Lotte Biologics’ new leadership struggles to brush off doubts

Lotte Biologics CEO James Park / Courtesy of Lotte Biologics

Lotte Biologics, a biopharmaceutical contract development and manufacturing organization (CDMO) established in 2022, is struggling to dispel concerns about its viability, as its newly nominated CEO, who was appointed in an attempt to address the company's challenges, is generating more skepticism than optimism.

Industry officials are raising doubts about the company’s strategy, suggesting that as a latecomer to the industry, it should have sought figures from global CDMO giants, rather than focusing on domestic recruitment, to break the ice on its frozen order log. Highlighting the new CEO’s background at competitor Samsung Biologics, some even expressed concerns over potential legal conflicts between domestic CDMOs.

On Dec. 2, Lotte Biologics announced the appointment of James Park as its new CEO, succeeding Lee Won-jik, who played a key role in the company's establishment.

The appointment was viewed as a punitive replacement because the company has seen little to no success in securing new orders since its establishment. Lotte Biologics said Park has “expertise in overall management and exceptional leadership in securing global orders.”

Park established his career at Merck and Bristol Myers Squibb (BMS) as a specialist in in- and out-licensing as well as mergers and acquisitions. From 2015 to 2022, he was at Samsung Biologics where he led its global sales. More recently he was CEO of GC Cell, a cell and gene therapy maker, from 2023 until the recent appointment.

Participants break ground for Lotte Biologics' plant in Incheon during a ceremony, July 3. Courtesy of Lotte Biologics

During his tenure at GC Cell, however, the company’s profitability declined. In 2023, its sales declined by 20.5 percent year-on-year to 187.5 billion won ($130.9 million) and operating profit plunged by 90 percent to 4 billion won during the same period.

From January to September this year, its revenue stood at 131.84 billion won, down 2.36 percent from a year earlier, and it incurred an operating loss of 10.7 billion won.

“There were hopes that Lotte Biologics could address its order struggles by replacing its leadership, but the appointment came as a disappointment. Initial expectations were that the company might recruit top-tier experts from the global CDMO market, but it is difficult to describe James Park’s tenure at GC Cell as successful," a biotech industry official said.

Against this backdrop, speculation is growing that Park’s experience winning orders at Samsung Biologics played a crucial role in Lotte Biologics’ decision to hire him, which industry insiders say “could be a risky bet.”

To kick-start its CDMO business from scratch, Lotte Biologics used aggressive strategies in hiring an experienced workforce, namely by taking over BMS’ plant in the United States and retaining 99.2 percent of the plant’s employees. As part of this strategy, many of the former Samsung Biologics officials, including outgoing CEO Lee, also joined Lotte and took key positions.

This helped Lotte Biologics to build up a fundamental operating system in a shorter period, but created risks of legal conflicts with Samsung Biologics.

From June 2022 to August 2023, Samsung Biologics filed three civil and one criminal complaint against Lotte Biologics with courts, claiming its trade secrets were infringed due to employees who moved to Lotte Biologics. Of those suits, an Incheon court has already sided with Samsung Biologics, while other trials are ongoing.

Some industry officials speculate that such conflicts may escalate into a large-scale legal battle similar to a multi-trillion won legal battle between LG Chem and SK Innovation over key battery technologies. At that time, LG Chem claimed that SK Innovation poached 76 key personnel from its battery business division over a period of two years starting in 2017, and the battle ended in 2019 with SK Innovation paying 2 trillion won in compensation to LG Chem.

An artist's impression of Lotte Biologics' plant in Incheon / Courtesy of Lotte Biologics

Against this backdrop, Lotte Biologics' current financial standing is also worrisome. In the third quarter of this year, the company swung to an operating loss of 27.8 billion won, with its revenue plummeting 47.8 percent year-on-year to 46.7 billion won.

The company’s revenue is generated mostly by its U.S. plant, as it signed a 280 billion won contract manufacturing deal with BMS when it acquired the plant, which is the only sizeable order the company has secured so far.

Since the company has already posted more than 280 billion won in accumulated revenues after the plant’s acquisition, and BMS has signed a deal to manufacture the same drug with Samsung Biologics, the company’s viability will face questions unless there are new orders.

The financial situation of its parent Lotte Group is also casting worries. Lotte Biologics has promised to invest 4.6 trillion won to build a 360,000-liter plant in Incheon. Though the group’s holding firm, Lotte Corp., decided to provide a capital support agreement for Lotte Biologics’ 900 billion won loan, the group is now undergoing a group-wide restructuring to secure more liquidity.