Samsung BioLogics disproves skeptics with manufacturing gamble
Kim Tae-han
CEO of Samsung BioLogics
Kim Tae-han is the CEO of Samsung BioLogics, which started with just 30 employees in 2011 and under his leadership became the largest biopharmaceutical contract manufacturing organization in the world in seven years.
Success stories with multi-billion-dollar blockbuster drugs have made pharmaceutical firms around the world obsessed with developing new drugs. Many of them believed this was the only way to compete in the market dominated by only a few.
When Samsung BioLogics announced in 2011 that it will concentrate on manufacturing drugs rather than continue to pour money into the “blockbuster fantasy,” skeptics dismissed its strategy, saying it will never become a global player as a mere drug factory.
But those who bet against the company and its CEO Kim Tae-han couldn’t be any more wrong. Samsung BioLogics, which started with just 30 employees in 2011, is now set to become the world’s largest biopharmaceutical contract manufacturing organization (CMO) by 2018. With a manufacturing capacity of 360,000 liters, Samsung BioLogics is expected to surpass current segment leaders Lonza (260,000 liters) and Boehringer Ingelheim (240,000 liters). Following the company’s decision to list its shares on the Korea Exchange in 2016, analysts estimated its potential market value to reach over 10 trillion won ($9.2 billion) and its offering size to be around 3 trillion won.
This significant market potential was something unimaginable for many people, including those within the company, a few years ago. “When I brought up the business idea as a future growth engine for Samsung Group, no one liked it,” Kim said in an interview. “So I had to convince my boss and coworkers by explaining how the business model can reshape the future of Samsung.” He first categorized the pharmaceutical business into four parts of the value chain — discovery, development, manufacturing and marketing — and decided to focus on what Samsung does best, and get out of areas in which it is weak. “Think about it. Companies like Pfizer invest billions of dollars every year for drug discovery and development, which is far more than that of the entire Korea.
Moreover, they have the know-how they had accumulated for decades, as well as some of the world’s most renowned researchers. I could not see any ways to compete with them in the areas. Marketing seemed unnecessary until the company becomes big enough,” Kim said. “So the answer was clear.” Kim had confidence in Samsung’s know-how in plant construction and operations. Also, as a former executive at Samsung Total Petrochemicals (the predecessor of Hanwha Total Petrochemicals), which manufactured building block chemicals, he understood the field well. This business strategy may have been a surprise for outsiders, but for Kim, who has been a “Samsung Man” since 1979, it was a sure-fire formula for success. He saw how Samsung, which began producing black-and-white televisions in 1970, grew into a global electronics colossus with its solid manufacturing base. Nevertheless, critics are right that Samsung BioLogics seems too lightweight to shoulder the future of Samsung Group, Korea’s largest conglomerate and one of the world’s most valuable business entities. But Kim said building the world’s biggest and best manufacturing facilities for biologics is the beginning, not the end, of the company’s plans for the 21st century. With its manufacturing base, he noted, Samsung BioLogics can go on to develop biosimilars, or generic versions of biologics, and even new drugs. Samsung Bioepis, a biosimilar developer owned by Samsung BioLogics, has already won approval from the European Commission for its version of Enbrel, a blockbuster rheumatoid arthritis drug. It is now working to obtain approval from the European regulator for its version of Remicade, another popular rheumatoid arthritis drug. “Samsung BioLogics won’t remain only as a manufacturing powerhouse. The company will continue to expand its value chain,” Kim said. “Ultimately, in collaboration with Samsung Medical Center and Samsung Electronics, Samsung BioLogics will create tremendous value in the healthcare industry, which is expected to be central to a new era. The day may not come in my time, but it will come.”
Exceeding expectations
Two trends have strengthened Kim’s optimism about the future of drug manufacturing: the aging populations in the developed world and biopharmaceutical industry outsourcing. The former indicates a greater demand for drugs in general, and the latter suggests bigger opportunities for the companies with better capabilities and greater capacities. “Since I was confident about the future of biopharmaceutical contract manufacturing, we made a brave move to break ground for Samsung BioLogics’ first manufacturing plant in 2011, which was the worst year in terms of demand for contract manufacturing,” Kim said. The 30,000-liter plant is about the average size of 200 other plants across the world. But industry observers were surprised when the company completed it in just three years — the shortest construction time for any drug manufacturing plant in the world. “Before us, no other company completed plant construction in five years,” he said. “Many took more than seven years. So it was remarkable news for the industry.” The secret was to make progress in the different construction stages simultaneously, unlike other firms that worked on each stage one-by-one. But without any track record, the company had initially difficulties getting clients. “Twenty-eight of the 30 companies we contacted rejected our offers. But we eventually earned the trust of Bristol-Myers Squibb (BMS) and Roche-Genentech,” Kim said. “They visited our facilities and talked with our workers and made a groundbreaking 10-year contract sometime in 2013.” The deals immediately prompted Samsung BioLogics to build its second plant. The plant was initially planned for a capacity of 90,000 liters, but engineers later figured out how to make it for 150,000 liters, which would exceed the capacity of the world’s biggest (90,000 liters) at that time. “It was so shocking that our clients could not believe it was possible. One high-ranking official even warned me not to trust everything that my engineers told me,” he said. “So we had to facilitate a roundtable discussion to explain how it can be done in reality.” In 2015, the second plant was completed as planned and began operations earlier this year. Shortly thereafter, Kim announced a plan for a 180,000-liter third plant that would be able to run without regular maintenance shutdowns. This time, no one doubted him.
‘I’m a businessman’
After leaders at Samsung Group gave Kim a critical mission to find its future growth engine in 2007, they expected him to suggest the energy industry, which appeared to be booming at that time. But after contemplating for about two years, he chose the life sciences industry, not because it would be most meaningful but because he believed it would be most profitable. Since the decision was officially announced, many scientists have contacted him with grand plans for the development of a new drug, saying this is the job he should do to as the leader of Samsung’s life sciences firm. He disagreed. “I’m a businessman,” Kim said. “My most important job is to create profits for my employees and investors. Of course we can do much more, if we continue to grow. But we cannot jump in and follow in the footsteps of many other companies that have failed.” Grand plans do not always guarantee success. Ask any major company that failed. For Kim, this is an opportunity to prove that Samsung BioLogics can thrive first before achieving something grand (or grander).