as Samsung, can leverage the wide brand appeal and awareness that they have built in other verticals to promote their medical device and pharmaceutical offerings," noted the EIU white paper. "Through its mobile devices, Samsung has established a positive brand perception across Asia, occupying [a] top spot in the minds of consumers in Southeast Asia's fastest-growing health care markets. This can help it to anchor brand-building efforts with a more specialized audience in other areas of the business."
One such example of a niche market in South Korea is ultrasonic imaging systems, which account for 30 percent of the country's medical device exports. Samsung is again the leader in that arena.
Samsung Bioepis, the tech titan's biosimilars unit, is also preparing to launch its Humira biosimilar SB5 in the US. Humira (adalimumab, Abbvie Inc.) is used to treat rheumatoid arthritis and Crohn's disease. Phase III trials for Samsung's drug have been completed and the company is expected to apply for regulatory approval from the FDA. In July, the EMA accepted SB5 for review.
According to Samsung estimates, the global biologics market is set to rise to $314.8 billion by 2020 from $204.8 billion in 2015. Annual market growth for biologics is forecast at 9 percent.
However, policies that president-elect Trump announces may impact trends. Any hit to the Asian market might slow down Samsung's ability to cement its global status in health care and biotech. (See BioWorld Today, Nov. 10, 2016.)