LG Chem enters pharm biz thru LG Life Science acquisition

By Yoon Sung-won

LG Chem will acquire LG Life Science to foster the pharmaceutical business as one of its new growth engines, the company said Monday.

The nation’s top chemical firm said it will increase its annual investments in the red bio sector to 500 billion won ($449.59 million) from the current 130 billion won, aiming at boosting annual sales from the bio business to 5 trillion won by 2025. To do so, it vowed to concentrate on developing new medicines for the global market.

“Bio is an essential industry for healthier and more productive human lives,” said LG Chem Vice Chairman and CEO Park Jin-soo. “We will foster our bio business to be world-class through preemptive and aggressive investments.”

Under the small-scale merger, LG Chem will integrate LG Life Science and issue new stocks to the latter’s shareholders. The exchange rate will be about 1:0.26 for common stock and 1:0.25 for preferred stock. The company said it hold meetings of the board of directors from each company and finalize the merger by Jan. 1.

The company pledged to become one of the world’s top five chemical businesses with over 50 trillion won total annual revenue by 2025.

The size of the entire global bio market will reach $1.8 trillion by 2020 with about 5 percent annual growth rate. Under the goal of fostering three sectors of the bio business ― green, white and red ― alongside basic materials and batteries, LG Chem acquired the nation’s leading agricultural product company FarmHannong earlier in April.

Green biotechnology refers to agricultural products, red covers pharmaceuticals and white is about renewable energy sources based on organic materials.

“The global red bio market is currently estimated to be 1,100 trillion won in scale and the profitability of the pharmaceutical sector has reached 20 percent,” LG Chem Financce Department Vice President Hong Soon-beom said during a conference call, Monday. “In particular, vaccines and bio-similar products are expected to see rapid growth. For this reason, we have actively sought mergers and acquisitions to enter the red bio market.”

From LG Life Science’s perspective, it has required greater amount of investments to step into the global market despite its achievements in developing vaccines and new medicines. “LG Life Science has invested 130 billion won per year on research and development. But it needs a longer-term perspective investment to run from 10 to 20 projects at the same time,” he said. “After the merger, we will share technologies and manufacturing capabilities to develop and win global patents on new materials and gene variation techniques.”

To solidify the status of the bio business on the global scale as soon as possible, LG Chem said it is seeking additional mergers.

“We have pushed for mergers and acquisitions under a diverse spectrum, be it a local or global deal, and will continue to do so in the future,” LG Chem CFO and President Jeong Ho-young said. He added that the company plans to combine merger and acquisitions to alliances both in the green and red bio sectors and will seek partners not only in the domestic market but also overseas.

The CFO said the company will also implement restructuring and downsizing of underperforming and less-potential businesses under the principles of future growth and sustainability.

“Recently, our battery and bio businesses are expanding their boundaries,” he said. “In the meantime, the importance of the IT and electronics materials sector has been decreasing. We believe this is partly because we have excessively focused on the IT market. In the future we will expand the application to more diverse sectors such as energy and automobiles to seek new growth potential.”