SK Group bets on biotechnology as energy business slows

Korean conglomerate SK Group plans to spend $1 billion to build a biotechnology business, which it hopes will offset slow growth in its existing businesses.
SK Group, Korea's fourth-largest conglomerate, plans to spend $1 billion to build a biotechnology business, whose profits it hopes will offset slowing growth in its energy and chemicals arms.

The Seoul-based company says it wants to make "life sciences", which refers to pharmaceuticals, agricultural and industrial products developed using living organisms and genetic technology, the third pillar of its business, alongside telecommunications and energy.

SK Group is starting more or less from scratch. It currently has a small pharmaceuticals business with two drugs it hopes to commercialize. One, an antidepressant it says is similar to Prozac but less toxic, is in phase II of clinical trials in the US. Another, an anti-epileptic, has been licensed for development by Johnson & Johnson and is in phase I of clinical trials.

"We are trying to reinforce our drug business and we'd like to concentrate the technical platform on biotechnology," says PK Lee, senior manager in the company's life sciences business group. "Within biotech, we are concentrating on functional genomics aimed at discovering new drug targets."

Biotech to top $100 billion

SK Group estimates that 30% of all pharmaceutical products will be produced using biotechnology within the next decade, representing a $100 billion business world-wide. To tap this market SK Group plans to make acquisitions and form alliances with US biotechnology companies. It is currently searching in the US for a chief executive to head the new division, and plans to recruit 500 researchers within the next five years.

In time, the company expects to spin off the life sciences unit as a separate entity. At first it will operate within SK Corporation, the energy and chemicals subsidiary of the SK Group. SK Corporation accounts for $10 billion of SK Group's $40 billion in total revenue. Its SK Telecom phone business and its trading operations account for the rest.

"We want to change our focus because our energy business is slowing down and we want to maintain a certain growth rate," says Lee. "We selected the life science industry as a future promising area and one where we already have some assets."

In addition to its drugs, SK Group also makes chemical intermediary compounds which it sells to pharmaceutical companies to make the active ingredients in their drugs. This business, which it calls Custom Manufacturing Services, accounted for $10 million in revenue in 1999 and is one of the few areas of the company's chemicals business which is growing, Lee says. It could eventually be folded into the life sciences business.

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