LG Chem eyes biopharmaceutical unit as next growth driver

LG Chem's headquarters on Yeouido, Seoul / Yonhap

By Nam Hyun-woo

LG Chem is raising funds to invest in new sources of income after spinning off its lucrative electric vehicle (EV) battery business. Industry sources say the company's biopharmaceutical division is highly likely to be its next main growth driver and recipient of massive investments.

According to industry officials, LG Chem on Tuesday held a book-building session for institutional investors to raise 600 billion won ($540.8 million) by issuing corporate bonds. Investors placed 2.56 trillion won worth of orders, which is more than four times the amount LG Chem sought to raise.

As a result, the company is considering raising the amount to 1.2 trillion won, which will be the largest amount issued in a single round by a private company in Korea. The bonds will be issued on Feb. 19.

The robust demand came even after the company spun off its EV battery business and established LG Energy Solution as an affiliate. Securities analysts said the continued demand is attributable to high expectations among investors over the recovery of the global petrochemical market and the company's momentum in developing eco-friendly materials.

LG Chem said 500 billion won of the money being raised through the bonds is earmarked for environmental, social and corporate governance (ESG) purposes. When the company raises the target amount to 1.2 trillion won, however, the remainder will likely be used for investments in new businesses.

Industry officials say LG Chem's biopharmaceutical division could be the beneficiary of the new investments, because the proportion of the business out of LG Chem's overall revenue remains small despite its growth potential.

According to the company's earnings report for last year, sales from the life science division, which includes the pharmaceutical business, stood at 700 billion won. During the same period, sales from LG Energy Solution reached 12.4 trillion won, while the petrochemical business generated 14.3 trillion won in revenue.

To scale up the biopharmaceutical business, LG Chem said last year that it would invest 200 billion won in its life science division in 2021. But the amount could rise if the company successfully raises funds through the bonds and the scheduled initial public offering of LG Energy Solution is completed.

“We can't say that the company will concentrate on the biopharmaceutical business by abandoning other businesses, but it is true that the company is aware of the need to scale up the biopharmaceutical business,” an LG Chem official said.

LG Chem's Chief Financial Officer Cha Dong-seok's comment on potential acquisitions also sparked hopes over the growth of the company's biopharmaceutical business.

During a third-quarter conference call last year, Cha said LG Chem will aggressively carry out acquisitions if necessary. Though he did not elaborate which businesses he is looking for, industry watchers expect targets in the biopharmaceutical industry, given it has been overshadowed by the growth of the battery business despite its high growth potential.

LG Chem is expecting 10 percent growth in sales in its life science division, which will begin supplying the Eupolio polio vaccine to UNICEF this year as well as expanding sales of Yvoire filler products.

During the J.P. Morgan Health Care Conference last month, Son Jee-woong, head of LG Chem's life science business, said that the company has secured more than 40 novel drug candidates in its pipeline after the merger between LG Chem and LG Life Sciences, and the company will end Phase 2 clinical studies of its gout treatment candidate, LC350189, in the second quarter of this year.