SK’s CMO business posted KRW 812 billion last year…

shows sluggish growth

Last year's sales fall 11% YoY... due to decreased demand for consignment of COVID-19 drugs

Last year's operating loss turned into a deficit of KRW 89 billion... due to increased investment in facilities of acquired companies etc.

SK Group's contract manufacturing organization (CMO) business posted a deficit last year.

 

Sales reached nearly KRW 1 trillion, but its growth was sluggish.

 

Investments increased due to the expansion of production facilities at acquired companies, and demand for contract manufacture of COVID-19 drugs from overseas pharmaceutical companies decreased.

 

According to SK on April 9, SK Pharmteco’s sales revenue last year was KRW 812 billion, down 10.5% from the previous year.

 

SK Pharmteco posted an operating profit of KRW 49 billion in 2022 but turned to an operating loss of KRW 89 billion.

 

Quarterly sales of SK Pharmteco (Unit: 100 mil, Source: SK).

Established in January 2020 in California, U.S., SK Pharmteco is SK Group's contract manufacturing organization (CMO) in charge of the company’s manufacturing of consigned pharmaceutical products.

 

SK Pharmteco is comprised of five entities: SK Biotech, SK Biotech Ireland, AMPAC, Yposkesi, and CBM.

 

The company has a localization strategy that allows the company to carry out CMO businesses in the U.S.

 

and Europe by establishing local manufacturing facilities.

 

Quarterly sales of SK Pharmteco (Unit: 100 mil, Source: SK).

SK Pharmteco’s sales increased from KRW 651 billion in 2020 to KRW 776 billion in 2021, and KRW 907 billion in 2022, but the growth slowed down last year.

 

In terms of quarterly sales, SK Pharmteco recorded KRW 249 billion in sales in Q4 2022, followed by KRW 197 billion in Q1 2023, a 20.9% decrease from the previous quarter.

 

The company posted a loss of KRW 15 billion in Q1 last year.

 

Sales rebounded to KRW 214 billion in Q2 last year but fell 15.7% YoY to KRW 183 billion in Q3.

 

The decline in orders for COVID-19 drugs from large pharmaceutical companies created a revenue gap for CDMOs.

 

SK Pharmteco posted a loss of KRW 15 billion each in Q1 and Q2 last year.

 

The losses reflected costs related to the expansion of its production facility in Virginia, U.S.

 

In the Q4 last year, sales reached KRW 218 billion, up 19.1% from the previous quarter.

 

The company explained, “Sales increased due to the expansion of our pipeline that includes our core products, and the effect of the acquisition of CBM.” The company posted a loss of KRW 59 billion in Q4 last year, which reflects the initial operating loss of the gene cell therapy business following the acquisition of CBM.

 

SK Pharmteco acquired the management rights for The Center for Breakthrough Medicines (CBM), a U.S.

 

cell and gene therapy CDMO, in September last year.

 

In January 2022, SK Pharmteco invested USD 350 million (approximately KRW 420 billion) to fortify its bio business in the U.S.

 

and became the second-largest shareholder.

 

It ascended to become CBM's largest shareholder afterward by exercising the call option rights it secured during that time.

 

CBM is building a 65,000㎡ facility, the world's largest single manufacturing facility for cell and gene therapies, of which approximately 28,000㎡ have been completed to house its Viral Vector GMP facility and development and analytical laboratories.

 

When the GMP production facility for plasmids, the raw material used for cell and gene therapy drugs, is completed this year, the entire process, including development, production, and analysis, from plasmids to finished products such as viral vectors and cell therapy products, will be provided in one place.

 

Viral vectors are virus-based gene transfer vectors that insert therapeutic DNA into viruses for safe and efficient administration to the human body.

 

Compared to using different suppliers for each development and production process, the production period and cost can be reduced.

 

SK is implementing a strategy at the group level to develop SK Pharmteco into a global CDMO company.

 

Unlike how Samsung Biologics, whose CMO business has been growing rapidly in recent years, produces and supplies biopharmaceuticals ordered by overseas customers at its Songdo plant in Incheon, SK Pharmteco implemented a localization strategy and built production bases in the U.S., Europe, and other countries to develop its CMO business.

 

SK Biotech, which is in charge of the domestic production base, was established in April 2015 by spinning off SK Biopharm's raw pharmaceutical material business.

 

In 2016, SK incorporated SK Biotech as a 100% subsidiary.

 

SK invested KRW 40 billion in March 2016 and KRW 172.5 billion in November 2017 through a paid-in capital increase.

 

SK Biotech engages in the business of developing new raw materials using its proprietary technology.

 

SK

SK Pharmteco has secured a total of 5 overseas bases since 2017.

 

SK Biotech Ireland is the successor of BMS’s Ireland plant, which was acquired by SK Biotech in June 2017 for KRW 170 billion.

 

In 2019, SK acquired a 100% stake in U.S.

 

biopharmaceutical CDMO AMPAC to secure a U.S.

 

manufacturing base.

 

AMPAC has production facilities in California, Texas, and Virginia.

 

SK Group invested about KRW 1 trillion to acquire SK Biotech Ireland and AMPAC.

 

The three entities, SK Biotech, SK Biotech Ireland, and AMPAC, produce synthetic drugs.

 

In March 2021, SK Pharmteco expanded into the biopharmaceuticals sector with the acquisition of French gene and cell therapy drug contract manufacturer Yposkesi.

 

Last year, it became the largest shareholder of CMB and secured an additional production base for cell and gene therapy.

 

SK Pharmteco plans to strengthen its global market penetration through integrated operations of CBM and Yposkesi.

 

Yposkesi’s second plant was completed in June last year, and totaled at 10,000㎡, the largest in Europe.