On the 27th, the exit of PharmAbcine, a company developing antibody drugs, from the KOSDAQ market was confirmed. The company entered the market in 2018, recognized for its technology based on a library of over 100 billion human antibodies, but was removed due to clinical trial suspensions and poor sales. This marks the second exit of a bio corporation listed under the technology exception.
The number of bio corporations facing delisting risks due to technology exceptions is increasing. So far this year, nine bio companies that were designated as 'managed stocks' before the delisting review by the Korea Exchange have been identified. This is the largest number since the introduction of the technology exception system in 2005. Although it is still May, there are already more than last year's total of eight. Forecasts suggest that the number of bio corporations designated as managed stocks will reach double digits this year.
The technology exception listing system was created to allow companies with technological capabilities but lacking funds to apply for a preliminary listing review upon receiving a certain grade (A·BBB or higher). Initially introduced in 2005, over 250 companies have been listed through this system up until last year, with more than half being bio corporations at around 130. This system has served as a stepping stone for the growth of bio corporations.
The designation of managed stocks serves to inform investors of risks when delisting reasons specified by the exchange arise, such as worsening management of listed corporations and non-fulfillment of disclosure obligations. General KOSDAQ listed corporations are designated as managed stocks if they show less than 3 billion won in annual sales and trigger the corporation's continuous business loss (legal loss) exceeding 50% of their equity at least twice in three years.
Corporations listed under the technology exception also benefit from the designation of managed stocks. After listing, the sales requirements are deferred for five years, and the legal loss requirements are deferred for three years. However, if they fail to meet the criteria even after this period, corporations under the technology exception will also be designated as managed stocks, and if no improvements are made within a specified period after designation, delisting will occur.
Recently, the number of bio corporations under the technology exception that are receiving managed stock designations after exceeding the deferral period is increasing. A representative case is Bridge Biotherapeutics, which was designated as managed stock in March. The reason was exceeding the 50% legal loss compared to equity. If this requirement is not resolved by the end of next March, one year later, it will be subject to delisting review.
Bridge Biotherapeutics, which was listed under the technology exception in 2019, has fallen into a crisis as its candidate treatment for idiopathic pulmonary fibrosis (IPF), 'BBT-877', failed in a global phase 2 clinical trial last month. Fueled by expectations for new drug development, the stock price, which was hovering over 10,000 won, plummeted to around 700 won after the announcement of the clinical trial failure. Bridge Biotherapeutics is reportedly pushing for a transfer of management rights, as it needs to secure over 7 billion won in funding within the year.
The situation is similar for SCM Lifescience, which is in its fifth year since being listed under the technology exception. The company was listed based on its stem cell culture technology and was anticipating sales from its clinical phase 2 trial for a graft-versus-host disease (GVHD) treatment this January, but the clinical trial was derailed. Consequently, it failed to meet the legal loss ratio requirements and has been designated as a managed stock. Other companies such as DXVIX, ANYGEN, and Kainos Medicine have also failed to meet legal loss requirements and were designated as managed stocks.
In particular, among the bio corporations that have been designated as managed stocks this year, many are cited for failing to meet legal loss requirements. Legal loss refers to the figure before deducting corporate taxes from continuous losses incurred in business. It is an indicator primarily focused on losses rather than profits. Due to the characteristic of bio corporations spending large amounts on research and development (R&D) expenses without generating revenue, legal losses tend to be relatively high.
In fact, according to a survey conducted by the Korea Bio Association among 170 domestic bio corporations on 'improvement plans for the bio corporate technology exception listing system,' 127 corporations (74.7%) cited easing legal loss requirements as the top priority for industrial revitalization. Voices within the industry are consistently calling for R&D expenses, currently recognized as costs, to be treated as intangible assets.
Lee Seung-kyu, vice president of the Korea Bio Association, noted, "In the bio sector, equity itself is small, and due to the nature of the industry, a lot of funding is required for R&D, yet without any sales, it is inevitable that losses occur. Instead of eliminating the sales and legal loss requirements, there is a need to strengthen the oversight of board composition and overall management to protect both investors and corporate innovation."