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Bio business

Lotte advances into bio business, to acquire stake in Enzychem

Mar 23, 2021 (Gmt+09:00)

Lotte is looking to enter the bio industry.
Lotte is looking to enter the bio industry.

South Korea’s Lotte Group is entering the bio business for the first time in its history by acquiring a significant stake in Enzychem Lifesciences Corp., a Kosdaq-listed biopharmaceutical company.

According to industry sources on Mar. 22, the retail-to-chemical conglomerate plans to buy an unspecified stake in Enzychem to become its second-largest shareholder.

Currently, Sohn Ki-young, chief executive and chairman of Enzychem, and relevant parties hold a combined 18.96% of the biopharmaceutical firm as the largest stakeholders.

Lotte is considering acquiring a stake enough to become its No. 2 shareholder through a direct share purchase from the largest shareholding group or a third-party share placement.

Separately, Lotte is also considering launching a joint venture with Enzychem, according to the sources.

Sources said the group’s de-facto holding firm Lotte Holdings Co. and its chemical subsidiary Lotte Chemical Corp. will jointly invest a total of more than 150 billion won ($133 million), including the stake purchase and the JV investment.

The exact size of investment and timing will likely be fixed ahead of Lotte’s general shareholders’ meeting on Mar. 26.

TOP PARTNER IN LOTTE’S CMO BUSINESS

Founded in 1999, Enzychem Lifesciences is a clinical-stage biopharmaceutical company that develops innovative medicines to improve the lives of patients with cancer and inflammatory diseases.

The company is currently developing therapeutic candidate EC-18, which is in phase 2 clinical trial for patients with acute respiratory disease syndrome and COVID-19 patients after getting test approval from the US Food and Drug Administration (FDA).

Lottee Group Chairman Shin Dong-bin presides over a CEO meeting in January.
Lottee Group Chairman Shin Dong-bin presides over a CEO meeting in January.

Enzychem also runs labs and factories that can make raw materials for medicines.

If Lotte finalizes its acquisition deal, it would mark the group’s first advance into the bio industry since its establishment in 1948.

Lotte had a pharmaceutical affiliate but merged it into Lotte Confectionery Co. in 2011.

RIVALS’ SUCCESS WHETS LOTTE’S BIO APPETITE

Analysts said Lotte’s attempt at a bio business was prompted by a successful entry into the sector by its rival groups – Samsung and SK.

Samsung Biologics Co. is the world’s No. 1 contract manufacturing organization (CMO) and in 2020, it posted 1.2 trillion won in revenue, exceeding the 1 trillion won mark for the first time in its nine-year history.

While SK Biopharmaceuticals Co. has been a global player with its new biomedicines in the US and Europe, SK Bioscience Co. made a successful trading debut on the Korea Exchange last week.

SK Bioscience currently makes COVID-19 vaccines AstraZeneca and Novavax through a contract manufacturing scheme.

SK Group’s two bio units have a combined market capitalization of about 19.24 trillion won, similar to that of Lotte Group’s nine listed subsidiaries, including Lotte Chemical, whetting Lott’s interest in the bio business.

LOTTE CHAIR WANTS NEW GROWTH ENGINE

Lotte Group began contemplating on its advance into the bio business in October last year, when Group Chairman Shin Dong-bin asked CEOs of its affiliates to work out new blueprints for Lotte’s growth over the next decade.

A Lotte Holdings official said pressure has particularly been growing since the group’s two flagship units – Lotte Shopping Co. and Lotte Chemical – reported disappointing results for the first half of 2020.

Lotte advances into bio business, to acquire stake in Enzychem

In the first six months of last year, Lotte Shopping posted an operating profit of 53.5 billion won on revenue of 8.12 trillion won, down 82% and 8.8% from the year-earlier period, respectively.

Lotte Chemical reported that its full-2020 operating profit fell 67.8% to 356.9 billion won, while sales declined 19.2% to 12.22 trillion won.

At a group CEO meeting earlier this year, Chairman Shin demanded executives seek new growth drivers through aggressive investments.

“Bio is non-cyclical and a bio company’s share is less volatile relative to the fluctuations of the economy,” said Lee Seung-kyu, director of the Korea Biotechnology Industry Organization.

“Even if Lotte doesn’t have deep knowledge in the bio industry, it can create synergy by combing its know-how in the chemical industry with the group’s financial resources.”

Write to Woo-Sub Kim and Dong-Hui Park at duter@hankyung.com

In-Soo Nam edited this article.

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