New drug developer Oscotec has begun work to make Genosco a 100% subsidiary. Genosco developed the new lung cancer drug Leclaza, the first domestically developed anticancer drug to enter the U.S. market. Genosco had previously sought a KOSDAQ listing, but small shareholders opposed it and the plan fell through.
Oscotec holds 59% equity in Genosco. Oscotec plans to secure funds through a third-party allotment paid-in capital increase to buy the remaining 41% equity. It will newly issue and sell shares to specific external investors who are not existing shareholders.
According to the Financial Supervisory Service's electronic disclosure system on the 18th, Oscotec will hold an extraordinary general meeting of shareholders on Jan. 5 to push for an amendment to its articles of incorporation to increase the total number of authorized shares to be issued from 40 million to 50 million.
With the funds secured in this way, Oscotec plans to complete the conversion of Genosco into a wholly owned subsidiary within one to two years. Genosco's equity is held by Meritz Securities (20%), Yuhan Corporation (5%), the children of former Oscotec CEO Kim Jeong-geun (13%), and executives and employees.
As of the first half of this year, retail investors accounted for 66% of Oscotec's total shareholders. From the perspective of small shareholders, they may raise concerns that a paid-in capital increase could reduce the value of their shares compared with before. This is because when the number of shares increases, existing shareholders' equity ratios are diluted. Oscotec said, "We will not conduct a rights offering that causes dilution of shareholder value." In other words, existing shareholders will not be given the right to purchase new shares.
Genosco had previously sought a KOSDAQ listing, but the plan was scrapped at the preliminary review stage by the Korea Exchange (KRX). The controversy arose because both Genosco and Oscotec generate sales from Leclaza, raising concerns about duplicate listings.
Oscotec founded Genosco in the United States in 2000. Genosco developed Leclaza and transferred the technology to Yuhan Corporation in 2015. Leclaza received approval from the Ministry of Food and Drug Safety in Jan. 2021. As a combination therapy used with the anticancer drug Rybrevant from U.S. pharmaceutical company J&J, it received approval from the U.S. Food and Drug Administration (FDA) in Aug. last year.
In 2018, Yuhan Corporation transferred the global exclusive rights to Leclaza to Johnson & Johnson's subsidiary Janssen in a deal worth up to 1.4 trillion won. Under the contract at the time, Oscotec and Genosco receive a portion of Leclaza sales from Johnson & Johnson as royalties (a share of sales revenue). The two companies each receive 20% of the royalties, and Yuhan Corporation receives the remaining 60%.
Oscotec's small shareholders opposed Genosco's listing on the grounds that both generate sales from Leclaza, which would dilute corporate value if Genosco listed. Believing that an initial public offering of Genosco could push down Oscotec's share price, small shareholders took collective action and dismissed former CEO Kim Jeong-geun at the shareholders meeting in March.
Oscotec's small shareholders demanded that Genosco be converted into a wholly owned subsidiary or merged. Oscotec determined that a merger of the two companies would be difficult because Genosco is a U.S. entity and pursued a conversion to a wholly owned subsidiary. Oscotec's position is that if Genosco is converted into a 100% subsidiary, the subsidiary's profits will flow directly to the parent company, aligning with shareholder interests.
Oscotec is currently developing candidate substances for treating Alzheimer's dementia and solid tumors. Genosco submitted an investigational new drug application for a phase 1 clinical trial of a candidate treatment for pulmonary fibrosis to the U.S. Food and Drug Administration in Aug.
Funding is needed to conduct clinical trials. Genosco had previously sought a KOSDAQ listing to raise research and development expenses for various new drug developments. A company official said, "We are currently using Leclaza royalties and milestones (license fees) for research and development expenses."
Oscotec's cumulative consolidated sales for the third quarter this year were 20.9 billion won, with an operating loss of 9.3 billion won. Research and development expenses were 17.8 billion won. During the same period, Genosco recorded 12.3 billion won in sales and an operating loss of 3.365 billion won.