GemVax & KAEL (hereinafter GemVax) is embarking on a paid capital increase worth about 250 billion won, raising concerns about equity dilution among investors. As the participation of the largest shareholder in the capital increase remains uncertain, the results of the global phase 2 clinical trial slated for October are expected to determine future stock prices and investment directions.
According to the Financial Supervisory Service's electronic disclosure system (Dart) on the 1st, GemVax announced on the 29th of last month that it would proceed with a paid capital increase through the allotment for shareholders and a public offering of unsubscribed shares. It plans to issue 6.7 million new shares to raise 248.6 billion won. The planned issuance price for the new shares is 37,100 won, which is 25.6% lower than the last regular market closing price of 49,850 won.
The funds raised will be allocated for operational funds (204.4 billion won) and debt situations (44.2 billion won). The operational funds will be used for the research and development (R&D) of 'GV1001', a treatment for Alzheimer's disease and progressive multifocal leukoencephalopathy.
GemVax noted in a letter to shareholders that "research and development of new drug candidates for Alzheimer's disease and treatments for progressive multifocal leukoencephalopathy is approaching the phase 3 clinical stage beyond phase 2 clinical stages," adding that "a large-scale fundraising through a capital increase is necessary to complete the planned clinical trials and prepare for the successful commercialization of the new drug."
However, concerns among shareholders are growing regarding GemVax's capital increase. With the company's stock price surging from the 30,000 won range in early May to the 50,000 won range this month, there are criticisms that shareholders face a heightened burden of equity dilution as the company opts for a shareholder allocation method for the capital increase. The announcement of a 'surprise capital increase' after the regular market hours on Friday also exacerbated investor dissatisfaction.
If the largest shareholder participates 100% in this capital increase, equity dilution can be avoided, but the scale of participation remains uncertain at this time. According to the securities registration statement submitted by GemVax, its largest shareholder, Gem & Company, and related parties GLK Equity Invest and SAMSUNG PHARM plan to subscribe to only 766,868 shares out of the allocated quantity for this capital increase. This represents about 42% of the total allocated quantity, which could also vary.
In addition to the capital increase, the currently upcoming subscription of convertible bonds (BW) is also a burden. The 7th to 11th phases of BW stock are all expected to be exercised between the end of this year and early next year. The exercise price is between 11,000 won and 16,000 won, which is significantly lower than the current stock price (about 43,050 won). Since there is no adjustment to the exercise price due to the rise in the market price, the actual likelihood of exercise is high. Currently, the number of shares available for exercise amounts to about 4.69 million shares, which is 11% of the total issued shares.
Investors are also paying attention to the recent actions of SAMSUNG PHARM, an affiliate with GemVax as its largest shareholder. Last year, SAMSUNG PHARM conducted a shareholder-allocation paid capital increase worth 40.6 billion won to finance the 'GV1001 Alzheimer's domestic phase 3 clinical trial', but it faced controversy as most of the funds were used for operational costs, such as administrative expenses. Concerns have been raised that the ongoing capital increase by GemVax for the same treatment might follow the same path.
Ultimately, the results of the global phase 2 clinical trial for the Alzheimer's treatment scheduled for October are expected to determine the future direction of the stock price. The payment date for this capital increase is set for December, allowing for a decision on participation in the capital increase through the results of the phase 2 trial. However, the record date for the allotment of new shares is October 1.
Meanwhile, GemVax reported consolidated revenue of 37.3 billion won in the first half of this year, with an operating loss of 4.4 billion won and a net loss of 10.4 billion won. The debt ratio is 296%, exceeding the generally stable evaluation threshold of 200%. The company has been in an operating loss trend for four consecutive years, and while revenue is generated, it mainly comes from the environmental pollution control sector rather than new drug development.