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Insight & Intelligence™ : Apr 2, 2013

Electronics Giants Set Sights on Biotech

Samsung, Sony eye life-sci’s higher growth as consumer electronics sales flatten.
  • Alex Philippidis

After spending decades trying to outdo each other in consumer electronics, Samsung and Sony have expanded their rivalry over the past year to the life sciences.

Sony DADC, the Japanese giant’s discs and digital unit, said March 18 it will use its manufacturing prowess to create Organs-on-a-Chip with the Wyss Institute for Biologically Inspired Engineering at Harvard University. The “organs” are actually clear, flexible polymer-encased devices about the size of a computer memory stick, containing hollow microfluidic channels lined by living human cells of a given organ.

A month earlier, Samsung Bioepis—a Samsung-Biogen Idec biologics joint venture—said it would collaborate with Merck & Co. to create “multiple pre-specified” undisclosed biosimilars. The collaboration follows separate biosimilars failures by Samsung and Merck in recent years.

Biologics is one engine eyed by Samsung for future growth. Another is medical equipment products. The other growth engines are medical equipment, car batteries, solar energy, and light emitting diode display panels. Should all five specialties succeed, Samsung expects to generate some 50 trillion won (about $45 billion) in new revenue by 2020.

Also looking to life-sci for future growth is Sony. Soon after succeeding now-chairman Sir Howard Stringer as CEO last year, Kazuo Hirai said its medical business—which includes biotech instruments for flow cytometry, but is anchored on chip, imaging, and sensor technologies—could grow into a “business worth 100 billion yen (about $1 billion) in the mid- and long-term.”

Sony, which is scrambling to reverse years of red ink, houses a Biotechnology unit looking beyond its traditional strengths in advanced flow cytometry analysis and sorting technology. Lew McAllan, Sony Biotechnology’s vp for marketing and distributor operations, told GEN recently Sony is developing a spectral analyzer that will allow simultaneous analysis of overlapping fluorochromes, providing at least 14-color analysis for two standard lasers, by virtue of a 32-channel PMT and deconvolution algorithms in software.

Then there’s Sony DADC, whose BioSciences division uses the company’s high-precision manufacturing, mass production capability, and supply chain expertise for medical tech and biotech customers such as Wyss. The institute will join with DADC in commercializing the more than 10 Organs-on-Chips currently under development.

The pipeline includes lung-, heart-, gut-, kidney- liver-, bone marrow-, skin- and blood-brain barrier-on-chip. First developed was lung-on-chip, through which Wyss Institute and partner GlaxoSmithKline modeled pulmonary edema-on-chip and demonstrated the effect of pharmacological agents in a paper published November 7, 2012, in Science Translational Medicine.

The partners will also connect the organ chips through an automated instrument into a larger “human body on-chips” designed to study complex human physiology and response to drugs outside the body.

“The instrument would fluidically link the organ to the other chips in 10 other cartridges, and pump a ‘blood substitute’ through the 'vascular channels' to keep the organs viable and to link them physiologically like in our bodies, while allowing real-time analysis of cellular and biochemical functions,” Geraldine A. Hamilton, Ph.D., senior staff scientist at Wyss Institute, told GEN. “We will then be able to inject a drug and see how blood levels change as a result, for example, of being metabolized by the liver chip and cleared from the body by the kidney chip, while measuring toxicities in the heart chip.”

The technology has been funded by the Defense Advanced Research Projects Agency (DARPA), NIH, and FDA.

New Ventures in Life Sci

Winny Tan, Ph.D., industry analyst, drug discovery technologies and clinical diagnostics with Frost & Sullivan, told GEN Samsung and Sony are looking to tap into life-sci’s greater potential for growth than consumer electronics. Consumer electronics spending fell 1% last year, and is only projected to rise 4% this year due to smartphone and tablet sales, according to the Consumer Electronics Association.

By contrast, 31 U.S. labs surveyed by Goldman Sachs during the fourth quarter spent 5% more on life sciences tools compared with Q4 2011—though uncertainty over sequestration lowered the percentage from 8% year-over-year during Q3.

“Both Samsung and Sony have found it really challenging to continue growing in their core competencies, so they are looking for other opportunities. Also, there is pressure to diversify, to develop multiple markets,” Dr. Tan said. Sony, for example, sought to expand its medical imaging business when it took an 11.5% stake or ¥50 billion (about $529 million) stake in Olympus toward a joint venture set to launch in April.

“Also, just from a technical aspect, these electronic companies have similar manufacturing processes that can translate well to medical devices, such as those in microfluidics, and those that are point-of-care disposable devices,” Dr. Tan added.

Samsung and Sony representatives did not respond to e-mailed questions from GEN.

Samsung joined with Quintiles to form Samsung Biologics in April 2011. A month later, the unit broke ground for a KRW* 330 billion (about $298 million) manufacturing plant west of Seoul, in the free economic zone of Incheon, South Korea. Samsung envisioned the unit as one of five future growth engines, rising to KRW 2 trillion (about $1.8 billion) in sales by 2020—compared with KRW 10 trillion (about $9 billion) for medical technology.

For Samsung, biologics development hasn’t been without its risks. Last October, the company halted development of a biosimilar version of the Roche/Biogen Idec lymphoma and rheumatoid arthritis drug Rituxan (rituximab)—just six months after Tae-Han Kim, president of Samsung Biologics, told the Financial Times the company planned to launch generic versions of biologics by 2015 at half of current prices.

Samsung never explained the decision, though numerous news reports speculated that the company was angered by the uncertain U.S. regulatory climate for approved biopharma copies of earlier-approved drugs. FDA has yet to finalize draft guidance issued in February 2012 for biosimilars.

Samsung is now trying, trying again in biologics. Last year, Samsung Biologics took an 85% stake in Samsung Bioepis, with the remainder held by Biogen Idec. Bioepis says its purpose is to create “affordable and high-quality biopharmaceutical and biosimilar products,” but has yet to say what drugs it is looking to develop, or for what indications.

In its latest collaboration, Samsung Bioepis will receive from Merck an up-front payment, product supply income, and additional payments tied to clinical and regulatory milestones. Samsung Bioepis will oversee preclinical and clinical development, process development and manufacturing, clinical trials, and registration, with Merck responsible for commercialization. Merck, too, is trying to bounce back from past biosimilar failures involving Aranesp, then Enbrel.

“I think they chose the most ambitious route,” Dr. Tan said. “They have the extra resources, and they’re really making this huge play because of the projected growth in biologics, and especially biosimilars.”

As in electronics, then, Samsung is taking a higher-risk route than Sony in expanding into biotech and broader medical technologies. But higher risk carries higher rewards. And Sony CEO Hirai has correctly diagnosed his company’s past play-it-safe approach as a key reason why not only Samsung but Apple has surpassed his company in bringing new products to market lately. While the types of customers and what they need may differ, the keys to success in life-sci aren’t too different from consumer electronics: Both Sony and Samsung will have to develop new technologies, commercialize them quickly, then sell their merits to industry and institutional labs.