Proxy adviser ISS backs drug giant Celltrion's merger plan

South Korean drug giant Celltrion Group has received a positive recommendation from Institutional Shareholder Services (ISS), a global leading proxy advisory firm, on the merger of its two affiliates up for vote at the shareholders' meeting later this month.

In its recent report, ISS recommended that shareholders of pharmaceuticals developer Celltrion Inc. and its global sales affiliate Celltrion Healthcare Co. vote in favor of the merger, scheduled to be completed by the end of this year, said sources familiar with the matter on Friday.

The proxy adviser stated that the biopharmaceuticals group has addressed issues on accounting and audit rules violations. ISS also noted the merger would allow the two affiliates to use a more flexible strategy for pricing within the integrated value chain, and help the group achieve its financial goals, sources said.

ISS’ recommendation would be a big boost for the merger as not only overseas investors but also local institutional and individual shareholders heed the proxy adviser’s advice, market watchers say.

Some 80% of foreigners investing in Korean companies take ISS’ opinions into consideration before they vote on an agenda, according to sources. As of September, foreign investors make up around 21% and 17% of total shareholders in Celltrion and Celltrion Healthcare, respectively.

The proxy advisor’s recommendation indicates that the merger would bring meaningful benefits to the two firms and their shareholders, a financial industry source said.

MERGER PLAN

In August, Celltrion Group said that it has received approval on the merger plan from the board of directors and kicked off relevant procedures.   

It aims to complete Phase 1, which will merge Celltrion and Celltrion Healthcare by the end of this year, and finish Phase 2, merging the integrated entity with Celltrion Pharm Inc., which focuses on domestic sales and marketing, around July 2024.

The group will hold a meeting for shareholders of Celltrion and Celltrion Healthcare on Oct. 23 to vote on Phase 1.

AIM FOR NEW DRUGS

It aims to achieve 12 trillion won ($8.9 billion) in revenue in 2030 by boosting sales in biosimilars and new drugs and saving costs through mergers, founder and Chairman Seo Jung-jin said in August. Last year, the group logged 2.28 trillion won in revenue and 647.1 billion won in operating profit.

In the first half of this year, the group posted 1.12 trillion won in revenue and 365.4 billion won in operating profit.

The biosimilar giant aims to emerge as a new drug developer for long-term profit, Seo said in August. The group plans to achieve 40% of its sales from new biopharmaceutical and chemical drugs by 2030, while lowering the biosimilars’ proportion to 60% from the current 84%.

According to its website, it has a new antibody candidate CT-P27 targeting pandemic and seasonal influenza in Phase 2 clinical trials in the US. The group will add 10 new drug candidates to clinical trials by next year, including four bispecific antibodies and six anticancer therapeutics, Chairman Seo said in August.

The group was accused of accounting and audit fraud and intra-group transactions in 2018 and fined 13 billion won by Korea's Financial Services Commission (FSC) in March 2022. The merger will address these transaction issues and enhance the group's business transparency, the chairman said in August.

Write to Jeong Min Nam at peux@hankyung.com

Jihyun Kim edited this article.