Does Samsung BioLogics Seem Logical To You?

By Rob Wright

The lines between biopharma and technology companies continue to blur. Samsung Electronics announced in April 2011 the creation of Samsung BioLogics — developed through a partnership between Samsung Electronics, Samsung Everland, Samsung C&T, and Quintiles Transnational. Samsung recently announced its ambitious plans of marketing biosimilars at deep discounts. The question is why? I don’t see Pfizer getting into the cell phone business or Merck seeking to manufacture earthmoving equipment. Perhaps the answer resides in core competencies.

Core Competencies
When I first saw the recent quote by Tae-Han Kim, president of Samsung BioLogics, "Biopharmaceutical companies are good for sales, and biotech companies for innovation, but neither is good for manufacturing" I thought, this seems a bit arrogant — an electronics company thinking it can be better at manufacturing drugs than a drug company. So I began to research the company. Its revenues for 2011, $133 billion, are greater than the top two drug companies combined – Pfizer, $67 billion, and Novartis, $51 billion. From a profit perspective however, these companies combine to be 32% more profitable than Samsung. Perhaps Samsung saw the opportunity to profit on its core competencies — creative people, technology leadership, innovative culture, and customer value creation. These are the four listed on its website, to which I would add, manufacturing expertise and diversification.

For those of you who think of Samsung as merely an electronics company headquartered in Korea, you might be surprised to learn that the company also creates ships, power control equipment, wind turbines, financial services, chemicals and even has the state-of-the-art Samsung Medical Center. Keep in mind, these are not all of the businesses in which Samsung participates, but should give you a flavor for the level of diversification within the company. Regarding manufacturing expertise, consider its ship building business, where it developed “mega-block technology” which decreased ship construction time and raised production efficiency. In addition, by implementing this concept Samsung broke from the previous concept of building ships only on land and for the first time, made it possible to build ships on water. Given the company’s history of technological leadership, which it seeks to apply in an effort to transform the global healthcare industry, perhaps the move does not seem very far-fetched at all. So, what can life sciences companies learn from Samsung? Perhaps they should re-evaluate their core competencies.

Big Pharma Needs To Diversify
When I look at most of the pharmaceutical companies, there tends to be a focus on drugs, sometimes diagnostics, vaccines, and consumer and animal healthcare products. In the past, if a company was “overly” diversified, Wall Street analysts would usually ding them for straying too far away from their core competencies. This is why Akzo Nobel felt compelled to sell off Organon, its pharmaceutical business — as Akzo was a chemical company. Exxon Mobile considers itself an energy company. WalMart, the largest company in the world, has the purpose of “Saving People money to help them live better.”  At a recent conference, Steve Burrill, CEO and founder of Burrill & Company, noted Pfizer’s core competency is no longer R&D but marketing. In discussions with former Pfizer execs, many have described their former employer as a “marketing machine.” Perhaps, Pfizer should look into expanding its pharmaceutical marketing brilliance beyond its four walls. Merck was founded on the vision of placing the patient first and the profits would follow. Perhaps Merck should get into the hospital business. Neither of these scenarios is any further fetched than Samsung’s decision to get into the Biologics business. Personally, I am looking forward to seeing what Samsung can do.