Samsung BioLogics began pre-deal investor education in Seoul on Tuesday for a $1.7 billion to $2 billion initial public offering that will tempt investors with the prospect of a new behemoth and potential industry disrupter from one of the world’s most successful tech companies.
And they will need to believe in the company’s scalability and growth potential given the extremely aggressive valuation attached to the deal, which is being marketed at 96 times 2015 sales at the top end of the indicative price range. By contrast, Amazon went public in 1997 on a 29 times trailing multiple.
Samsung BioLogics represents Samsung Group’s first public-listed subsidiary in the healthcare sector, identified as a new growth engine for the Korean conglomerate.
The group is keen to diversify away from its heavy reliance on electronics and IT and has said it will invest $22 billion through 2020 in new growth sectors such as biopharmaceuticals, solar batteries, rechargeable batteries and light-emitting diodes.
Samsung has been well known internationally for smartphones, tablets and TVs, but the growth of the electronics business has slowed in recent years partly because of the rise of competing low-cost manufacturers from China.
Total number of smartphone sales, often seen as an indicator of Samsung’s electronics business, fell over 25% to 89 million in the second quarter last year compared to the final quarter of 2013, when it reached a peak of 119 million.
Samsung began its big push into the healthcare sector in 2010 when it acquired medical equipment maker Medison. A year later, it bought medical testing solutions provider Nexus, while Samsung BioLogics was established in the same year as a joint venture with US biopharmaceutical firm Quintiles Transnational.
Yet to flourish
Samsung BioLogics is one of the world’s largest contract manufacturers of biologic drugs for global pharmaceutical firms including Roche and Bristol-Myers Squibb. It develops biologic products including vaccines, blood and blood components, gene therapy, tissues and therapeutic proteins.
According to a termsheet seen by FinanceAsia, Samsung BioLogics will have a $6.8 billion to $8 billion valuation on a post-money basis. That is huge compared to its $83 million sales in 2015, not to mention the fact that it only turned a very slim profit of W904.9 million ($810,000).
Such an aggressive valuation suggests the immense potential for the business to grow as the global biologics industry continues to expand.
Quintiles Transnational estimates the industry will hit the $221 billion mark next year, more than double a decade ago. Global biosimilars, a sub-sector in the biologics industry, is forecast to grow at a compound annual growth rate of 49.1% between 2015 and 2020 and reach $26.5 billion by the end of 2020, according to Intense Research.
The industry is growing rapidly as demand for biologic drugs and therapies increases. In contrast to conventional drugs, which are chemically synthesized, biological products are manufactured from living cells and are increasingly seen as a more effective solution to previously incurable diseases.
Sales of biologic products are expected to surge globally as health organizations gradually ease restrictions on research and development as well as marketing and sales. A more favourable regulatory environment, including streamlined approval process and better patent protections, also helps support the development of biologic drugs, according to a research report from the US Food & Drug Administration.
To support such potential growth, Samsung BioLogics is building its third biopharmaceutical facility in Songdo with the aim of doubling production capacity to 360,000 litres upon completion in 2018.
Last year Samsung said the construction would cost about $740 million and planned to use IPO proceeds to do so.
Deal terms
The IPO comprises 11 million new shares and 5.5 million existing shares sold by Samsung Electronics, one of the company’s controlling shareholders together with Samsung C&T.
Proceeds for the company will be roughly $1.3 billion, while $670 million will go to Samsung Electronics.
The overall deal represent 25% of Samsung Biologics enlarged share capital and shares are being offered on an indicative price range of W113,000 to W136,000.
Roughly half of the deal will be allocated to institutional investors, while 20% will be allocated to the domestic retail tranche, 20% for the employee share buyback programme and 10% for a high-risk, high-yield investment trust tranche.
Based on its current timetable, Samsung BioLogics will conduct an international management roadshow from October 17 to October 28 with a scheduled pricing date on November 7 and listing on November 10.
Joint bookrunners of the IPO are Citigroup, Korea Investment & Securities, NH Investment & Securities, JP Morgan and Credit Suisse.
