“Breaking down the boundary between food and bio” Orion Group acquires K-Bio’s first generation ‘LegoChemBio’

Orion plans to secure a 25.73% stake in LegoChem, with a total investment cost of 547.5 billion won
‘LegoChem CEO Kim Yong-joo’ retains his position as CEO, speeding up development of existing new drugs
However, the stock price fell sharply on the first day of the acquisition announcement due to the possibility of a 'downward adjustment' in performance

Orion Group acquired LegoChem Bioscience, a leading domestic antibody drug conjugate (ADC) company, for 550 billion won. Through this acquisition, Orion plans to secure future growth engines by advancing into the pharmaceutical and bio fields, which have been long-cherished businesses. In particular, it is expected to cooperate with a number of bio companies by utilizing the overseas distribution network, including in China, that it has built while focusing on the confectionery business. However, Orion’s stock price fell significantly on the first day of the acquisition announcement amid criticism in the market that the synergy effect with bio companies was unclear.

‘Orion Group’ becomes the largest shareholder of LegoChemBio

On the 15th, LegoChemBio decided to increase paid-in capital of KRW 469.8 billion to Pan Orion, a subsidiary of Orion, and to sell 4.93% of the 10.49% stake of the largest shareholder, CEO Kim Yong-joo, to related parties for KRW 78.7 billion. It was announced that the contract had been concluded. Accordingly, Pan Orion, which invested a total of 547.5 billion won, secured a 25.73% stake and became the largest shareholder.

The management of CEO Kim Yong-joo and Senior Vice President Park Se-jin will continue without change even after this stock transfer agreement. CEO Kim will be in charge of new drug R&D development and global cooperation, while Orion Group will be in charge of funding and marketing support. Regarding this contract, CEO Kim said, “We have been looking for a suitable partner based on the judgment that we need a largest shareholder with a stake of more than 20% for stable operation in the future,” and added, “Orion has a sufficient understanding of the special industry of new drug research and development and the company’s expertise over the past 18 years. “He showed respect for the management and operating system that has led the company, as well as the organizational culture, so we judged him to be the best partner to share the future with.”

LegoChemBio is expected to accelerate the development of ADC, a next-generation anti-cancer technology, with the cash secured through this contract. ADC is a drug technology that accurately delivers and attacks chemical anticancer drugs to cancer cells, and is attracting attention as a next-generation anticancer agent in the anticancer drug market. CEO Kim said, “Over the past two years, ADC has rapidly emerged as a mainstream anticancer drug, as represented by ‘Enhertu’, and large global pharmaceutical companies have entered the ADC field through M&A or licensing of leading ADC companies such as Seegene and Immunogen.” “In this environment, we decided to conduct more aggressive research and development to catch up with leading competitors and beat latecomers,” he said.

Orion expected to enter the pharmaceutical and bio fields in earnest, but market response is ‘kalte’

Orion Group is expected to enter the pharmaceutical and bio fields, a long-awaited business, through the acquisition of LegoChem Bioscience. Orion, which has focused on the confectionery business, has been investing in fields such as bio, convenience food, beverages, and bottled water as its next-generation growth engines. In December 2022, Orion Biologics was established through a joint venture with Hisense Bio, and it recently entered into a battle to acquire the management rights of Alteogen, a domestic bio company.

The person who led this contract was Orion Group Vice Chairman Heo In-cheol. He has been paying attention to the bio business as a new business for the past 10 years. Vice Chairman Heo said, “In the future, the boundary between food and bio will collapse, and health will emerge as a key topic in the global food market.” He added, “Especially in the field of anti-cancer treatments, ADC anti-cancer treatments are rapidly emerging as a large market. “Orion will contribute to helping Korea take the lead in development and expand it to the world,” he emphasized.

Orion is expected to continue to serve as a bio distribution platform in China’s biopharmaceutical market, which is the world’s second largest after the United States. Based on the distribution infrastructure and network it has built since entering the Chinese confectionery market in 1993, it is attempting to solve the problem of securing a distribution network, which is a problem for domestic bio companies.

However, the market appears to largely disagree with Orion’s vision. On the 16th, the day after the news of the LegoChemBio acquisition was announced, Orion’s stock price fell to 105,800 won, down 9.65% from the previous day, immediately after opening, hitting a new 52-week low. As the downward trend continued until 2 p.m. on this day, the stock price fell below 100,000 won and stands at 97,300 won.

Some securities companies are concerned about a decline in performance following the news of Orion’s entry into the bio business. It is pointed out that a downward adjustment in Orion’s performance may occur in the future as Orion accounts for LegoChem Bio’s accumulated deficit. The industry predicts that Orion’s operating profit will drop by more than 10% or net profit by 2-3% during this process.

In addition, some point out that the synergy effect with bio companies is unclear. Park Sang-jun, a researcher at Kiwoom Securities, said in a report that day, “Due to the expansion of investment in the bio business by confectionery companies, the investment points of food and beverage companies in terms of performance stability may be diluted, and questions about the synergy effect of investment in heterogeneous businesses may increase.” He pointed out, “Because the investment points of existing investors may be at odds with the direction of this new equity investment, the volatility of stock price valuation may increase as the shareholder composition changes.”