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March 18, 2021

SK exhibits chaebol muscle as it expands into biotech sector amid vaccine rush

By MarketLine

SK Bioscience, the biotech division of the third-largest chaebol in South Korea, rose 160% in share price during its first day of public market trading. IPO success wasn’t unexpected, as the SK subsidiary is proving its value as a Covid-19 vaccine maker.

Established in 2018, the unit is determined to position itself as a key player in the vaccine making segment, and this $1.3bn IPO will certainly fuel the chaebol pharma’s ambitions amid the vaccine rush caused by the pandemic.

This expansion to the biotech sector from the SK conglomerate, known as an industrial giant, is well underway. AstraZeneca partnered with the South Korea company in May last year to rollout the Oxford-developed jab globally, which is now considered a major success.

In fact, the strong performance of the biotech company has led to an expansion in its collaboration with Novavax to produce the jab developed by the American pharmaceutical, which is set to receive regulatory approval for commercialization in the next few weeks.

Additionally, the South Korean conglomerate is already in the human trial stages of its own vaccine development as part of the WHO COVAX project.  If it receives the final regulatory approval, the chaebol will become a force to be reckoned with in the biotech and pharma sector.

Unlike most promising biotech companies, SK Bioscience is already profitable

Although sales fell 13% during the first three quarters of 2020, the increase in profit margins caused by the push in Covid-19 vaccine production has led the South Korean biotech to a net profit of $20m.

This contrasts with the predominant trend in the biotech sector so far, where companies have seen their valuations inflated based on the expectations raised by their latest advances in R&D, and the subsequent perceived potential future growth.

However, the current pandemic seems to have shifted investors interests away from long-term game-changing biotech, and towards short-term post-pandemic solutions.

Success in biotech will support SK’s new business model, as it shifts away from fossil fuel

SK Group, the third-biggest chaebol in South Korea, has vowed to end fossil fuel investment overseas, as well as reduce its carbon footprint by two thirds.

Having based its business growth on M&A over the last decades, the South Korean giant has claimed to be restructuring its investment strategy to change its current scale-driven portfolio to a more ESG-minded one.

Therefore, as the biotech sector gains relevance in the global economic environment, the SK Bioscience unit will certainly increase its relevance within the holdings, as some of the conglomerate’s more recent ventures experience profitless growth in the short term.