ImmuneOncia Therapeutics, Yuhan's research and development (R&D) anti-cancer drug subsidiary, announced a rights offering worth 120 billion won less than a year after listing, prompting a strong backlash from small shareholders.
With uncertainty over whether the largest shareholder, Yuhan, will participate in the capital increase, the announcement of the rights offering has spurred moves among shareholders to form an emergency response committee.
The ImmuneOncia Therapeutics minority shareholders' alliance said, "A capital increase without a commitment from the largest shareholder is an unfair transaction that only forces sacrifices from small shareholders," adding, "Depending on how the company and the largest shareholder, Yuhan, respond, we will expand and reorganize into an emergency committee and begin full-scale action," on the 9th.
On the 6th, ImmuneOncia Therapeutics said it would carry out a rights offering via a shareholder allotment followed by a public offering of forfeited shares to raise funds for research and development (R&D) and operations. The new shares to be issued are 16,830,200 common shares, about 23% of the total 74,155,069 shares outstanding before the offering.
ImmuneOncia Therapeutics is an anti-cancer drug developer jointly established in 2016 by Yuhan and U.S.-based Sorrento Therapeutics, and it listed on KOSDAQ in May last year via a technology exemption. After Sorrento Therapeutics went bankrupt, Yuhan secured 66.2% equity and became the largest shareholder. The key issue in this rights offering is whether the largest shareholder will participate.
ImmuneOncia Therapeutics plans to use the funds raised through the rights offering for clinical development of new drugs. The company is conducting clinical development of the PD-L1–targeting immuno-oncology candidate "IMC-001." In a phase 2 trial of IMC-001, the objective response rate (ORR) was 79% and the complete response rate (CR) was 58%, confirming treatment efficacy and safety.
The aim is to secure funds and keep the development pedal down. But news of the rights offering sent the stock tumbling, and existing shareholders voiced complaints. When corporations proceed with a rights offering, existing shareholders can suffer as volatility increases and the value of their equity holdings is diluted.
On the 6th, ImmuneOncia Therapeutics' share price fell 18.73% from the previous day to close at 8,160 won. On the 9th, it closed at 8,800 won in regular trading. On May 19 last year, the first day of listing, ImmuneOncia Therapeutics' shares closed at 7,500 won and later rose to 15,380 won on Dec. 15 of the same year. The current price is about half of the peak.
The ImmuneOncia Therapeutics minority shareholders' alliance argued, "As the largest shareholder, Yuhan must clearly state whether it will participate in the capital increase and outline future funding plans as part of responsible management." They also demanded that the regular shareholders' meeting on Mar. 31 guarantee small shareholders' rights to participate and speak.
A Yuhan official said regarding whether the company will participate in the rights offering, "Nothing has been decided yet."
The confrontation between shareholders and corporations over rights offerings is not unique to this company. Recently, minority shareholder alliances have been growing, particularly among bio corporations, and disputes over funding methods have followed. When companies conduct rights offerings to secure funds needed for new drug research and development, the market often sees it as a short-term negative, sending shares plunging and prompting pushback from existing shareholders.
Experts point to this as a structural problem across Korea's bio industry. Bio corporations typically require around 10 years of development and hundreds of billions of won from discovery of a new drug candidate through phase 1, 2 and 3 clinical trials to regulatory approval. Before sales begin, it is difficult to cover research and development expense internally, creating a structure that relies on special listings and external financing.
Last year alone, many new drug developers, including Bukwang Pharmaceutical, Curacle, TELCON RF PHARMACEUTICAL, Neoimmunetech, Kangstem Biotech, Shaperon, GemVax & KAEL, Orum Therapeutics, Genome & Company, Hyundai Bioscience and Aribio, pursued rights offerings or the issuance of convertible bonds (CB).
Lee Seung-gyu, vice chair of the KoreaBIO (Korea Biotechnology Industry Organization), said, "Because it is not easy for new drug developers to attract large-scale investments from major investors after listing, a structure with a high proportion of small shareholders forms, and as rights offerings to secure development and operating funds become frequent, conflicts between shareholders and corporations recur."
Lee Byung-geon, Korea special adviser at Flagship Pioneering, said, "With high interest rates and a sluggish economy freezing the bio investment market, more domestic corporations are facing funding difficulties," adding, "There is a need to strengthen support such as government-led large-scale funds and tax incentives so that bio venture corporations with strong technology can continue long-term research and development." Flagship Pioneering is a major U.S. bio venture capital (VC) firm.