Samsung looks beyond smartphones to next-gen biologics

A worker mops the floor of a bioreactor hall at the Samsung Biologics Co. plant 3 under construction in the Songdo district in Incheon

The Samsung brand is best known for its smartphones and wide-screen TVs. Yet behind the scenes, the conglomerate is also making a name as a contract manufacturer of complex medicines to treat diseases like cancer.

On a piece of reclaimed land along the western coast of South Korea, Samsung BioLogics Co. is building a USD740 million factory that will give it the capacity to become the No. 1 producer by volume of a class of drugs called biologics, many of which are derived from mammal cells.

The Samsung group diversified into the pharmaceutical sector in 2011. Now, it’s mobilizing its expertise in semiconductor making and engineering know-how to make the way biologics are produced on behalf of Big Pharma more efficient. 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.

Being a force in biologics is crucial to Samsung – and South Korea. Galaxy smartphones and other consumer electronics face intense competition from Apple Inc. and Chinese brands such as Huawei Technologies Co., and the chaebol is grappling with the arrest of de facto leader Jay Y. Lee in a scandal that brought down the country’s former president. Meanwhile, the broader economy needs new industries as shipbuilding and heavy manufacturing slow.

If the past 40 years of global economic growth were fueled by technology, said Kim Tae-han, chief executive officer of Samsung BioLogics, the next will be fueled by where that converges with health care.

Biologic drugs are grown from cells. That necessitates a more complex manufacturing process than typical pills – a mixture of chemicals – but makes biologics more effective and capable of being targeted toward certain diseases.

Samsung already is a contract manufacturer for some blockbuster drugs, including for Switzerland’s Roche Holding AG and the U.S.’s Bristol-Myers Squibb Co. It will take three years for the factory to ramp up to full capacity after being completed this year and opening at the end of 2018.

Globally, the drug industry produces 4 million liters of biologic drugs a year, and that’s projected to double by 2030. With its new plant, Samsung BioLogics is positioning itself to double its market share. Shares are up 24 percent this year to 187,000 won. That compares with a 13 percent increase in the benchmark Kospi index.

Samsung and other companies in the sector have benefited from the Korean government’s support of biopharmaceutical businesses. The Incheon Free Economic Zone offered Samsung BioLogics the factory land for 50 years without rent, the company said. New President Moon Jae-in railed against the chaebol during his campaign, but Samsung said in an email it expected him to boost the biopharmaceutical and health-care industries.

Nevertheless, Samsung faces some formidable competitors, who are also expanding. Switzerland’s Lonza Group AG and Germany’s Boehringer Ingelheim GmbH have long histories in the biologics contract manufacturing business, and Japan’s Fujifilm Holdings Corp. also entered the business. MDT/Bloomberg