The push by the new drug development bio corporations Oscotec to make Genosco a 100% wholly owned subsidiary has been halted by opposition from general and small shareholders.
At an extraordinary shareholders meeting held at Korea Bio Park in Bundang-gu, Seongnam, Gyeonggi, at 9 a.m. on the 5th, Oscotec's agenda to amend the articles of incorporation to change the total number of shares to be issued was voted down.
Oscotec currently holds a 59.12% equity stake in its U.S. subsidiary Genosco. The company planned to amend the articles and increase the number of shares, raise funds through a new share issuance, and purchase the remaining 40.88% equity in Genosco.
But there were not enough votes in favor. On the day, votes on the articles amendment agenda at the shareholders meeting were tallied at 47.8% in favor, 45.8% against, and 6.4% invalid. The total participating shares were 23,450,629. To amend the articles, more than one-third of the total shares must attend, and at least two-thirds of the attending shares must vote in favor.
For the company, shareholder opposition has put the brakes on the push to make Genosco a wholly owned subsidiary, following the failed Genosco listing in April, and differences of opinion between the company and shareholders remain unresolved.
Including proxy shareholders, 1,002 shareholders attended the extraordinary meeting, representing 61.5% of the total shares.
◇ what happened at Oscotec and Genosco
Oscotec is a bio company founded in 1998 by advisor Kim Jeong-geun, a former dentist, and is the original developer of Leclaza (ingredient name lazertinib), the first domestically developed anticancer drug to receive approval from the U.S. Food and Drug Administration (FDA).
Technology for a new drug candidate co-developed by Oscotec and its subsidiary Genosco was introduced by Yuhan Corp. in 2015, which continued development. Yuhan Corp. then transferred global exclusive rights to Janssen, a subsidiary of Johnson & Johnson (J&J), in 2018, proceeded with subsequent clinical trials, obtained U.S. approval last year, and successfully entered the global market.
This year, Oscotec pursued a KOSDAQ listing for Genosco. However, controversy over duplicate listings flared, and it fell through at the Korea Exchange (KRX) preliminary review stage in April. During the listing process, there was strong opposition from Oscotec shareholders. Prior to that, former CEO Kim Jeong-geun failed to be reappointed as CEO at the March shareholders meeting due to shareholder opposition and is serving as an advisor.
In line with shareholder opinions, the company decided not to pursue a Genosco listing and moved to make Genosco a 100% subsidiary as shareholders had demanded during the listing push. Through this shareholders meeting, it planned to secure funds for purchasing Genosco equity by amending the articles.
The company's plan was to increase the total number of authorized shares to be issued from the existing 40 million to 50 million, then secure funds by attracting investments from strategic investors (SI) or financial investors (FI).
The company emphasized that the expansion of authorized shares would be used only for purchasing Genosco equity and that it would not pursue general fundraising that dilutes shareholder value, including rights offerings to existing shareholders, but it did not fully win shareholders' trust.
On the day, Oscotec CEO Lee Sang-hyun appealed to shareholders, saying, "By making Genosco a 100% subsidiary, structural concerns over duplicate listings and conflicts of interest will be resolved, and all future achievements and value created by Genosco can be seen as accruing to Oscotec and Oscotec shareholders."
Earlier, global proxy advisory firms ISS and Glass Lewis issued "support" opinions on the extraordinary meeting's agenda, judging there would be no negative impact on shareholder rights and no particular issues in terms of board composition.
But with the amendment to the articles blocked on the day, the company must seek alternatives again. Oscotec Chief Financial Officer (CFO) Shin Dong-jun said, "Since the agenda to increase the total number of issued shares was voted down, it is difficult to say immediately what alternatives exist." He said, "It seems discussions will be needed at the board going forward," adding, "In this process, we will communicate with shareholders and fully reflect their opinions."
◇ "We oppose the director appointments, too" conflict between corporations and individual shareholders intensifies
"We sincerely apologize for causing concern due to distrust and lack of communication related to the push to list Genosco." The extraordinary meeting began with an apology from Lee Sang-hyun, Oscotec's board chair and CEO.
Lee said, "This shareholders meeting is a starting point to confront the crisis of trust head-on and make a fresh start toward a shareholder-centered system."
But loud protests erupted from shareholders at the venue. Shareholders protested, saying, "Oscotec's share price has fallen sharply," "There have been no technology export achievements since Leclaza," and "There are problems with the company's communication methods."
After the failed Genosco listing, conflicts between corporations and individual and small shareholders have intensified again. Shareholders cast more opposing votes on the agenda items submitted on the day—▲ the appointment of outside director Kim Gyu-sik ▲ the appointment of inside director Shin Dong-jun—and both were voted down. Of the four agenda items, only one, the approval of the auditor remuneration cap, passed.
Lee Gi-yun, chair of GK Asset and Oscotec's second-largest shareholder, who attended the meeting, asked, "With the Genosco listing having already failed twice, I want to know why you are now pursuing a 100% subsidiary."
In response, CFO Shin Dong-jun said, "Pursuing 100% subsidiary status for Genosco can fully shift Leclaza's value to Oscotec's value and simplify the governance structure."
The second-largest shareholder Lee said, "Some media reported that GK Asset, the second-largest shareholder, agreed to cooperate, but that is groundless," and protested to Oscotec, asking, "Why was such a report published?" He also said, "As the second-largest shareholder, I tried to contact former CEO Kim Jeong-geun to discuss, but could not reach him," adding, "The company did not even brief us on the detailed agenda of the extraordinary meeting."
Oscotec planned to fundamentally overhaul its board and IR framework. Accordingly, it recommended Shin Dong-jun, a former head of a securities firm's research center hired this year, as a candidate for inside director, and Kim Gyu-sik, who served as SME board chair and Korea Governance Forum chair, as a candidate for outside director. The company stressed they are personnel with experience in enhancing shareholder value and with independence.
But shareholder opposition also put the brakes on the company's board composition. Shareholders have significant doubts about Oscotec's plans after purchasing Genosco equity and the need for a wholly owned subsidiary. In particular, they have raised suspicions that Kim Seong-yeon, the son of former Oscotec CEO Kim Jeong-geun, would benefit, including exiting during the Genosco equity purchase process. Kim Seong-yeon holds about 13% equity in Genosco.
One shareholder said on the day, "The company keeps increasing researchers and its pipeline," and argued, "If there are no technology export results, management must be held accountable."
In response, Oscotec co-CEO Yun Tae-young said, "For companies that research and develop new drugs, securing talent is important," noting, "We had no choice but to use expense." He also said, "We expect technology export results from the new drug candidate that Oscotec developed and transferred to domestic corporations."