Lotte Biologics is stepping on the gas to secure top talent and expand production facilities. As a latecomer in the contract development and manufacturing organization (CDMO) market, it plans to aggressively invest to rapidly catch up with the first movers.
However, the heavier financial burden from large-scale investment and a potential controversy over "duplicate listings" that could surface during a future initial public offering (IPO) are cited as key issues to resolve.
◇ Stock options and even the Songdo plant… financial burden widens
According to the biotech industry on the 18th, Lotte Biologics recently held a board meeting and decided to grant a total of 102,504 shares in stock options (exercise price par value 5,000 won per share) to employees who worked the full year last year, with amounts varying by rank. The company plans to complete the grant after approval at a shareholders meeting soon.
The company, which has operated a stock option system since 2023, is also considering introducing an employee stock ownership plan. As it entered the market later than competitors such as Samsung Biologics and Celltrion, it aims to prevent the outflow of industry-savvy specialists through bold compensation.
But stock options are reflected as an expense in accounting. Moreover, Lotte Biologics is pushing investment into its Songdo Plant 1, and analysts say this could affect financial soundness as the company plans to list. Songdo Plant 1 is slated for completion in the second half of this year and to begin operations in the second quarter of next year.
As of the 2024 year-end audit report, Lotte Biologics posted 234.4 billion won in consolidation revenue, up 3% from a year earlier. Operating loss swung to 80.1 billion won. Total liabilities were 630.5 billion won, up 250% from the prior year (180.2 billion won). The company faces the task of expanding orders and improving results in time for the start of operations at Songdo Plant 1.
A Lotte Biologics official said, "The Syracuse, U.S., plant has limits to its production volume, so we began in earnest to build Songdo Plant 1 in 2024," adding, "Given the plant investment, losses are inevitable for the time being." The official said, "Our goal is to offset the losses and move into the black through operations at Songdo Plant 1."
◇ Lotte Corporation owns 80% equity... funding gets a "red light" under duplicate listings rules
The biotech business is considered a key new venture led by Shin Yoo-yeol, CEO of Lotte Biologics (Lotte Corporation executive vice president), the eldest son of Lotte Group Chairman Shin Dong-bin. As continued investment and funding are needed to expand the business, an initial public offering is cited as a core task. A Lotte Biologics official said, "We expect the listing after 2029," adding, "We have not yet set the timing or selected an underwriter."
Still, the controversy over duplicate listings could be a variable. As of the end of 2024, Lotte Corporation holds 80% and Lotte Holdings 20% of Lotte Biologics' equity. Since Lotte Corporation is already listed on the main board, a listing of Lotte Biologics could spark controversy over duplicate listings.
The government is also discussing regulations on duplicate listings. The presidential office and financial authorities will hold a meeting today for capital market stabilization and normalization. The industry is watching to see whether duplicate listings will be discussed there. A Korea Exchange (KRX) official said, "We are preparing guidelines on duplicate listings."
Some analysts also say that if regulations on duplicate listings are drawn up going forward, they could become an obstacle to Lotte Biologics' listing.
Nam Gil-nam, senior researcher at the Korea Capital Market Institute, said, "If a subsidiary is to be listed, the company must fully explain to shareholders why funding is needed," adding, "Expanding dividends so that the fruits of a subsidiary's listing through an IPO flow to the parent company's shareholders could also be an option."
Lee June-seo, a professor in the Department of Business Administration at Dongguk University, said, "IPO plans are usually discussed by the board," adding, "It could serve as a test of whether directors are fulfilling their duty of loyalty not only to the company but also to shareholders in accordance with the Commercial Act."