World's Largest CMO tainted by Accounting Scandal
Samsung BioLogics is likely to experience some difficulty in winning biosimilar production contracts from global pharmaceutical companies in the future as Korea’s financial authorities ruled on Nov. 14 that it intentionally committed accounting fraud.
Industry watchers say global pharmaceutical companies in advanced countries such as the U.S. and Europe could shun outsourcing drug production to scandal-tainted Samsung BioLogics.
Samsung BioLogics say that the accounting scandal does not make the operation of its plants difficult, but it does not deny that it is worried. “Pharmaceutical companies could be reluctant to place new orders on us," a company official said. He added that the company needs to win new orders as its third plant, which is larger than the first two, started operation in October.
According to Samsung BioLogics, the company is the world’s largest contract manufacturing organization (CMO) with a total production capacity of 362,000 liters, including 362,000 liters for commercial products (30,000 liters for the first plant, 150,000 liters for the second plant and 180,000 liters for the third plant) and 2,000 liters for clinical products.
Samsung BioLogics has thus far received orders to produce 36 bio-pharmaceuticals from 25 companies, including BMS and Roche. Its sales increased significantly from 91.3 billion won in 2015 to 464.6 billion won in 2017.
Company officials dismissed concerns about the existing contracts being altered due to the Korean financial regulator`s verdict. "There is nothing to worry about regarding the orders that we have already received,” said a company official.
He said the company is in talks with 30 to 40 global companies about future contracts. "As global pharmaceutical companies take compliance issues into account in placing new orders, I think the stigma inflicted on us can have some impact on future orders."
Industry analysts agree that because ethics management and trust are the most important basics in pharmaceutical and biomedical industries, the stigma of accounting fraud will affect Samsung BioLogics’ business to some extent.
A senior executive at a multinational pharmaceutical company said, "Since the pharmaceutical industry is a highly regulated industry and global pharmaceutical companies think much of not only ethics but compliance of their partner companies, the latest ruling of the Korean Securities and Futures Commission will have a negative impact on Samsung BioLogics to some degree."
The global biosimilar market is expected to expand rapidly as patents for a growing number of blockbuster original biological pharmaceuticals approach expiration. Competition among CMOs is also intensifying as more and more pharmaceutical and biotech companies enter the market.
For Samsung BioLogics, the financial regulator’s ruling is painful as it could hurt confidence with its clients at a time when it stands a good chance to increase its market share.
against sees that the market for bio-medication (Bio Pharmaceuticals) will grow significantly as patents for existing blockbuster biomedical products expire, and that market expansion will accelerate production demand for the entire bio pharmaceutical industry.
According to a global market research agency called Frost & Sullivan, the global bio-pharmaceutical market accounts for 18.5 percent of the pharmaceutical market with sales of US$204.8 billion as of 2015. The market is expected to grow at an annual rate of 9% by 2025, resulting in a market size of US$48.8 billion and accounting for 29.7% of the global pharmaceutical market. In particular, the global CMO market, estimated at $7.4 billion as of 2015, is expected to grow 15.1 percent annually over the next 10 years to $30.3 billion in 2025.