The plan 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 Oscotec's extraordinary shareholders meeting held at 9 a.m. on the 5th at Korea Bio Park in Bundang-gu, Seongnam, Gyeonggi Province, an agenda item to amend the articles of incorporation to change the total number of shares to be issued was voted down.
Oscotec currently holds 59.12% equity in its U.S. subsidiary Genosco. The company planned to amend its articles and increase the number of shares to raise funds through a new share issuance to buy the remaining 40.88% equity in Genosco.
But there were not enough votes in favor. On the agenda to amend the articles at the meeting, 47.8% voted in favor, 45.8% opposed, and 6.4% were invalid. The total number of participating shares was 23,450,629. To amend the articles, at least one-third of total shares must attend, and at least two-thirds of attending shares must vote in favor.
For the company, shareholder opposition has now put the brakes on the drive to make it a wholly owned subsidiary, following the failure to list the subsidiary Genosco in April, and differences between the company and shareholders remain unresolved.
Including proxy shareholders, 1,002 shareholders attended the extraordinary meeting that day, representing 61.5% of the total number of shares.
◇ What happened at Oscotec and Genosco
Oscotec is a bio company founded in 1998 by adviser Kim Jeong-geun, a former dentist, and is the original developer of Leclaza (ingredient name lazertinib), the first domestically developed anticancer drug to win U.S. Food and Drug Administration (FDA) approval.
Yuhan Corp. introduced the technology for a new drug candidate jointly developed by Oscotec and its subsidiary Genosco in 2015 and continued development. Yuhan Corp. then completed a technology transfer of global exclusive rights to Janssen, a subsidiary of Johnson & Johnson (J&J), in 2018, proceeded with follow-up clinical trials, obtained U.S. approval last year, and succeeded in entering the global market.
This year, Oscotec pursued a KOSDAQ listing for Genosco. However, controversy over duplicate listings flared, and it fell through at the preliminary review stage by the Korea Exchange (KRX) in April. Shareholder opposition at Oscotec was strong during the listing process. Earlier, former CEO Kim Jeong-geun failed to win reappointment as CEO due to shareholder opposition at the March shareholders meeting and now serves as an adviser.
In line with shareholder views, the company decided not to pursue listing Genosco 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 via an amendment to the articles to be used for purchasing Genosco equity.
The company's plan was to increase the total number of authorized shares to be issued from the existing 40 million to 50 million and then secure funds by attracting investment 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 would dilute shareholder value, including rights offerings to existing shareholders, but it did not fully win shareholders' trust.
That day, Oscotec CEO Lee Sang-hyeon appealed to shareholders, saying, "By making Genosco a 100% subsidiary, concerns about duplicate listings and conflicts of interest are structurally resolved, and all future achievements and value created by Genosco can be seen as belonging to Oscotec and Oscotec shareholders."
Previously, global proxy advisers ISS and Glass Lewis issued "for" recommendations on the agenda for this extraordinary meeting, judging there would be no negative impact on shareholder rights and no particular issue in terms of board composition.
However, with the amendment to the articles blocked that day, the company must find 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 comment on any immediate alternatives." He said, "It appears further discussion is needed at the board," adding, "We will communicate with shareholders during this process and fully reflect shareholders' opinions."
◇ "Opposed to 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-hyeon, Oscotec's board chair and CEO.
Lee said, "This shareholders meeting is a starting point to confront the crisis of trust head-on and to make a fresh start under a shareholder-centered system."
But raised voices erupted from shareholders on site. Shareholders protested, saying, "Oscotec's share price has fallen sharply," "There have been no technology export results after Leclaza," and "There are problems with the company's communication methods."
After the failure to list Zenosco, conflict between corporations and individual and small shareholders intensified again. Shareholders cast more opposing votes on the agenda items▲ appointment of outside director Kim Gyu-sik ▲ appointment of inside director Shin Dong-jun, and both were voted down. Only one of the four agenda items, the approval of the cap on auditor remuneration, passed.
Lee Gi-yun, chair of GK Asset and Oscotec's second-largest shareholder, who attended the meeting, asked, "With Genosco's listing already having failed twice, I want to know why you are now pushing for a 100% subsidiary."
In response, CFO Shin Dong-jun said, "Making Genosco a 100% subsidiary can fully move Leclaza's value into 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 added, "As the second-largest shareholder, I tried to contact former CEO Kim Jeong-geun to discuss matters, but I could not reach him," and complained, "The company did not even tell us the details of the agenda for 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 research center hired this year, as a candidate for inside director, and Kim Gyu-sik, who served as chair of the SME board and head of the Korea Governance Forum, as a candidate for outside director. The company emphasized they are figures with experience in enhancing shareholder value and with independence.
But shareholder opposition also put the brakes on the company's board composition. Shareholders have deep doubts about Oscotec's plans after acquiring Genosco equity and the necessity of a wholly owned subsidiary. In particular, they have raised suspicions that former Oscotec CEO Kim Jeong-geun's son, Kim Seong-yeon, would benefit, including by exiting during the Genosco equity purchase process. Kim Seong-yeon holds about 13% equity in Genosco.
One shareholder said, "The company keeps increasing researchers and its pipeline," and argued, "If there are no technology export results, management should be held accountable."
In response, Oscotec co-CEO Yoon Tae-young said, "For a company that researches and develops new drugs, securing talent is important," noting, "We had no choice but to incur expense." He also said, "We expect technology export results from the new drug candidates developed by Oscotec and transferred to domestic companies."