Sam Chun Dang Pharm, which recently surpassed 2 trillion won in market capitalization to become the KOSDAQ's "emperor stock," is seeing its shares swing sharply.
What drove up the stock of a company with consolidation operating profit of 8.5 billion won last year was expectations for the development of an oral insulin and a generic of Wegovy.
Sam Chun Dang Pharm's market capitalization soared from the 500 billion won range early this 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 orders poured in, the stock closed on the 31st at 829,000 won, down 29.98% from the previous day.
The pharmaceutical industry and investors are voicing doubts about the backdrop of the stock's surge relative to earnings. Some also say selling pressure could grow over Chief Executive Jeon In-seok's plan to sell a large block of equity.
Through a letter to shareholders, Jeon drew a line, saying, "The sale is a measure to pay taxes," and "I will be able to deliver significant news within days that will change the company's constitution."
◇ KOSDAQ emperor stock Sam Chun Dang Pharm, chief sells 250 billion won
According to the Financial Supervisory Service's electronic disclosure system on the 1st, Chief Executive 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 held no Sam Chun Dang Pharm equity, but Yun made a gift of 799,700 shares (3.41%) on July 24 last year. Calculated at that day's closing price (225,500 won), it amounts to 180.3 billion won.
Citing tax payments, Jeon plans to sell 265,700 of those shares at 941,000 won per share. That would translate into realizing an estimated gain of about 70 billion won.
Some shareholders are raising questions. At Sam Chun Dang Pharm's shareholders meeting held in Hwaseong, Gyeonggi Province, on the 30th of last month, shareholders said, "In a situation where the stock is expected to rise going forward, what is the reason for selling, and is there no plan for 'yeonbuyennap' (installment tax payment over years)?" Yeonbuyennap means paying taxes in installments over several years.
Jeon said, "I am selling shares for personal reasons such as the size of the tax and the payment schedule," adding, "It is separate from the company's fundamentals."
Experts say a flood of selling by a major shareholder at once can burden the market. Some investors also worry that heavy selling by a major shareholder could 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 tax obligations, but investors in pharmaceutical and biotech stocks are particularly sensitive to disclosures, so the timing of a sale is also important."
Sam Chun Dang Pharm is developing an oral insulin using its in-house platform technology, S-Pass. Diabetes patients currently receive insulin by injection; 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 with the European drug regulator on the 19th of last month, but approval has not yet been granted. The industry consensus is that there is still a long way to go to complete trials and reach commercialization.
For the oral Wegovy generic, the company recently filed consecutive disclosures saying it signed contracts with Japan's Daiichi Sankyo Espha and with parties in the United States, among others.
However, the contract with Daiichi Sankyo includes a condition allowing termination within 18 months if it fails to obtain approval from Japan's Pharmaceuticals and Medical Devices Agency (PMDA). The U.S. deal did not disclose the counterparty and likewise allows termination if commercialization is not possible. If commercialization succeeds, Sam Chun Dang Pharm will take 90% of net profit.
◇ Shin Poong Pharm, SillaJen also plunged after owners sold shares
Among investors, some say the past Shin Poong Pharm and SillaJen episodes come to mind.
Shin Poong Pharm drew attention during the spread of the novel coronavirus disease (COVID-19). At the time, it was reported that the antimalarial Pyramax had an inhibitory effect on COVID-19. News that the Ministery of Food and Drug Safety in May 2020 approved a phase 2 trial to confirm COVID-19 treatment efficacy for Shin Poong Pharm's Pyramax sent the stock soaring.
Shin Poong Pharm's stock jumped from 7,320 won in early 2020 to 124,000 won by year-end. In September 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 Shin Poong Pharm chief Jang Won-jun and others sold 2 million of the 12.82 million shares in Shin Poong Pharm held by Songamsa in off-hours trading. At 84,016 won per share, the total was 168 billion won.
Songamsa is a family company owned by founder family members including former chief Jang. In April 2016, Songamsa acquired about 14.88 million Shin Poong Pharm shares and became the largest shareholder. The founder family, including former chief Jang, was found to have made 156.2 billion won in trading gains in the process.
On the day the news became known, Shin Poong Pharm's stock fell 15%. The company later failed in clinical trials for a COVID-19 treatment.
The Securities and Futures Commission of the Financial Services Commission filed a complaint with prosecutors in February last year against former chief Jang and Songamsa on suspicion of violating the ban on using undisclosed material information under the Financial Investment Services and Capital Markets Act. The founder family, including former chief Jang, allegedly gained profits in the 150 billion won range through large-scale selling and avoided losses amounting to 36.9 billion won. However, former chief Jang and others were cleared by prosecutors.
SillaJen also had a case where the stock surged and then a major shareholder sold equity. SillaJen closed at 12,850 won on its first day of KOSDAQ listing in December 2016. As expectations rose for the development of the cancer therapy Pexa-Vec, the closing price on Nov. 21, 2017, the following year, jumped to 131,000 won.
Subsequently, former chief Moon Eun-sang of SillaJen and others sold 1,562,844 common shares in three tranches on the market 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 the news became known, SillaJen's stock fell more than 10%.
At the time, SillaJen said the reason for the share sale was personal tax payments, among others. Pexa-Vec later threw investors into a panic when a U.S. clinical trial review body recommended halting the trial.
Meanwhile, Sam Chun Dang Pharm did not respond to questions regarding the major shareholder's sale.