South Korea’s SK Group is pushing forward strategic mergers and acquisitions to bolster its pharmaceutical business, considered one of the key industries to lead the conglomerate’s future growth.

SK Holdings is close to finalizing its selection of at least two global contract manufacturers of active pharmaceutical ingredients (API) used in pharmaceutical production, presumably midsized firms from Europe and North America, for acquisitions, according to news reports and industry sources on Sunday.

SK’s holdings firm is “set on purchasing at least two or more global pharma CMOs each worth at least $400 million to $500 million,” signaling more than 1 trillion won in potential investment in the deals, a source was quoted as saying.

“We are actively looking into potential M&As to strengthen our pharmaceutical capabilities, in line with our stated plans to nurture the segment as one of our future growth engines,” said an SK Holdings spokesperson. “However, all options are still under review and details have yet to be determined.”

The recent development is perceived as part of SK’s continued efforts to ramp up its pharmaceutical business, led by its new drug developing unit SK Biopharmaceutical and SK Biotek, an API manufacturer.

By acquiring major pharmaceutical CMOs, SK Biotek would be able to significantly drive up its net manufacturing capabilities to go head-to-head with its global competitors.

At the same time, SK is likely timing the acquisition in line with the approaching market debut of SK Biopharmaceutical’s new sleep disorder medication.

The new chemical drug, named SKL-N05, is undergoing Phase III clinical trials and is expected to be commercialized as early as 2018.

Industry watchers say SK may be looking to secure the right production technology and capability as well as marketing channels by acquiring a sizeable pharmaceutical CMO ahead of the drug’s expected release.

“All of our business decisions (including potentially acquiring global CMOs specializing in API production) are geared at strengthening our overall pharmaceutical business, including new drug development and manufacturing,” said the SK Holdings official.

By Sohn Ji-young (jys@heraldcorp.com)