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 chase the frontrunners with aggressive investment.
However, key challenges include growing financial burdens from large-scale investments and the potential controversy over "duplicate listings" that could arise during a future initial public offering (IPO).
◇ From stock options to the Songdo plant…financial burden expands
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 (par value 5,000 won per share) in stock options to employees who worked a full year last year, with amounts varying by rank. The company plans to complete the grants after obtaining shareholder approval soon.
The company, which has operated a stock option program 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 departure of highly experienced professionals with deep industry understanding through bold compensation.
But stock options are reflected as an expense in accounting. Moreover, Lotte Biologics is also investing in its Songdo Plant 1, which could affect financial soundness as it prepares to go public. Songdo Plant 1 is scheduled to be completed in the second half of this year and begin operations in the second quarter of next year.
As of the 2024 year-end audit report, Lotte Biologics posted consolidated revenue of 234.4 billion won, up 3% from a year earlier. Operating loss swung to 80.1 billion won. Total liabilities rose to 630.5 billion won, up 250% from the previous year's 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 plant in the United States has limits on output, so we began full-scale construction of Songdo Plant 1 in 2024," adding, "Due to the plant investment, losses are unavoidable for the time being." The official also said, "The goal is to make up for the losses through the operation of Songdo Plant 1 and move into the black."
◇ Lotte Corporation owns 80% equity...funding faces 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 (a vice president at Lotte Corporation) and 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, "The listing is expected after 2029," adding, "We have not yet finalized the timing or selected a lead underwriter."
Still, the controversy over duplicate listings could be a variable. As of the end of 2024, Lotte Corporation owns 80% of Lotte Biologics' equity and Lotte Holdings owns 20%. 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 are holding a meeting today to stabilize and normalize the capital market. 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 say that if regulatory measures on duplicate listings are prepared going forward, they could become an obstacle to Lotte Biologics' listing.
Nam Gil-nam, a 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, "If a subsidiary lists through an initial public offering, expanding dividends so that the fruits can flow to the parent's shareholders could be one option."
Lee June-seo, a professor of business administration at Dongguk University, said, "An initial public offering is usually discussed by the board of directors," adding, "It could become a test of whether the directors fulfill their duty of loyalty not only to the company but also to shareholders in line with the Commercial Act."