Hanmi Pharmaceutical's Palthan Plant Faces Profitability Concerns After Cost-Cut Order

This article was first published on Signal, Seoul Economic Daily's capital markets newsletter, at 17:58 on March 3, 2026.

Cost-cutting directives from Shin Dong-kook, chairman of Hanyang Precision and major shareholder of Hanmi Science, are expected to worsen profitability at Hanmi Pharmaceutical's Palthan plant, sources said. The push to reduce investment spending led to cuts in maintenance budgets, resulting in equipment failures. Industry insiders expressed growing concerns about future production capacity and operational efficiency.

According to investment banking sources on Monday, Hanmi Pharmaceutical invested approximately 3.7 billion won ($2.6 million) in maintenance for the Palthan plant last year. This represents a reduction of nearly 2 billion won from the annual average of 5.6 billion won spent between 2022 and 2024.

Hanmi Pharmaceutical estimates that equipment failure incidents increased approximately 27% year-over-year following the maintenance budget cuts. Deferred building repairs reportedly caused water leaks in automated warehouses. The leaks damaged products, and the company expects quality issues to be flagged during upcoming regulatory inspections.

A laser printer used for product packaging required an additional 300 million won replacement purchase due to insufficient preventive maintenance. Industry sources said the equipment, typically guaranteed for 60,000 operating hours, became unusable after just 20,000 hours, halting production for one month. A directive to suspend investment in automated robotic transfer systems also caused production delays when existing warehouse transfer equipment broke down.

The Palthan plant is South Korea's largest oral medication contract manufacturing facility, capable of producing 10 billion tablets annually. The facility features automated processes, production lines, and logistics systems, along with advanced equipment including laser printing technology. Sources inside and outside Hanmi Pharmaceutical estimate that the cost-cutting measures have delayed capital equipment investments that typically require two to three years to implement, potentially limiting future production capacity and efficiency.

Critics argue that Shin's management intervention as a non-executive director violates the spirit of recently amended commercial law. If such intervention leads to declining profitability, it could harm all shareholders, they said. Last year's commercial law amendments were designed to prevent abuse of power by major shareholders and separate ownership from management.

Market concerns have also emerged over directives to change pharmaceutical ingredient suppliers. Shin previously attempted to switch the supplier of rosuvastatin, a key ingredient in Rosuzet, a treatment for dyslipidemia. Rosuzet ranked first in outpatient prescriptions in South Korea last year with 227.9 billion won in prescription value, accounting for more than 14% of Hanmi Pharmaceutical's total revenue. Hospitals have been continuously inquiring with Hanmi Pharmaceutical about Rosuzet's pharmaceutical ingredients, sources said.

Shin has maintained that his directives serve the interests of all shareholders. At a press conference last month, he said, "My role is to monitor and check professional management from the perspective of all shareholders." He added, "Taking interest in professional management for the benefit of all shareholders cannot be called management interference."