Since the construction of its first plant in 2013, Samsung Biologics established a joint venture with Biogen called Samsung Bioepis, focusing on the development and commercialization of biosimilars. The company rapidly expanded, building Plants 2 through 5, which were completed in 2015, 2020, and 2023, respectively. With this rapid increase in production capacity, Samsung Biologics signed contracts with several major pharmaceutical companies, including BMS and Roche, and is currently working with 17 of the world's top 20 pharmaceutical companies, including Pfizer, GSK, Roche, AstraZeneca, and Eli Lilly, which are its five largest clients.
Samsung Biologics has ambitious capacity expansion plans, aiming to complete the construction of Plants 6-8 by 2032. While the company has not disclosed the budget or timeline for these projects, Plant 6 is expected to be completed by 2027. In addition, Samsung Biologics is exploring M&A opportunities outside of South Korea, targeting small- to medium-sized CDMOs or facilities owned by large pharmaceutical companies in the U.S., with a preference for companies specializing in new therapies, such as antibody production, antibody-drug conjugates (ADCs), or cell and gene therapies (CGT).
With its ambitious production capacity expansion strategy, Samsung Biologics is expected to become the world's largest CMO company by 2032, with a production capacity of 1.324 million liters, surpassing competitors Lonza and Fujifilm Diosynth Biotechnologies. In 2024, Samsung Biologics accounted for 11% of the global CDMO market, and this is expected to increase significantly, with the company overtaking Lonza by a margin of over 60% by 2032.
Samsung Biologics’ key strength lies in its economies of scale, with all five of its plants located in South Korea, making it the lowest-cost producer. As the lowest-cost producer, Samsung Biologics offers competitive pricing, saving large pharmaceutical companies tens or even hundreds of millions of dollars while investing effectively in R&D and providing flexible, additional services to clients. This has helped Samsung Biologics establish itself as a reliable and valuable CMO, securing more future business opportunities.
Backed by Samsung Group, Samsung Biologics has a capital cost advantage. Its largest shareholder, Samsung C&T, holds 43% of total shares, while Samsung Electronics owns 31%. Samsung Group provides substantial support to Samsung Biologics, allowing it to utilize shared resources within the group, such as funding, engineering, construction, and production operations management. From the group's perspective, Samsung Biologics' P/E ratio is 54 times, compared to Samsung C&T's P/E ratio of only 9 times, making the group inclined to prioritize resources for Samsung Biologics.
There are significant related-party transactions between the two companies. In 2023, Samsung Biologics paid KRW 863.14 billion to Samsung C&T for construction services and acquired assets worth KRW 349.1 billion from Samsung C&T. These transactions reflect the internal support and resource-sharing network within Samsung Group, providing Samsung Biologics with priority services and asset channels.
In terms of financial resources, Samsung C&T invested KRW 990 billion to establish the Samsung Life Science Fund, focusing on investing in promising biotech companies, indirectly benefiting the ecosystem surrounding Samsung Biologics. This internal collaboration has strengthened Samsung Biologics' competitiveness and overall strategic layout.
Samsung Biologics has also faced challenges. In 2018, the company was accused of accounting manipulation related to its shares in Samsung Bioepis. This temporarily prevented it from accepting orders, and its stock price fell sharply. After restrictions were lifted in 2019, the company resumed signing contracts, and with the onset of the COVID-19 pandemic, its stock price doubled. In February 2024, the Seoul Central District Court ruled that there was insufficient evidence to support these allegations, though another case is still ongoing.
Unlike WuXi Biologics' growth path, Samsung Biologics expanded from CMO to CDO services. Recognizing the success and potential of WuXi's "follow the molecule" or "win the molecule" strategy, Samsung Biologics entered the CDO business in 2018. The company developed advanced CDO platforms such as S-CHOice and S-Cellerate, claiming to achieve faster cell line development than WuXi, thereby saving costs for clients. Samsung Biologics has achieved rapid growth and progress in the CDO space, establishing a CDO R&D center in San Francisco in 2020 and increasing its number of CDO projects from 8 in 2018 to 116 today.
Investors considering Samsung Biologics face the biggest hurdle in its valuation. Its 2025 forward P/E ratio is 54 times, compared to 32 times for Lonza and 16 times for WuXi Biologics. Although Samsung Biologics has higher profit margins, faster growth, and a strong order pipeline, the extent to which these factors are reflected in its stock price remains a question.
In fact, Samsung Biologics’ stock valuation has always been high, reflecting the market's premium for stable, predictable growth. Driven by the global biotech boom during the COVID-19 pandemic (2020-2022), rapid revenue growth, and suppressed earnings due to significant investments, the stock’s average forward P/E ratio exceeded 70 times. Compared to its peers and industry standards, Samsung Biologics’ premium over its European competitor Lonza is currently at a historical low.
Despite short-term underperformance in 2024, trailing the industry average, the focus should be on its long-term investment value. Macroscopically, investors are concerned about potential Trump-era tariffs, the reshoring of U.S. manufacturing, and the potential impact of Robert F. Kennedy Jr.'s nomination as Secretary of Health and Human Services. However, these political concerns are often exaggerated and difficult to quantify.
Pharmaceutical companies cannot wait for such long production cycles, so manufacturing reshoring will not happen overnight. In South Korea, building a large plant takes about two years, and even longer in the U.S. Thus, Samsung Biologics’ order momentum remains strong, with the company disclosing transactions worth $668 million with a European pharmaceutical company this year. Cumulatively, Samsung Biologics has secured contracts worth over $4 billion in 2024.
Since the release of its Q3 2024 financial report, Samsung Biologics’ stock price has retreated 11%. Management raised its 2024 sales growth guidance from 10%-15% to 15%-20%, in line with investor expectations, but also gave more cautious margin guidance, forecasting a slight decline in the 2024 operating margin from 30.1% (a single-digit percentage decrease). Part of this is due to the anticipated one-time impact of PPQ batches produced at Plant 4 in the first half of 2024, which will affect margins in Q4.
The capacity ramp-up of Plant 4, coupled with the completion of Plant 5, is expected to impact profitability temporarily, but the situation is expected to stabilize by FY2025. Plant 4 has a capacity of 180 kiloliters, representing a 28% increase over the combined capacity of Plants 1-3 (640 kiloliters). Such a significant ramp-up naturally leads to accounting fluctuations in profit margins.
From a cash flow perspective, higher capacity utilization generally results in lower cash outflows and higher revenues, driving free cash flow (FCF) growth. As of October 2024, 82% of Plant 5’s construction was completed, and it is expected to be operational by April 2025. The estimated construction cost of Plant 5 is KRW 1 trillion. With the ramp-up of Plant 4 and the completion of Plant 5, Samsung Biologics’ free cash flow is projected to grow from KRW 600 billion in 2023 to KRW 1.5 trillion by 2026.
Lastly, Samsung Biologics’ wholly owned subsidiary, Samsung Bioepis, which focuses on biosimilars, warrants attention. Market expectations for biosimilars are modest, as originator drugs often delay the launch and sales of biosimilars. Nonetheless, biosimilars account for 30% of Samsung Biologics' revenue but only 7% of its profit. While growth in the biosimilars business is steady, with 8 marketed products and 3 products either approved or in late-stage clinical trials, long-term contributions from biosimilars will gradually increase as originator drugs lose patent protection.
The pharmaceutical industry is never short of surprises—whether positive or negative. COVID-19 and GLP-1 drugs have significantly impacted the industry and the world. CXOs like Samsung Biologics are well-positioned to facilitate these disruptive developments, even if this potential is not fully reflected in their stock price. In the future, breakthroughs in Alzheimer’s disease treatments or widespread global acceptance of biosimilars could significantly increase demand for CMO services.
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