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Samsung BioLogics Incident Casts Cloud over Future of Songdo Bio Cluster
Additional Foreign Investments Uncertain
Samsung BioLogics Incident Casts Cloud over Future of Songdo Bio Cluster
  • By Choi Moon-hee
  • December 6, 2018, 10:18
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Samsung BioLogics CEO Kim Tae-han (fourth from left), and Saint-Gobain CEO Laurent Guillot (fifth from left) dig the ground with a shovel at the groundbreaking ceremony for Saint-Gobain Korea's production factory in Songdo, Incheon, on Dec. 4.

Global leading companies are expanding investment in the Songdo Bio Cluster in Incheon to supply their products to South Korean biotech firms. They are flocking to Songdo as it is the manufacturing base of Samsung BioLogics Co. and Celltrion Inc., which have already grown into global biotech companies. However, they are postponing their additional investment plans owing to the continuing controversy over the accounting fraud allegations against Samsung BioLogics, the largest biologics contract manufacturing organization (CMO) in the world. Accordingly, concerns are growing over the future of the Songdo Bio Cluster.

Samsung BioLogics announced on Dec. 5 that it has signed a single-use raw material purchase contract with Saint-Gobain, a French-based multinational corporation that focuses on construction and healthcare. Single-use raw materials refer to one-time plastic parts used in biopharmaceutical production and development. Under the contract, Saint-Gobain will supply up to 160 different types of biopharmaceutical single-use raw materials, such as tubing, filters and hoses, to Samsung BioLogics.

In September, the French company signed a land purchase contract to build a 13,000-square-meter high-tech bioprocess product manufacturing facility in Songdo with the Incheon Free Economic Zone Authority (IFEZA), and aims to complete the plant by 2020.

With the latest contract, Samsung BioLogics will be able to receive supply of single-use raw materials domestically, shortening the procurement period from four months to one month. Until now, the company has produced products that required only a small quantity of single-use raw materials. As these raw materials came from overseas factories, it took a long time to import and clear customs.

Due to the nature of the biopharmaceutical industry, most of the raw materials are supplied through overseas supply chains and take a long time to import. This forces Samsung BioLogics to hold a large amount of inventory to prepare for emergencies.

Saint-Gobain is a French firm with sales of 40.8 billion euro (US$46.33 billion or 51.58 trillion won) and 179,000 employees. In April, the company signed a memorandum of understanding with Samsung BioLogics for a strategic partnership.

Before Saint-Gobain, Germany’s Merck and GE Healthcare have decided to invest in Songdo. Merck, which has formed supply chain management (SCM) relations with Samsung BioLogics from the initial stage of business, established “M Lab Collaboration Center,” which is a bio education center, in Songdo with an investment of 3 billion won (US$2.69 million) in October 2016. This is the ninth center after those in the United States and Europe. In particular, Merck is also building a manufacturing plant with an investment of US$26 billion (23.35 million) this year and expects to complete the construction of the plant by May 2019.

GE Healthcare, a raw materials supplier of Samsung BioLogics, also invested 8.7 billion won (US$7.81 million) and built bio training center “Asia-Pacific Fast Trak Center” in Songdo in October 2016. In addition, the company signed a supply contract with domestic firm Biocs in July to create bio-raw materials and equipment manufacturing companies, which are lacking in South Korea, while trying to foster local companies by providing global good manufacturing practice (GMP) compliance consulting.

Global companies are settled in Songdo because Samsung BioLogics and Celltrion have grown into global biosimilar firms. Songdo has a total of 560,000 liters of production capacity, including 362,000 liters from Samsung BioLogics, 140,000 liters from Celltrion and others. This is the world’s biggest figure for a single city, beating 440,000 liters in San Francisco and 270,000 liters in Singapore.

An official from Samsung BioLogics said, “Samsung BioLogics is not only building its plants but also actively attracting global companies to Songdo to help create a bio cluster, which is essential in the bio industry development. Accordingly, global bio firms are constructing training centers and storage warehouses in Songdo one after another.”

However, it is becoming uncertain whether additional investments will be made because of the recent accounting issue involving Samsung BioLogics. The company was planning to fix its investment time and plans to establish its fourth plant in 2019. However, the company will not be able to announce its additional plant construction plans with an increasing uncertainty from the prosecutor's investigation and administrative litigation. It has recently filed an administrative lawsuit against the Securities & Futures Commission (SFC) under the Financial Services Commission (FSC) for the recent ruling that the company intentionally committed accounting fraud. If Samsung BioLogics builds a plant, it creates 400 to 500 new jobs and needs up to 3,000 construction workers a day. Accordingly, there will be no positive effects from investment and employment when the company’s additional plant construction plans are delayed.

Notably, Samsung BioLogics’ issue might shrink the attraction of global bio companies to Songdo which has just gained the momentum.

An official from the bio industry said, “For the biotech industry, it is very important to develop related industries as a whole by creating a cluster like Singapore and Ireland. Domestic biotech companies are contributing to the development of the industry on behalf of the government by attracting foreign bio companies to Songdo. The government should repay with support instead of regulation.”

The city of Incheon recently announced its plans to invest 1.1 trillion won (US$987.88 million) in an 184,588 square-meter reclaimed land in Area 11 and create a biotech integration industrial complex by 2023.