December 24, 2024

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A perspective view of Lotte Biologics' plants in Songdo, Incheon (Lotte Biologics)

Lotte Group, the country's fifth largest conglomerate, hopes its biopharmaceutical contract manufacturing arm will become a future engine of growth, following in the footsteps of Samsung. But the road ahead remains uncertain as Lotte is still in the early stages of the business.

According to industry sources, Lotte Biologics is expected to face a myriad of challenges when it comes to finding a foothold in the market, with issues from price competitiveness to talent recruitment.

In 2022, the group announced they were entering into the biopharmaceutical industry by establishing Lotte Biologics.

The contract manufacturer currently plans to build three plants in Songdo, Incheon, by 2030, which are estimated to cost around 3 trillion won ($2.34 billion).

Lotte aims to start the construction of its first plant this year, to be completed in 2025, with the goal of beginning commercial production by 2027. The company also aims to have all three factories up and running by 2034.

The overall outlook for the contract development and manufacturing organization market is promising because of the growing trend of outsourcing across the biopharmaceutical industry. Over the past few years, biopharmaceutical companies have increasingly turned to contract manufacturers, helping the industry grow rapidly.

Lotte is seeking to emulate the success of Samsung Biologics, the contract manufacturing unit of Samsung which delivered rapid growth in recent years.

But Samsung's success does not promise the immediate success of Lotte Biologics, according to several industry sources.

“Even in the case of Samsung Biologics, it took quite a long time before actually signing its first contract,” said an industry source on condition of anonymity.

In July of 2012, Samsung Biologics completed the construction of its first plant. However, it took a full year before the company came to sign its first deal in July 2013 with the US multinational pharmaceutical firm, Bristol Myers Squibb. The absence of any track records as a contract manufacturer apparently made it difficult for the company to secure its first deal, the source explained.

Lotte Biologics could face similar difficulties in securing the orders it needs to keep its plants running and to create revenue.

“Lotte Biologics will have to prove itself capable of producing the medicines it is asked to (produce),” a local market researcher said. The researcher hinted that the competition would be tough given that Samsung Biologics has already maintained a 10-year track record.

Lotte Biologics could try to aim for price competitiveness over Samsung Biologics, who did the same thing in the early stages of its business against foreign competitors such as Roche.

However, “small-scale price competitiveness will not provide Lotte Biologics a big upper hand over its competitors. It has to be cheap enough for clients to consider changing their manufacturing locations, which requires regulatory procedures,” the source said.

Relocating a production base -- even to an adjacent plant -- requires rigorous regulatory procedures before production can commence. If a client wants to sell drugs manufactured by Lotte Biologics in the US, the client will need to go through another approval process with the US regulator, the Food and Drug Administration, for instance.

Securing the necessary manpower is another issue. Eventually, Lotte Biologics will need thousands of new employees to operate all three plants, the combined manufacturing capacity of which will reach 360,000 liters.

Samsung Biologics, which has a production capacity of 360,000 liters, currently has some 4,500 employees.

An official from Lotte Biologics said the company plans to secure new employees as the company finishes construction of the plants as they are currently not needed. Lotte Biologics currently has less than 100 workers.

The official also noted that Lotte Biologics’ contract manufacturing plant in Syracuse, New York, which it acquired from BMS last year, would help the company to quickly train new workers. The current employees at the former BMS factory are also expected to help Lotte Biologics conduct quality control reviews of the newly built plants in Songdo.

There is other good news for Lotte Biologics, which is its group-wide commitment to invest in its CDMO business.

“I was told that the group is making a big push for Lotte Biologics and Lotte Healthcare,” an internal source said. "Lotte Biologics has been recruiting experts from other companies, including foreign CDMO firms,” the source added.

By Shim Woo-hyun ( ws@heraldcorp.com)