Samsung’s Next Cash Cow Could Be This $8B Contract Drugmaker
Samsung can’t seem to catch a break. Just a month after causing the biggest disaster in smartphone history, the tech giant had to recall almost 3 million of its washing machines in the United States after reports of tops detaching during use and risking injury. And just on Tuesday, the South Korean company’s headquarters in Seoul were raided by prosecutors as part of a political scandal probe of President Park Geun-hye.
This week, Samsung is welcoming some better news.
On Thursday, the conglomerate’s contract drug-manufacturing arm will go public on Korea’s main bourse Kospi, and is set to be one of the country’s biggest IPOs ever. Samsung BioLogics said it would sell 16.5 million shares, and after pricing its initial public offering at the top end of its range, at 136,000 won ($123.17) a share, the company is on track to raise around $2 billion, valuing the contract drugmaker at about $8 billion.
Samsung, one of the most diversified conglomerates in the world, had its eyes on biopharmaceuticals for a while. It named the industry as one of its five future engines of growth back in 2010, together with electric vehicle batteries, light-emitting diodes, medical equipment and solar batteries, and said it will inject about 23 trillion won ($21.7 billion) into the new growth drivers by 2020.
Out of the five industries, biopharmaceutical is the least related to Samsung’s expertise of electronics and semiconductors. The tech giant venturing into unfamiliar territory is even more surprising considering Samsung has stepped up efforts to streamline its business focus, selling its chemical units to rival Lotte Group in October last year.
But Samsung seems confident it can be a top contract drugmaker as it does have experience as a contract manufacturer, making smartphone chips for the likes of Apple andQualcomm. Samsung is confident enough to take on the global pharmaceutical market, which is expected to grow up to $278 billion by 2020, with an annual growth rate of more than 8% on average, according to Evaluate Pharma, amid an aging population and the development of medical technology.
Samsung BioLogics said it aims to strengthen its presence in the rapidly growing global biopharmaceutical market by utilizing its world-class plant design and operation technology that maximizes production efficiency. The company was founded just five years ago and it’s already the third-largest contract drug manufacturer by production capacity. It’s set to be the biggest in 2018, when its third plant is scheduled to be completed, which is where half of the funds raised from the IPO will go towards.
The growth of Samsung’s biopharmaceutical arm comes at a time when the smartphonemarket is flat and getting more difficult to make profits. Samsung and its shareholders are hoping manufacturing drugs will be the conglomerate’s next cash cow.
John Kang, Forbes Staff