Samsung
Group transformed its electronics unit into the world’s largest smartphone
maker by outselling Apple
Inc. (AAPL) Now
it’s setting sights on the drug industry.
South
Korea’s biggest company is investing at least $2 billion in biopharmaceuticals,
including the growing segment of biosimilars, which are cheaper versions of
brand-name biotechnology drugs that have lost patent protection.
Samsung,
with $327 billion annual revenue, aims to become a major force in
biotechnology, an industry expected to generate sales of more than $220 billion
in five years. With the electronics market reaching saturation, billionaire
chairman Lee Kun Hee has been investing in new areas that might shore up growth
for the family-controlled company.
“We
are in an infancy still,” Christopher Hansung Ko, chief executive officer at
the Samsung Bioepis unit, said in an interview. “We are a Samsung company. Our
mandate is to become No. 1 in everything we enter into, so our long-term goal
is to become a leading pharmaceutical company in the world.”
At
the heart of those plans are biosimilars. Samsung plans to sell its first
biosimilar version of Amgen
Inc. (AMGN)’s
arthritis therapy Enbrel in 2016 in Europe and a version of Johnson &
Johnson (JNJ)’s
Remicade treatment for autoimmune diseases in 2017, according to Ko. A separate
unit called Samsung Biologics Co. has contracts to manufacture biologic
medicines for branded pharmaceutical companies.
Larger Competitors
As
it expands in biosimilars, Samsung faces competitors including Pfizer Inc. (PFE) and Amgen, regulatory hurdles and
an undeveloped market. While Europe and Japan have allowed biosimilars, the U.S. has yet to
set specific guidelines or approve any drugs in that class.
U.S.
regulators are considering a variety of issues, including what research will be
required to permit the cheaper therapies to be substituted at pharmacies for
the original drugs. Producing exact copies is harder than making traditional
generic pills because factors including temperature can affect the product.
Companies
haven’t made much money with biosimilar drugs because most products remain
under development and the U.S. market is untapped, said Giles Somers, an
analyst at Datamonitor Healthcare.
$24 Billion
The
industry’s sales may expand to $24 billion in 2019 from $1.2 billion last year,
and markets including the U.S. may grow “exponentially” after regulations are
set, consulting company Frost & Sullivan said in January.
The
company’s history highlights Samsung’s competitive spirit. Founder Lee Byung
Chull started with 40 employees in 1938, exporting rice, noodles and produce.
His son, chairman of Samsung Electronics Co. and South Korea’s richest man,
pushed the unit to become Asia’s biggest technology company.
Over
the years, Samsung invested heavily in mastering manufacturing processes. In
the 1960s, engineers at its electronics subsidiary pulled apart Sony
televisions to see how they were made. Its flat-screen TVs then struck a blow
against Tokyo-based Sony Corp., Panasonic Corp. and Sharp Corp.
Mobile Phones
Samsung
introduced its first Android-powered Galaxy S phone in 2010 and flooded the
market at different prices before taking the top place from Apple.
Biosimilars
are often follow-on versions of expensive drugs for conditions such as cancer
or arthritis, and are big revenue generators. Amgen’s Enbrel, for instance,
treats autoimmune diseases including arthritis and the skin condition
psoriasis.
Samsung
Biologics, set up with Quintiles
Transnational Corp. (Q), agreed in October to make proprietary biologic medicines for a Roche (ROG) Holding AG unit. It also has a
partnership with Bristol-Myers Squibb Co.
Samsung
Bioepis, a venture with Biogen
Idec Inc. (BIIB),
is developing other biosimilars, including versions of Roche’s Herceptin breast
cancer treatment and Sanofi’s Lantus diabetes drug, according to Ko.
Always Open
While
Samsung is “always open” to making deals, Ko said companies usually have to
develop their own biosimilars.
“I
can’t simply go and buy a biosimilar product,” he said. “It’s something that
you have to do on your own, so it’s difficult. In my particular work, it’s hard
to acquire a company and grow that way.”
Lee
Jin Woo, a Seoul-based senior fund manager at KTB Asset Management Co., isn’t
convinced the group can succeed in health care because the industry is highly
specialized and requires deep scientific knowledge.
“It’s
not something you can do easily just by speeding up manufacturing with big cash
on hand,” he said.
Samsung
has compensated through partnerships, including with Merck & Co., that
bring in manufacturing, regulatory, and marketing clout, said Asthika
Goonewardene, pharmaceutical analyst at Bloomberg Industries.
Government Help
South
Korea’s government is encouraging local companies to expand in biosimilars by
offering programs to support exports and providing guidance for overseas
licensing and regulations.
Celltrion
Inc. won European approval to sell copies of Johnson & Johnson’s Remicade
last year. Hanwha Chemical (009830)
Corp.’s version of Enbrel is expected to be reviewed by South
Korea regulators and commercialized by a multinational company, Paul Coleman,
CEO of its biologics unit, said in an interview.
Any
impact to the industry from biosimilars will depend on factors including the
level of clinical data required, local reimbursement decisions and whether or
not interchangeability is permitted, J&J said in an e-mail.
Amgen,
which is working on types of biosimilars, said in an e-mail that development
can be a “scientifically challenging and capital intensive process.”
Samsung
said it expects to generate more than 1.8 trillion won ($1.8 billion) a year
from biopharmaceuticals by 2020.
“We
have an outstanding pedigree of being able to innovate an old process to a new
process in order to improve in another sector, so we apply that principle,” Ko
said. “I can’t see a reason why we aren’t going to be successful.”