Samsung BioLogics in Talks for 15 Contracts Amid Pharma Boom

  • Samsung BioLogics is contract manufacturer for drug industry
  • Biologics unit began trading last year after Korean IPO

Samsung BioLogics Co., an arm of South Korea’s biggest conglomerate, said it is in negotiations to manufacture drugs for more than 15 international pharmaceutical companies as it tries to expand in the growing industry for complex biologic medicines.

The talks mostly involve U.S. and European firms, Chief Executive Officer Kim Tae-han said in an April 19 interview at the company’s headquarters in Incheon. Winning any of those contracts would be a boost for the drug manufacturer, which started trading last year and currently has agreements with about six clients -- including Switzerland’s Roche Holding AG and U.S.-based Bristol-Myers Squibb Co. -- for nine different products.

Kim Tae-han

Photographer: SeongJoon Cho/Bloomberg

“Our vision is to try and satisfy our clients more than their in-house manufacturing,” Kim said.

The expansion of Samsung BioLogics comes at a time of heightened pressure on Samsung Group, which diversified into health care in recent years to help reduce a dependence on mobile phones and other consumer electronics. Samsung Electronics Co. is trying to recover from a costly smartphone recall, and Vice Chairman Jay Y. Lee is in the middle of what South Koreans are calling “the trial of the century” for his alleged involvement in a corruption scandal that helped topple the country’s former president. Both Lee and Samsung have denied wrongdoing.

The market for biologic medicines, which are used for everything from cancer to arthritis, is projected to exceed $223.7 billion by 2021, according to a Bloomberg Intelligence analysis. The Samsung drug unit mass produces biologic medicines, or complex therapies made of live substances, for global drugmakers.

Samsung BioLogics shares climbed as much as 4.1 percent to 191,000 won on Friday in Seoul before closing 1.9 percent higher.

Samsung BioLogics faced its own controversies in South Korea, and it has been mentioned in court hearings involving Lee.

On March 31, Lee’s lawyers said the de facto head of Samsung Group didn’t ask former President Park Geun-hye for help in listing Samsung BioLogics shares when he met her. The Samsung BioLogics initial public offering came after a “strong” request from the Korea Exchange and had nothing to do with any Lee-Park meetings, the lawyer said.

Kim said his company could have listed on several exchanges, including the Nasdaq. He likened his company to newer ones like Tesla Inc., which might involve some risk in the beginning but still attract hordes of investors betting on future successes.

“For really promising high-tech industries, you have to spend a lot of money before generating a profit, right?” he said.

Kim Tae-han

Photographer: SeongJoon Cho/Bloomberg

Adding to the pressures, South Korea’s Yonhap news agency reported in March that the country’s Financial Supervisory Service would conduct a special audit on Samsung BioLogics. Kim said in the interview he was “100 percent confident in our bookkeeping standards.”

In 2015, Samsung BioLogics began building an 850 billion-won ($746 million) plant, its third, saying it wants to become the largest biologics contract manufacturer. That plant is expected to be finished by year’s end. The company considered building facilities in the U.S. but was deterred by the corporate tax rate, Kim said.

“If there is tax reform and the system changes dramatically, we could consider U.S. investment for more plants,” he said.

So far, Samsung BioLogics has been working with major pharmaceutical companies on products already on the market. But, with its plant coming online, it’s hoping to take on more experimental drugs and products in development. The potential customers in discussion represent a more diverse base, including biotechnology firms that are making experimental products, Kim said, without identifying them.

The contract process can take 12 to 18 months, and they can often extend to 500 pages and cover terms for a decade, Kim said.

Manufacturing biologics demands heavy capital investment to build specialty facilities, and pharmaceutical companies can be reluctant to build their own plants, given the capital expenditure and uncertainty if the drug isn’t approved. Switzerland’s Lonza Group AG and Germany’s Boehringer Ingelheim GmBH are among the biggest contract manufacturers of such drugs.

Samsung C&T Corp. and Samsung Electronics Co. are major shareholders in Samsung Biologics. The group’s other major health-care unit is Samsung Bioepis Co., which is focused on developing biosimilar drugs, which are cheaper versions of biologics.

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