Martial law prompts pharmaceutical firms in Korea to cut IPO prices

The martial law situation has shocked the domestic stock market, affecting the initial public offerings (IPOs) of corporations in the pharmaceutical and biotech sectors. Companies had been preparing for listings, expecting that the Bank of Korea's interest rate cuts would revive investor sentiment, but as market uncertainties increased, they have had to lower their offering prices or postpone their listings.

According to industry sources on the 13th, this month, companies specializing in radioactive pharmaceuticals, such as DUKEM Bio, the artificial intelligence (AI) new drug development platform company Oncocross, and the new drug development subsidiary of Jeil Pharmaceutical, Onconic Therapeutics, have all confirmed offering prices lower than their initial target prices.

DUKEM Bio decided on an offering price of 8,000 won, which is 35% lower than the lower end of its initially hoped price range of 12,300 won to 14,100 won, due to poor competition from institutions and a lack of binding retention commitments. Oncocross also set its final offering price at 7,300 won, approximately 28% lower than the lower end of its initial target price range. Onconic Therapeutics determined its offering price at 13,000 won, about 19% lower.

Lowering the offering price reduces the amount of funding that the companies initially aimed to secure. Pharmaceutical and biotech companies utilize the funds raised through IPOs for research and development (R&D) and capital expenditures for new drug development. If the offering price is reduced, there may be challenges in advancing R&D. Companies might also abandon their listings altogether and end up empty-handed.

Orom Therapeutics, regarded as a major player in this year's biotech IPOs, postponed its planned KOSDAQ listing this month to next year. Although it gained attention by signing consecutive technology export contracts with global pharmaceutical companies, it chose to withdraw its listing after receiving disappointing results in the demand forecast from institutional investors.

Orom Therapeutics was impacted by significant adverse reactions reported during a global phase 1 clinical trial of its core new drug development candidate, ORM-5029, a targeted protein degradation (TPD) agent, leading to the suspension of patient recruitment for the clinical trial. At that time, the company noted that it would temporarily suspend new participant registration for clinical trials until a comprehensive safety assessment was completed and a risk mitigation plan was established following reporting to the U.S. Food and Drug Administration (FDA).

In the securities market, it is noted that political turmoil is increasing stock price volatility; however, ultimately, the key factors are domestic and foreign currency policies and market conditions.

Lee Jae-man, a researcher at Hana Securities, explained, “The decline in the KOSPI during the impeachment of former President Roh Moo-hyun in 2004 was largely due to simultaneous interest rate hikes by the U.S. and China, and the rebounds of the KOSPI in 2004 and 2017 were backed by a robust export economy,” adding, “Considering that major central banks are expected to maintain an interest rate cut trend next year, it is essential to verify whether there will be a reversal in the domestic export economy.”

Kim Seung-min, a research committee member at Mirae Asset Securities, stated in a report, “If technology transfers and mergers and acquisitions (M&A) transactions by several biotech firms occur in December of this year, when uncertainties regarding the U.S. election are resolved, we can expect the positive stock price trends of U.S. small and mid-cap biotechs to be linked with the domestic KOSDAQ pharmaceutical index, leading to a simultaneous increase.”

The research committee member explained, “Reflecting on the stock price trends during Trump's first election, the uncertainty surrounding Trump's election was highlighted, and in November 2016, the KOSPI pharmaceutical index saw a limited increase, while the KOSDAQ pharmaceutical index dropped by 7.1%. However, once the uncertainty surrounding the election was resolved following the election, both indices rose by 3.7% and 7.5%, respectively, in December.”