Domestic corporations in the pharmaceutical and bio sectors are engaged in a series of mergers and acquisitions (M&A) transactions. Companies with relatively strong financial capabilities are making acquisitions as a strategy to enter new businesses or enhance corporate value. The decline in the acquisition prices of properties available in the M&A market can also be attributed to worsening funding conditions.
As of the 15th of this year, there have been five officially announced domestic M&A transactions between corporations. Before the end of the first quarter of this year, one-third of last year's M&A transactions had taken place. According to a report released on the 12th by the Korea Health Industry Development Institute, there have been 48 M&A transactions in the domestic pharmaceutical and bio sectors over the past five years, increasing from three in 2020 to 14 by Nov. 2024.
Experts diagnose that while the increase in M&A among pharmaceutical and bio corporations is evidence of industry growth, clear limitations remain. Most acquisitions are under 100 billion won, and unlike global corporations that acquire companies with new drug technologies, domestic firms are focusing only on companies that can immediately become cash cows.
◇Entering new businesses through M&A, securing cash cows
Recently, five companies—DongKoo Bio&Pharma, SillaJen, CURACLE, HLB, and GC Wellbeing—officially began mergers and acquisitions. Looking at the companies recently entering the M&A market, the strong motivation is to secure stable cash cows while entering new businesses. All of them are small and medium enterprises with annual sales below 200 billion won.
On the 14th, DongKoo Bio&Pharma announced that it is pursuing the acquisition of a domestic bio corporation with filler and regenerative medicine technologies. The company stated that it cannot disclose the name of the target corporation at this time but noted that the acquisition process of a bio corporation that can be related to skin regeneration, fillers, and cosmetic treatments is at the final stages.
DongKoo Bio&Pharma's current core business primarily involves specialized pharmaceuticals used in dermatology, urology, internal medicine, and otolaryngology. The area of fillers, which the company is looking to enter, is a type of injectable medical device that provides effects such as wrinkle reduction and contour improvement (volume enhancement), moisturizing, and maintaining elasticity, and is in high demand in the skin and beauty market alongside botulinum toxin preparations. Compared to new drugs that are costly and take a long time to develop, fillers can generate revenue more quickly.
On the 13th, SillaJen announced that it would acquire Woosung Pharmaceutical from Corentec. The contract size is 10 billion won. Woosung Pharmaceutical's main products are intravenous solutions, primarily used by large hospitals. SillaJen's revenue last year was 3.9 billion won, with an operating loss of 26.4 billion won. This decision to acquire a company engaged in the intravenous solution business comes from the judgment that it needs a subsidiary to present as a cash cow to ensure stable revenue.
The new drug development company CURACLE announced that it will merge with Daesung Pharmtech, a company engaged in the development, import, and distribution of active pharmaceutical ingredients (API) this month. The merger is scheduled to be completed by May 14. Through the merger with Daesung Pharmtech, CURACLE expects to secure 9.5 billion won in revenue. According to the company, sales from Daesung Pharmtech will be reflected in reports starting in June following the completion of the merger. This month, the HLB Group acquired ANYGEN, a company with a GMP-certified factory for peptide manufacturing.
GC Biopharma will fully enter the botulinum toxin business, a representative product in the beauty and plastic surgery market, through M&A. GC Wellbeing, a subsidiary of GC Biopharma focused on nutrition and beauty injectables, acquired management equity in Inivbio last month. The acquisition price is reported to be 40 billion won. GC Wellbeing's annual revenue last year was about 133.8 billion won.
◇Emphasis on improving financial structure rather than R&D
The pharmaceutical and bio sectors expect that as interest rate cuts are anticipated in the future, the volume of domestic and foreign M&A transactions will increase this year. Director Park Bong-hyun of the Korea Bio Association's Policy Analysis Team noted, "Bio-listed companies are exploring acquisition opportunities to maintain their listing, while the difficulty of attracting investment may lead to an acceleration in the trend of selling non-core assets or small to medium-sized pharmaceutical companies, including those with GMP facilities, entering the M&A market."
The Korea Health Industry Development Institute stated, "In the case of the United States in 2023, 95% chose M&A as a means of capital recovery, while in Korea, initial public offerings (IPOs) accounted for 42%." It further emphasized that M&A should become more active to respond to market changes and stabilize growth structures, while also highlighting the need for M&A to demonstrate qualitative advancements alongside quantitative growth.
While the domestic M&A market is growing, it still differs from global pharmaceutical companies' M&A activities. According to the Health Industry Development Institute, among 48 M&A cases involving domestic companies from 2020 to last year, 34 were transactions under 100 billion won. This accounted for 79% of the 43 cases where the transaction size could be determined. The total scale of M&A transactions in the domestic pharmaceutical and bio sectors over the past five years amounted to approximately 98 trillion won (about $68 billion), which is smaller than the $74 billion (about 83 trillion won) paid by Bristol-Myers Squibb in 2019 to acquire Celgene, a company specializing in treatments for rare and intractable diseases.
The nature of M&A is also entirely different. Global pharmaceutical companies in the U.S. and Europe often acquire other companies to strengthen research and development (R&D) competitiveness. In contrast, domestic corporations are conducting M&A primarily for the purpose of securing management control, investment, and improving their financial structure by boosting revenue and profits in the short term.
There have also been cases where listed companies on the KOSDAQ acquired entirely different businesses to meet the annual revenue requirement of 3 billion won for maintaining their listing. Last year, the new drug development company Cellid acquired the bakery company Forbaker. This move was interpreted as a way to extinguish urgent financial difficulties by merging with a bakery company that can immediately generate revenue, as it faced the risk of being designated as a management risk.