SK Chemical’s U-turn on Pharma Business Sale: The Inside Story

On February 14th, SK Chemical announced the withdrawal of its pharmaceutical business sale, previously under consideration with Glenwood Private Equity. Despite a non-binding memorandum of understanding (MOU) and discussions, the company opted not to proceed, citing difficulties in adjusting sale conditions, including the sale amount, and a recent setback in a patent lawsuit.

The pharmaceutical business sale, initiated in September 2023, involved negotiations with Glenwood PE for a proposed $450 million deal. SK Chemical, known for its "Green Chemical" and "Life Science" sectors, aimed to channel funds from the pharmaceutical business sale into expanding its environmentally friendly ventures.

The decision to sell the pharmaceutical division reflected SK Chemical's strategic shift, having spun off its blood and vaccine businesses into independent entities in 2015 and 2018. The narrowed focus on the life science division led to the intended sale, encompassing both natural and synthetic pharmaceuticals.

Contrary to the initial announcement, SK Chemical reversed the sale within a month, citing misalignment in desired amounts between the parties. However, an official clarified that the decision was not solely based on the sale amount or conditions.

Some industry insiders speculate that the setback in a patent lawsuit against Novartis significantly influenced the withdrawal. SK Chemical lost the case on January 18th, with a patent court ruling requiring a payment of nearly $9 million. The lawsuit focused on allegations of infringing on Novartis' patent for the dementia treatment 'Exelon Patch.' Analysts question the feasibility of proceeding with the sale amid an ongoing legal dispute.

Despite external challenges, an SK Chemical representative emphasized the consistent profitability of the pharmaceutical business. In 2023, SK Chemical reported a 4.4% decrease in overall sales to $1.3 billion. Operating profit and net profit plummeted by 63.3% and 79.3%, reaching $63.4 million and $35.9 million, respectively. Notably, the pharmaceutical business recorded a 19.9% increase in sales, totaling $282 million, although its operating profit decreased by 6.3% to $23.6 million.