Sam Chun Dang Pharm, which recently topped a market capitalization of 2 trillion won to become the KOSDAQ's emperor stock, is seeing its share price swing sharply.
What pushed up the stock of a company with 8.5 billion won in consolidation operating profit last year was expectations for the development of an oral insulin and a generic of Wegovy.
Sam Chun Dang Pharm's market cap soared from the 500 billion won range at the start of the year to the 2.7 trillion won range in three months. The share price surged more than 380%, from 244,500 won to 1,184,000 won on the 30th of last month. After profit-taking flooded in, the stock closed at 829,000 won on the 31st, down 29.98% from the prior day.
Pharma industry officials and investors harbor doubts about the backdrop behind the surge relative to earnings. Some are also saying the sell-off pressure could intensify over Chief Executive Jeon In-seok's plan to dispose of a large equity stake.
Through a letter to shareholders, Jeon drew a line, saying, "The sale is a measure to pay taxes," and adding, "Within a few days, we will be able to deliver major news that will change the company's constitution."
◇ KOSDAQ emperor stock Sam Chun Dang Pharm, CEO sells 250 billion won
According to the Financial Supervisory Service's electronic disclosure system on the 1st, CEO Jeon In-seok plans to dispose of about 250 billion won worth of Sam Chun Dang Pharm equity in off-hours trading from the 23rd of this month to the 22nd of next month.
Jeon is the son-in-law of Chairman Yun Dae-in of Sam Chun Dang Pharm. Jeon previously had no Sam Chun Dang Pharm equity, but on July 24 last year, Yun donated 799,700 shares (3.41%). Calculated at that day's closing price of 225,500 won, the amount is 180.3 billion won.
Citing tax payments, Jeon plans to dispose of 265,700 of those shares at 941,000 won per share. This is estimated to realize a gain of about 70 billion won.
Some shareholders are raising doubts. At Sam Chun Dang Pharm's shareholders meeting held on the 30th of last month in Hwaseong, Gyeonggi Province, shareholders said, "In a situation where the stock price is expected to rise going forward, what is the reason for selling the shares, and is there no plan for 'yeonbu-yeonnap' (installment tax payment over years)?" Yeonbu-yeonnap is paying taxes in installments over several years.
Jeon said, "I am selling the shares for personal reasons such as the size of the taxes and the payment schedule," adding, "It is a separate matter from the company's fundamentals."
Experts say that when a controlling shareholder dumps a large volume at once, it can burden the market. Some investors also worry that a controlling shareholder's large-scale sale can be read as a peak signal.
Hwang Yong-sik, a professor in the business administration department at Sejong University, said, "Liquidation may be necessary to fulfill one's tax obligations, but investors in pharma and biotech stocks react particularly sensitively to disclosures, so the timing of a sale is also important."
Sam Chun Dang Pharm is developing an oral insulin using its own platform technology, S-Pass. Diabetes patients currently inject insulin; if this technology succeeds, they will be able to manage blood sugar with a pill.
Sam Chun Dang Pharm applied for approval of a clinical trial plan to the European medicines regulator on the 19th of last month, and approval has not yet been granted. The industry consensus is that there is still a long way to finish the trials and reach commercialization.
For the oral Wegovy generic, the company recently filed back-to-back disclosures that it had signed contracts with Daiichi Sankyo Espha in Japan and with parties in the United States.
However, the deal with Daiichi Sankyo includes a condition that if approval is not obtained from Japan's Pharmaceuticals and Medical Devices Agency (PMDA), the contract can be terminated within 18 months. The U.S. contract did not disclose the counterparty, and likewise allows termination if commercialization is not possible. If commercialization occurs, Sam Chun Dang Pharm will take 90% of the net profit.
◇ Shin Poong Pharm and SillaJen also plunged after owners sold shares
Some investors say the past cases of Shin Poong Pharm and SillaJen come to mind.
Shin Poong Pharm drew attention during the spread of COVID-19. At the time, it was reported that its malaria treatment Pyramax had an inhibitory effect on COVID-19. News that the Ministry of Food and Drug Safety in May 2020 approved a phase 2 clinical trial to confirm Pyramax's treatment effect for COVID-19 sent the stock soaring.
Shin Poong Pharm's share price jumped from 7,320 won at the start of 2020 to 124,000 won at year-end. In September of that year, the company sold 1,289,550 treasury shares. The disposal price was 167,000 won per share, totaling 215.3 billion won.
In April 2021, the following year, former CEO Jang Won-jun of Shin Poong Pharm and others sold 2 million out of 12.82 million shares in Shin Poong Pharm held by Songam through off-hours trading. At 84,016 won per share, the total was 168 billion won.
Songam is a family company owned by founder family members including former CEO Jang. In April 2016, Songam acquired about 14.88 million shares of Shin Poong Pharm to become the largest shareholder. Founder-family members including former CEO Jang were found to have realized 156.2 billion won in trading gains in the process.
On the day this news became known, Shin Poong Pharm's stock plunged 15%. Shin Poong Pharm later failed in its COVID-19 treatment trial.
In February last year, the Financial Services Commission's Securities and Futures Commission filed a criminal complaint with prosecutors against former CEO Jang and Songam for suspected violation of the ban on using undisclosed material information under the Financial Investment Services and Capital Markets Act. It said the founder family, including former CEO Jang, gained profits in the 150 billion won range from large-scale sales and avoided losses amounting to 36.9 billion won. However, former CEO Jang and others were cleared by prosecutors.
SillaJen also has a case where a controlling shareholder sold off equity after the stock price surged. On its first day of KOSDAQ listing in December 2016, SillaJen closed at 12,850 won. As expectations for the development of the cancer therapy Pexa-Vec grew, the closing price on Nov. 21, 2017, soared to 131,000 won.
Subsequently, former CEO Mun Eun-sang of SillaJen and others sold 1,562,844 common shares on the open market in three tranches from Dec. 28, 2017, to Jan. 3, 2018. The disposal price was in the 84,000 won per share range, for a total of about 132.5 billion won. On the day this news became known, SillaJen's stock fell more than 10%.
At the time, SillaJen cited personal tax payments as the reason for the share sale. Later, a U.S. clinical trial review body recommended halting the Pexa-Vec trial, sending investors into a panic.
Meanwhile, Sam Chun Dang Pharm did not respond to questions regarding the controlling shareholder's sale.