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Insight & Intelligence : Mar 21, 2011
High-Tech Companies Buy Into Biomanufacturing
Samsung and Fujifilm believe such high-investment diversification will help business.!--h2>
Do high-tech conglomerates really know what they’re in for when they venture into biopharmaceutical development and manufacturing? Experienced or not, two large companies plan on entering the comparatively exotic world of biotech. Samsung established a joint venture (JV) with Quintiles, and Fujifilm bought Merck’s production operations.
In February Samsung reported plans to set up a KRW 300 billion (roughly $263.9 million) JV with Quintiles Transnational for the contract manufacture of biopharmaceuticals. They expect the JV to eventually make biosimilars and original biologic products to be developed by the diversified South Korean conglomerate.
That same month Japan’s Fujifilm picked up Merck & Co.’s contract manufacturing facilities in an acquisition said to be worth $490 million. Fujifilm gains all the equity interest in both Diosynth and MSD Biologics, including facilities in North Carolina and Northeast England, manufacturing business support operations, and workforce.
Some analysts are enthusiastic about these moves, while others believe the companies see only upside and don’t recognize the significant challenges associated with biologic manufacturing.
In Samsung’s deal, Quintiles will make a 10% investment of about $30 million in setting up a biopharmaceutical manufacturing plant in the Songdo district, near Seoul. Samsung anticipates selling its first biologic drugs manufactured at this facility by 2013. The plant will be equipped with an 8,000-gallon mammalian cell culture bioreactor capable of producing 1,300 lbs. (600 kg) of biopharmaceutical products. Samsung will own the remaining 90% of the JV.
In May of 2009, Samsung announced plans to invest KRW 23.3 trillion (about $20.5 billion) in new businesses over the next 10 years, targeting solar cells, rechargeable cells for hybrid electric vehicles, LED technologies, biopharmaceuticals, and medical devices. The conglomerate said at the time that it would invest KRW 2.1 trillion (almost $1.85 billion) in biopharmaceuticals, including a significant investment in biosimilars.
The joint venture with Quintiles represents Samsung’s first step into the biopharmaceutical business. The JV will support Samsung’s drug development efforts other than those focused on oncology.
As for the Fujifilm-Merck deal, it gets Merck out of the contract biologics business. Merck will retain some upside in the deal according to Willie A. Deese, evp and president, Merck manufacturing division, as it continues to hang on to potential revenues with Fujifilm as a customer.
By all reports, although unconfirmed by Fujifilm, the deal cost $490 million for Merck’s business, which had estimated annual sales of about $160 million. The acquisition marks Fujifilm’s biopharmaceutical contract manufacturing debut but its second deal in the area of drug R&D. The company is likely targeting this industry in an attempt to counteract rapidly waning demand for its photo film and paper business. Fujifilm reported a decrease of 16% last year in the sales of digital cameras, color films, and imaging solutions.
The company has said that it plans on tripling its size over the coming decade and moving into a highly profitable and growing market. The market for drugs and biologic vaccines is projected to increase at a rate of 15% each year in the coming decade. Fujifilm initially entered the pharmaceutical business by buying a majority stake in Japan’s Toyama Chemical that makes over-the-counter products but whose main draw is an experimental avian influenza medicine, T-705. Toyama became a consolidated subsidiary of Fujifilm in March 2008.
While some analysts think the deal for Merck’s biomanufacturing businesses is a risky bet, others say it provides a lifeline for Fujifilm’s sinking financial fortunes. “Fujifilm is planting seeds in healthcare for future growth as its existing digital cameras and film material businesses are dwindling,” said Kogo Horie, an equities analyst at Daiwa Securities Group, in Businessweek. “The purchase makes sense.”
South Korea an Advantage
Samsung may have struck the better deal. It doesn’t have to go its foray into biomanufacturing alone. One reason for its bet on biologics is that both the company and the government of South Korea are partners in the enterprise.
Samsung says it will pursue other biotech deals in 2011 and will eventually try to produce its own drugs after gaining experience through its joint venture with Quntiles. The company’s evp Kim Tae Han said his company hopes to generate $1.8 billion in revenue from biopharmaceuticals by 2020. Furthermore, the South Korean government said it planned to achieve 22% market share by 2015 of the estimated $14.5 billion biosimilars market.
The South Korean government is putting its money where its mouth is by providing ongoing financial and institutional support for industry and naming biosimilars a “core green” industry. The country has also reportedly had a receptive regulatory climate for biosimilars since early 2009. In July of that year, Samsung said it would invest $389 million in biosimilars over the following five years.
2009 also saw success with the clinical development of TuNEX®, a biosimilar version of Amgen and Wyeth’s rheumatoid arthritis and psoriasis drug Enbrel (etanercept). Taiwanese drug development company Mycenax Biotec produced TuNEX under an agreement between U.S.-based Hospira and South Korea’s Celltrion for development and marketing of eight biosimilars. Mycenax reported that iTuNEX successfully completed a Phase I trial in South Korea and a Phase I/II trial in Taiwan.
While some companies may perceive buying into biotech as a way out of their revenue woes, a concerted plan supported by government investment as well as a favorable regulatory climate bolstered by strategic acquisitions is needed to support the successful development of biosimilars. Concerted planning will also mitigate risk to corporations who take the biosimilars plunge.
Patricia F. Dimond, Ph.D. ([email protected]), is a principal at BioInsight Consulting.
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