Lotte Group, the South Korean conglomerate, plans to restructure its bio division by focusing on its profitable CDMO services business and shutting down loss-making Lotte Healthcare. The restructuring includes discontinuing its direct-to-consumer genetic testing business and transferring its health-functional food division to Lotte Wellfood. The group expects its CDMO unit, Lotte Biologics, to grow, with a planned $3 bn investment to expand its capacity in South Korea and the U.S., as it looks to capitalize on opportunities in the global biologics market.

The following article originally appeared in The Korea Economic Daily Global.

South Korea’s retail-to-chemical conglomerate Lotte Group will restructure its bio business to focus on the profit-making medicine bio development manufacturing organization (CDMO) business.

Sources in the investment banking industry said on Friday that Korea’s seventh-largest conglomerate has decided to pull the plug on money-losing Lotte Healthcare founded in April 2022 in line with its pushing the bio business as a new growth driver.

The group is considering abandoning Lotte Healthcare’s direct-to-consumer (DTC) genetic testing business and handing over its health-functional food division to Lotte’s confectionery unit Lotte Wellfood Co., according to sources.

It also plans to unload Lotte Healthcare’s stakes in bio companies as part of the restructuring process.

The healthcare unit was founded by Lotte as a next growth engine, with a focus on bespoke retail health management services but its mainstay genetic testing business has failed to generate profit.

Worse yet, it is accused of stealing Korean startup Algocare’s proprietary technology.

In 2023, Lotte Healthcare logged an operating loss of 22.9 billion won ($17 million) with sales of 800 million won.

“The company has been on life support, almost out of business since last year,” said a source from the IB industry.

CDMO AS A SOLE DRIVER

After shuttering Lotte Healthcare, Lotte is expected to shift its focus and resources to the bio CDMO business, which is considered more lucrative.

Lotte Biologics Co. advanced into the CDMO business after acquiring a local CDMO plant in the US within a year of its foundation in June 2022.

In 2023, the company raked in 228.5 billion won in revenue, and the CDMO business outlook is bright as the global biologics market is on a solid growth trajectory.

To meet the strong demand, Lotte Biologics announced a plan to invest $3 billion to build a plant with a capacity of 360,000 liters in Songdo, Incheon, by 2030.

It also plans to add CDMO plants in the US, where the House of Representatives is expected to pass a bill dubbed the Biosecure Act, which will regulate Chinese biotech companies, including CDMO players. This could, however, allow Korean bio companies to seize more opportunities in the country.

The key to the success of latecomer Lotte Biologics is its prompt and aggressive investments to advance its product quality and secure skilled talent to catch up to Korea’s No. 1 CDMO player Samsung Biologics Co., said an official from the Korean bio CDMO industry.

Meanwhile, Lotte Group Chairman Shin Dong-bin pins high hopes on the bio business as one of the group’s next growth engines, stressing Lotte Biologics as one of them and urging employees to create a successful bio cluster in Songdo.

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