Samsung Biologics to spin off Bioepis as independent firm

Biopharmaceutical contract manufacturer Samsung Biologics will spin off its wholly owned biosimilar subsidiary Samsung Bioepis, in a move aimed at easing concerns from client drugmakers over potential conflicts of interest and enhancing the corporate value of both companies, the two firms said Thursday.

In a regulatory filing, Biologics announced that it will spin off a business division overseeing its subsidiary and new investments to create Samsung Epis Holdings. The holding company will then take over the 100 percent stake in Bioepis from Biologics.

When the spin-off is completed, only the contract development and manufacturing organization (CDMO) business will remain in Biologics, while Epis Holdings will have a 100 percent stake in Bioepis. This means that its order-based CDMO business and new biosimilar drug business will be completely separated. The holding firm will also establish new biopharmaceutical platform subsidiaries.

After the spin-off, shareholders with 100 Biologics shares will receive approximately 65 Biologics shares and 35 Epis Holdings shares. The ratio was set based on each company’s net assets.

Following Thursday's board approval, Biologics will submit a prospectus for the spin-off to authorities on July 29, hold a shareholders meeting on Sept. 16 and establish Epis Holdings on Oct. 1. Since Biologics is a publicly listed company, it and Epis Holdings will each be relisted on the market on Oct. 29. Bioepis is not a listed firm.

With the spin-off, Biologics seeks to address its key obstacle in securing CDMO contracts, which is a potential conflict of interest with Bioepis’ biosimilar and drug development business.

Having major drugmakers such as Pfizer, Merck, Roche and Eli Lilly as clients, Biologics has been making efforts to ease clients’ concerns over potential leaks of drug development knowledge and manufacturing technologies to Bioepis. These concerns have grown in recent years as Bioepis began accelerating the development of not only biosimilars but also novel drugs, including antibody-drug conjugate cancer treatments.

“Some of our clients have perceived our CDMO business (Biologics) and biosimilar business (Bioepis) as a single entity, raising concerns that contracting their drug manufacturing (to Biologics) may cause conflicts of interest with (Bioepis’) biosimilar business,” Biologics Chief Financial Officer Ryu Seung-ho said during a conference call.

“Also, the rapidly changing external environment, including United States tariffs and drug pricing policies, increased the necessity for us to proactively resolve structural risks stemming from the parent-subsidiary relationship in order to maintain growth momentum in the CDMO sector.”

Samsung Biologics' plant 4 in Incheon's Songdo / Courtesy of Samsung Biologics

Ryu said that the company believes both Biologics and Bioepis have been undervalued because of different investment profiles, with CDMO prioritizing stability and drug development coming with higher returns with greater risks.

“With the spin-off, we expect Biologics and Epis Holdings will be valued independently based on their own business model,” he said, adding that Bioepis will not go public for at least the next five years.

During the conference call, Epis Holdings outlined a growth strategy to position Bioepis as the world’s leading biosimilar company by establishing a portfolio with more than 20 biosimilar products.

The spin-off is expected to boost the valuation of not only the two biotech firms but also their largest shareholder Samsung C&T, which has a 43.06 percent stake in Biologics.

For Samsung C&T, Bioepis is now a second-tier subsidiary, but will be positioned as a direct subsidiary, meaning Bioepis’ earnings will be reflected directly in Samsung C&T’s consolidated earnings to improve financial prudence. Bioepis posted 1.54 trillion won ($1.12 billion) in sales and 435.4 billion in operating profit last year, both the highest such numbers in its history.

“With the spin-off, Bioepis will effectively become a direct subsidiary of Samsung C&T, increasing its value,” iM Securities analyst Lee Sang-heon said. “Even if Biologics’ valuation decreases, the independent valuation of Bioepis could be more clearly recognized, leading to a higher overall valuation for Samsung C&T.”

Samsung C&T has been struggling with a sluggish stock price, with its price-to-book ratio standing at 0.73. This indicates that the company’s shares are trading at only 73 percent of their book value.

Samsung C&T plays a pivotal role in Samsung Group’s complex cross-shareholding structure, with Samsung Electronics Executive Chairman Lee Jae-yong owning approximately 19 percent of its shares.

Rumors alleged that the spin-off may trigger an overhaul in the shareholding structure across Samsung Group, but Ryu noted that the decision was made from a business perspective and “has nothing to do with the group.”

The stock prices of the two related firms soared a day earlier, as unconfirmed rumors of the spin-off spread among investors.

Biologics jumped 7.11 percent to close at 1.1 million won on Wednesday, but suffered a 1.82 percent drop to 1.08 million won on Thursday. Samsung C&T also enjoyed an 11.74 percent increase on Wednesday, but closed at 138,500 won on Thursday, down 0.36 percent from a day earlier.