Samsung Biologics announced on the 22nd that it will establish a holding company called 'Samsung Bioepis Holdings' (tentative name) by partitioning its subsidiary Samsung Bioepis. There are various interpretations in the pharmaceutical and bio industry, academia, and securities market regarding the splitting up of Samsung Biologics, which has a market capitalization nearing 80 trillion won.
This partitioning will completely separate the contract development and manufacturing organization (CDMO) of biopharmaceuticals and the biosimilars (copy drugs) business. As Samsung's investment in the bio business, which is seen as a future growth driver, continues to yield results, there are expectations that the two businesses will focus investments on enhancing their respective global competitiveness.
On the other hand, there are interpretations among academia and market experts that this is aimed at restructuring Samsung Group's governance. Although Samsung Biologics stated during an online briefing on the 22nd that this partitioning is unrelated to Samsung Group and is a measure for enhancing competitiveness, many find it hard to comprehend the reason for splitting up a well-performing company.
◇Strengthening global competitiveness… Samsung boosts its bio sector
In the pharmaceutical and bio industry, there are expectations that Samsung will increase its investment in bio to strengthen its capabilities with the launch of Samsung Bioepis Holdings.
Lee Seung-kyu, vice chairman of the Korea Bio Association, said, "It is not easy to develop new drugs based on manufacturing, so it is advantageous to go independent." He noted, "Through the holding company's listing, funds necessary for new drug development, including global clinical trials, can be secured, and Samsung Biologics can continue to invest through mergers and acquisitions (M&A), resulting in a large bio umbrella within Samsung Group, which is also beneficial for building an ecosystem."
Last year, Samsung Biologics became the first domestic pharmaceutical and bio company to join the '4 trillion club' for annual sales. The consolidated revenue for 2024 is expected to reach approximately 4.5 trillion won, an increase of about 23% from the previous year, while operating profit is projected to rise by about 19% to around 1.3 trillion won.
This growth was driven by both Samsung Biologics and its subsidiary Samsung Bioepis. Samsung Biologics has continued to secure CDMO contracts with various global pharmaceutical companies, while the increase in the range of biosimilar products developed and launched in the global market by Samsung Bioepis has expanded revenue and operating profit.
Samsung forecasts that the competitiveness of the CDMO and biosimilar businesses can be further strengthened through this partitioning. The newly established Samsung Bioepis Holdings aims to secure more than 20 types of biosimilar products to nurture Samsung Bioepis as the 'world's leading biosimilar company.'
The recent developments in Samsung Bioepis's new drug development achievements are also highly anticipated. The company's primary focus is currently on antibody-drug conjugates (ADCs) for cancer treatment. ADCs are a therapeutic technology that delivers drugs precisely to cancer cells by attaching them to antibodies.
Previously, Samsung Bioepis entered into a joint research contract with IntoCell, a domestic ADC development company, in December 2023. The contract's core is to develop up to five ADC candidate substances. It is reported that they will likely enter human clinical trials within this year. Basic research for new gene therapies for rare diseases is also ongoing.
Samsung Biologics also has significant growth potential. This company is currently evaluated as the world's fourth largest CDMO. It has secured a total of 17 out of the top 20 global pharmaceutical companies as clients. It appears that the company will aim for global leadership by transforming into a pure CDMO company through this spin-off.
Kwon Oh-in, Chief Financial Officer of Samsung Biologics, said, "Since Samsung Biologics and Samsung Bioepis have a parent-subsidiary relationship, clients perceive the two companies as the same entity, raising concerns about conflicts of interest. Through this spin-off and the establishment of a self-owned company, we can quickly respond to changes in the global order environment and quell concerns from clients and investors, allowing the company to be valued fully."
◇Securities market: “This could be the starting point for restructuring the group’s governance”
Samsung Group's governance restructuring has been stalled since the merger of Samsung C&T and Cheil Industries in 2015. There are also opinions suggesting that the establishment of Samsung Bioepis Holdings and its relisting are considerations for restructuring Samsung Group's governance.
Recently, Samsung Group's restructuring of its financial business sector this year and Lee Jae-myung, the presidential candidate from the Democratic Party of Korea, pledging to push for a revision of the commercial law and the principle of extinguishing self-owned stocks have strengthened this possibility. In light of the group’s structure, it is said that the establishment of Samsung Bioepis Holdings could increase the equity value of Samsung C&T, where Chairman Lee Jae-young is the largest shareholder.
Currently, as of the first quarter, the largest shareholder of Samsung C&T is Lee Jae-young, who holds 19.76% of the equity. Combined with the family's shareholdings, it reaches 36.02%. He also has 10.44% of Samsung Life Insurance equity, making him the second-largest shareholder after Samsung C&T (19.34%).
Recently, structural changes in Samsung Group began with the financial business sector. Samsung Life Insurance became the largest shareholder (71.86% share) of Samsung Card, after acquiring its stake on July 1 last year, and this year, Samsung Fire & Marine Insurance was incorporated as a subsidiary of Samsung Life Insurance. This resulted in a structure with Samsung Life Insurance at the top, leading to early speculation about the possibility of a financial holding company system transition within Samsung Group.
A source from the investment industry commented, "For Samsung Group to launch Samsung Life Insurance as a financial holding company, there are many hurdles to overcome. It seems they chose to establish a bio holding company as a relatively easier hurdle to tackle."
The market believes that transitioning Samsung Life Insurance to a financial holding company may not be easy. This is because there are more complexities to untangle compared to the bio sector. Subsidiaries such as Samsung Fire & Marine Insurance, Samsung Card, and Samsung Securities are all listed companies, and they face financial burdens, regulatory issues, and political pressures associated with the transition to a financial holding company.
If Samsung Biologics undergoes a spin-off, its largest shareholder, Samsung C&T, will proportionally hold equity in both the surviving company and the newly established Samsung Bioepis Holdings. There are also suggestions that, through the spin-off, Samsung C&T, which is at the top of the group’s governance, could secure funds for restructuring by selling some equity in Samsung Bioepis, rather than contributing it as an in-kind investment.
Kim Soo-hyun, a researcher at DS Investment & Securities, stated, "Samsung C&T could use part of the 23 trillion won equity value of Samsung Biologics by selling it externally rather than contributing it in-kind, to buy equity in Samsung Electronics." He added, "In the long run, it may also be possible to utilize the undervalued holding company stock price to purchase additional equity in Samsung Bioepis Holdings from Samsung Electronics."
◇Academia: “Establishing a holding company to prepare for loss of control”
There are analyses suggesting that the establishment of the Samsung Bio holding company and its partitioning serve the purpose of 'defense against loss of control.'
Hong Gi-yong, a professor at the University of Incheon, noted, "The spin-off can be viewed as serving the purpose of strengthening business competitiveness emphasized by Samsung, but it can also be seen as a governance objective. It appears that the purpose is more about 'defensive management against loss of control' than 'strengthening control' for Chairman Lee Jae-young."
Professor Hong explained that if the commercial law amendment proposed by presidential candidate Lee Jae-myung is enacted, Samsung Life Insurance's voting rights related to Samsung Electronics will diminish, preventing Chairman Lee from completely controlling Samsung Electronics. He said, "In order to counteract the loss from Samsung Life Insurance, the Chairman must secure voting rights from other Samsung-affiliated companies that he controls. It appears that the spin-off aims to establish Bioepis Holdings and enhance the value of Samsung C&T in this context."
Professor Hong added, "By separating Samsung Biologics and Samsung Bioepis, which have been evaluated together, it will be possible to assign corporate value to each, ultimately increasing the corporate value of Samsung C&T," and remarked, "This is similar to the context of the merger of Cheil Industries and Samsung C&T."
Professor Park Sang-in from Seoul National University pointed out, "It is practically a partition aimed at strengthening control." He said, "If the goal was simply to enhance management efficiency by separating them, it could have been done through a material division rather than a spin-off, indicating that the background for the spin-off is likely to prepare for stricter regulations concerning share buybacks and mergers rather than just the commercial law amendment proposed by Lee Jae-myung."
Professor Park stated, "Currently, Samsung Life Insurance's stock price continues to drop, and substantial loans are being taken out against Samsung Electronics stocks as collateral. As the level at which banks can exercise collateral rights is reached, the increasing anxiety of Chairman Lee seems to prompt him to grow Samsung C&T and purchase Samsung Electronics stocks to create a buffer."
Kwon Oh-in, director general of the Economic Justice Action Coalition, commented, "Given the circular ownership structure of Samsung, establishing Samsung Bioepis Holdings and increasing the value of Samsung C&T could be seen as benefiting the owner family. It raises questions about why the spin-off is happening now, particularly in the political context of the elections."