English translation of the original Korean report. Images and source documents may contain Korean text.

Shin Dong-bin’s eldest son, who was in charge of the group’s new business strategy, now co-CEO of the bio business, overseeing its execution… Must connect orders to production and profit.

Shin Yu-yeol, co-CEO of Lotte Biologics and eldest son of Lotte Group Chairman Shin Dong-bin, has taken on the task of developing the group’s supported bio business into a self-sustaining, profitable venture.

Having risen from an executive in charge of strategy, seeking the group’s future growth engines, to a CEO directly leading the bio entity, the performance of this business will serve as a concrete report card to gauge his capabilities as a successor executive.

According to the Financial Supervisory Service’s electronic disclosure system on the 3rd, CEO Shin took office as CEO of Lotte Biologics on December 1 last year. While concurrently serving as Vice President and Head of Lotte Holdings’ Future Growth Office, professional manager James Park is leading the bio entity as co-CEO. He has taken on the role of actually operating the business, in addition to conceptualizing the direction of new businesses.

Biopharmaceutical Contract Development and Manufacturing Organization (CDMO) is a business that generates profit by developing and producing drugs on behalf of pharmaceutical companies. Significant capital is initially invested to establish production facilities, and even after signing contracts with clients, actual supply only follows technology transfer and production validation. CEO Shin’s task does not end with securing contracts but extends to operating factories to generate sales and secure cash.

Current performance reflects this challenge. According to the summary financial information for subsidiaries in Lotte Holdings’ semi-annual report, Lotte Biologics’ consolidated revenue for the first half of this year was 23.889 billion won, and its semi-annual net loss was 127.932 billion won. During the same period, 97.177 billion won in cash was net outflowed from operating activities. This indicates that cash was depleted even during business operations, separate from factory construction costs.

Including the net cash outflow from investing activities, the cash outflow from operating and investing activities in the first half was 338.365 billion won. Although 217 billion won was net inflowed from financing activities, which include borrowings and capital increases, this was insufficient to cover the outflow, resulting in a decrease of 120.838 billion won in cash and cash equivalents, reflecting the effect of exchange rate fluctuations.

Investment expenditures occur upfront during the new factory construction phase. A point to note regarding this cash decrease is that cash is flowing out not only from facility investments but also from operations, indicating a continuous need for external funding. The structure is such that orders must lead to actual production and payment collection to reduce the burden of group support.

The utilization rate of the Syracuse plant in the U.S., an existing production base, was 16% in the first half. Out of a production capacity of 45 batches, actual production was 7 batches, which was lower than last year’s annual utilization rate of 74%. The company explained that it plans to operate some manufacturing lines restrictively due to scheduled regular maintenance and equipment upgrades planned until early 2027.

■ Affiliates Provide Equity Investment and Loan Support… Shin Yu-yeol’s Task is Business Monetization

The group’s financial support continues. Hotel Lotte decided to make an additional equity investment of 48.68 billion won in the bio entity on August 11. The cumulative investment, including this one, amounts to 291.708 billion won, and the stated purpose in the disclosure is to improve Hotel Lotte’s profitability and secure new growth engines.

The sale of Hotel Lotte and Busan Lotte Hotel’s 61.17% stake in Lotte Rental was concluded on the 30th of last month. This reflects a trend of divesting existing business stakes while continuing investments in bio. Lotte Holdings also decided on the 22nd of last month to provide a capital replenishment agreement to support the bio entity’s loan repayment.

The agreement covers the entire debt, including the principal amount of 282.5 billion won in loans to be raised from HSBC and others, as well as interest and fees. If the bio entity lacks funds to repay the loans, Lotte Holdings will replenish the capital, with the obligation period scheduled until November 2029. This structure means that the bio entity’s financial situation could lead to additional burdens for the holding company.

Lotte Capital also participates in operating fund loans. In the disclosures from both companies on the 22nd of last month, Lotte Capital’s participation amount was stated as 22.5 billion won, with an annual interest rate of 5.7%. The scheduled execution date is December 22. Funds from affiliates are expected to be injected not only into equity investments but also into loans necessary for business operations.

The increasing importance of CEO Shin’s management performance is distinct from the progress of share succession. As of the end of June this year, CEO Shin’s holdings of Lotte Holdings common shares amounted to 34,490 shares, which is approximately 0.035% when divided by the total issued common shares. Chairman Shin Dong-bin, the largest shareholder, holds a 13.7% stake in common shares. The reason why CEO Shin’s current CEO position and business performance in bio are drawing attention is that it is a position where his management capabilities can be verified.

Songdo Plant 1, the new production base, received approval for use last June. The company stated in its semi-annual report that it is conducting validation work to ensure compliance with pharmaceutical manufacturing and quality control standards, aiming for operation within the year. The remaining task is to move to the stage of actually producing client’s pharmaceuticals after completing the facilities.

Recently, achievements in client acquisition have emerged. Lotte Biologics announced a long-term production partnership with Alvotech on the 7th of last month, stating that it would produce multiple antibody biosimilar drug substances at its Syracuse plant in the U.S. and supply them to the global market. The contract amount and confirmed production volume were not disclosed in the announcement.

CEO James Park explained in this announcement that Lotte Biologics would support Alvotech’s business expansion by utilizing both the Syracuse and Songdo sites. The company stated that actual commercial supply is contingent upon technology transfer, manufacturing qualification validation, and relevant regulatory approvals. Supply will only begin after completing production preparations and approval procedures following the contract signing.