CHA Bio Group sold its listed affiliate, the CHA Vaccine Research Institute, to Solux and Aribio. This is the first time the group has sold a listed subsidiary. The move is seen as a strategy to shed underperforming noncore assets and focus on future growth areas. Still, how it will build a structure to generate revenue commensurate with increased investment in new businesses, including healthcare, remains an open question.
On the 19th, CHA Bio Group said CHA Biotech agreed to transfer 8,948,813 shares of the CHA Vaccine Research Institute to Solux and Aribio for about 23.8 billion won. As a result, CHA Biotech's equity stake will fall to 4.99% (1,340,483 shares).
The company said, "Although we will no longer have management control or strategic influence, this is a strategic decision to maintain a minimum equity stake in view of future technology cooperation and investment value."
◇ Sales 160 million won, loss 14.3 billion won…shedding a troubled subsidiary
In the industry, the sale is widely seen as effectively "tidying up a troubled subsidiary." CHA Bio Group has been pushing asset efficiency measures, including selling its venture capital (VC) subsidiary Solidus Investment.
The CHA Vaccine Research Institute is a vaccine research and development corporations based on an immuno-boosting platform technology and listed on KOSDAQ in Oct. 2021 via a technology exception. It has developed next-generation vaccines, including a therapeutic and preventive vaccine for chronic hepatitis B and a shingles vaccine.
But results have fallen short since listing. Sales fell from 294.12 million won in 2023 to 160 million won last year, while operating losses more than doubled from 6.4 billion won to 14.3 billion won. With rising research and development expenses, R&D as a share of sales reached 7,756%.
Cash flow is also deteriorating. As of the end of last year, available cash stood at about 23.2 billion won, but cash outflows from operating activities steadily increased from 5.3 billion won in 2023 to 8.1 billion won in 2024 and 11 billion won last year. The analysis is that the expense burden from expanded research and development is continuing.
It also continued to raise funds. In Nov. 2023, it issued 10 billion won in convertible bonds (CB) to secure R&D working capital.
Financial soundness is also a burden. Last year, loss from continuing operations before income taxes was 16 billion won, exceeding shareholders' equity of 11.9 billion won. The ratio of that loss to shareholders' equity was 135%, far above the 50% monitoring threshold. Although designation as an issues-to-be-watched stock is deferred until 2025 due to the technology exception listing, some say the risk could materialize if the current trend continues.
CHA Bio Group plans to invest the funds secured through this sale in research and development of cell and gene therapies (CGT), expansion of its contract development and manufacturing (CDMO) business, and AI-based Digital Healthcare. The idea is to wind down businesses with delayed profitability and concentrate resources on high-growth areas.
◇ "third-generation owner" CEO Cha Won-tae faces test to end 4 years of losses
This move also aligns with recent changes in the management system. CHA Biotech ended its professional management system and shifted to owner-centered management. It appointed Vice Chairman Cha Won-tae, the eldest son of founder Cha Kwang-ryul, head of the Global Research Institute, as CEO, accelerating business reorganization and succession.
CHA Bio Group has made its CGT business a key pillar, but new drug development based on stem cells and immune cells is structurally unlikely to deliver quick results. Because it takes considerable time for revenue to follow investment, observers say profitability is being delayed.
Its U.S. CGT CDMO subsidiary, Matica Biotechnology, has also failed to deliver clear results and is seeing worsening profitability. With cumulative losses increasing the funding burden, it is reportedly pushing an issue of convertible bonds (CB) of up to 40 billion won.
Whether the "global CGT platform" strategy—centered on the Pangyo CGB (cell and gene bio platform), Matica in the United States, and a global hospital network—can translate into actual revenue is the key question. In particular, when it can break the four-year streak of operating losses is expected to be the core metric for evaluating CEO Cha Won-tae's leadership.
The area CEO Cha Won-tae is focusing on most is healthcare. CHA Biotech is pursuing an AI- and data-based healthcare strategy by attracting outside investment from LG CNS and Hanwha financial affiliates. In the same vein, it invested 70 billion won last year to secure management control of Kakao Healthcare.
In the industry, the deal is seen as an effort to streamline the value chain with an eye toward a 2027 initial public offering (IPO) of CHA Healthcare. CHA Bio Group plans to merge CHA Healthcare and CHA Cares by June next year.
CHA Cares is a corporations that has provided hospital infrastructure services such as medical institution facilities management, family care, and hospital call center operations. The group's strategy is to build a virtuous cycle—research and clinical (CHA Biotech), production (Matica Biotechnology), and treatment (CHA Healthcare)—through the merger.