New CMO contracts have slowed sharply this year while labor unrest raises stability concerns for global clients
Headquarters building of Samsung Biologics. (Photo courtesy of Samsung Biologics)
Concerns over weakening order competitiveness are growing as Samsung Biologics’ new contract manufacturing organization (CMO) orders remain at just 1 contract this year. While stable order expansion was expected as order competitiveness was strengthened by the spin-off last year, stability risks are being highlighted to global clients due to the prolonged labor-management conflict and the materialization of a strike. Some observers also note that if the sluggishness in orders continues, it could affect the expansion plan for Plant 6.
According to the Financial Supervisory Service’s electronic disclosure system on May 18, the only new order disclosed by Samsung Biologics this year is an increase in an existing contract that took place in April. The size is about $47.55 million. The contract in question was signed in August of last year, but was disclosed for the first time in March as the minimum purchase volume was confirmed through the fulfillment of contract conditions. The number of contracts signed entirely for the first time this year is effectively ‘0 contracts’.
In response, a Samsung Biologics representative explained, “The contract in question was signed in August of last year, but it was disclosed as the final purchase volume was confirmed in March, so it is considered a new order contract based on disclosure standards,” adding, “With the new contract on March 13 and the increment contract on April 10, there are a total of 2 new orders.”
Samsung Biologics signed a total of 4 CMO contracts between January and May of last year, achieving a cumulative order amount of $2.499 billion based on disclosures. Compared to this year’s cumulative performance, the difference is significant in terms of both the number of cases and scale. An industry insider said, “It seems that clients who are about to sign contracts will also look to see the strike issue resolved first before finally signing the contract.”
Expectations were high in the market that Samsung Biologics would surpass its previous order performance this year. This is because the order flow was relatively stable last year, and concerns about conflicts of interest among clients were resolved through the spin-off. However, as the strike actually occurred, the order risk has grown greater than ever. The Samsung Biologics labor union has been continuing a work-to-rule struggle by refusing overtime and holiday work starting on April 6.
The industry insider said, “Due to the nature of the bio industry, it is an industry where the stability of continuous processes is absolute, to the point that even if production is halted for just one day, all cultured cells must be discarded.” They added, “A prolonged strike or work-to-rule struggle will serve as an opportunity for global clients to feel the need for supply chain changes.” The insider continued, “There is a danger that big pharma or global regulatory agencies will generalize this as a labor-management risk for the entire domestic bio industry, raising concerns about the occurrence of a shared penalty.”
Currently, global contract development and manufacturing organization (CDMO) companies are focusing on proactive production capacity expansion in line with the rapid growth of the CDMO industry. Large-scale capacity and stability are important to attract long-term contracts with global big pharma. The ‘super gap’ competitiveness promoted by Samsung Biologics also takes the world’s largest production capacity for a single company as its core foundation.
Recently, latecomer Japanese companies appear to be rapidly emerging in the global CDMO market. Fujifilm acquired Biogen’s production facility located in Hillerod, Denmark, in 2019 for $890 million, and invested 100 billion yen for further expansion. The industry believes there is a high possibility that clients will consider Japanese companies as alternative supply chains rather than Chinese companies, which carry geopolitical risks.
According to the market analysis firm BioPlan Associates on April 14, Fujifilm ranked third as of May 14 in the global biopharmaceutical production capacity facility rankings through its Hillerod facility in Denmark. Until March, before the construction of a new quality control (QC) laboratory within the Hillerod facility was completed, Fujifilm did not make it into the top 10. The Chinese CL Biologics facility in Shenzhen maintained its second-place ranking, following its position in March.
Samsung Biologics maintained the number one spot. Currently, Samsung Biologics plans to build Plant 6 with a capacity of 180,000 liters at the Second Bio Campus in Songdo, Incheon, with the goal of completion in 2027. However, some observe that the expansion of Plant 6 could be delayed due to the impact of the strike and sluggish new orders. There is also a possibility that investment resources will decrease depending on the outcome of future labor-management negotiations.
The Samsung Biologics representative stated, “It is structurally inevitable that quarterly performance is uneven,” adding, “Currently, contract discussions with multiple big pharma companies are actively underway.” The representative added, “The plan to commence construction on Plant 6 has not yet changed from the existing stance.”
Choi Mun-hee
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