Lotte to buy BMS' biologics plant in Syracuse for $160 mn

South Korea's Lotte Group has agreed to buy Bristol Myers Squibb's (BMS) biologics plant in Syracuse in the state of New York for $160 million, the group said on Friday, taking its first significant step toward the bio industry.

The purchase of the plant will encompass all of its facilities, equipment and employees, alongside its management rights. Both sides are aiming to close the deal within the year.

Additionally, the deal includes a contract manufacturing agreement, under which Lotte will produce the US pharmaceutical company's biologics products worth at least $220 million.

The transaction paved the way for the retail-to-chemical conglomerate's foray into the biologics contract development and manufacturing organization (CDMO) market. 

"We are now able to secure BMS' excellent facilities in Syracuse with plenty of human resources," Lotte Group Chairman Shin Dong-bin told the group's board meeting on Friday.

"We hope to build our presence quickly in the bio CDMO market by creating a synergy between Lotte and the Syracuse plant, based on our steady investment." 

Over the next 10 years, Lotte Group will invest a total of 2.5 trillion won ($1.9 billion) in the bio business, envisioning becoming a top 10 player in the bio CDMO segment by 2030.

Before making up his mind to purchase the US plant, Chairman Shin flew to Syracuse last month and looked around the facilities. 

Apart from the acquisition price, Lotte will spend another 100 billion won converting the US plant to a CDMO production line. A CDMO company develops and manufactures drugs for pharmaceutical companies and research institutes.

The Syracuse plant, established in 1943, is licensed for the manufacturing of four commercial biologics products, the only such facility for the US pharmaceutical company. It had produced about 70% of the penicillin used worldwide until it was renovated in 2010.

Lotte Biologics, soon to be established, will acquire the plant, about four hours drive from the Boston Cluster, the largest biotechnology hub in the US. It will finance the deal through new share issues.

Among the four biologics products of the Syracuse plant, Opdivo and Yervoy are used as cancer treatments. Nulojix is a medicine used after an organ transplant, while Empliciti is an antibody medication.

Buying the plant in operation also means Lotte may skip the tiresome process required to produce medicines in the US, including winning approval from the US Food and Drug Administration, said industry watchers.

The biologics product facility in Syracuse has an annual capacity of 35,000 liters, about one-tenth of that of Samsung Biologics Co and one-fifth of that of Celltrion Inc.

But one of the industry insiders said that Lotte might be able to challenge the two bigger Korean rivals, if it puts its focus on quality control, rather than quantitive growth.

"The CDMO market is gradually shifting to quality-driven growth from volume-driven one as it is expanding into the areas of cells and genes," he said.

LOTTE'S NEW GROWTH PILLARS

Chairman Shin has picked bio and healthcare, metaverse and mobility as the group's new growth pillars.

As part of such efforts, Lotte had planned to buy a significant stake in Enzychem Lifesciences Corp., a Kosdaq-listed biopharmaceutical company, last year. But no progress has been made with the plan.

Last year, Lotte also scouted Lee Won-jik, former head of Samsung Biologics’ drug product business unit to lead Lotte's biologics business.

"The Syracuse plant has so much experience with clinical trials and commercial production that we can get it up and running immediately," Lee told the board meeting.

"Starting with antibodies, we will prove our capabilities as a bio CDMO player and then expand the size and scope of our business."

The conglomerate is trying to catch up with its domestic rivals such as Samsung, LG and SK, which had established their positions in new areas such as biotech, electric vehicle batteries and semiconductor chips, respectively.

To do so, it has acquired a controlling stake in the furniture and home furnishing brand Hanssem and a convenience store chain Ministop Korea, as well as a stake in a Canadian edible insect food maker.

(Updated after Lotte Group's board meeting on May 13)

By Chae-Yeon Kim and Jong-Kwan Park

why29@hankyung.com

Yeonhee Kim edited this article