As volatility in Korea's securities market has grown, the woes of bio and medical device corporations are deepening. With share prices across the bio and health sectors slumping, discontent among existing shareholders is mounting, and a wave of delistings from the KOSDAQ market is looming as stricter delisting rules take effect.
Some corporations facing greater delisting pressure are rolling out a string of survival strategies, including reverse stock splits, convertible bond (CB) refixing (adjusting the conversion price), and paid-in capital increases.
These are measures to maintain listings and raise funds, but concerns are emerging about side effects such as dilution of existing shareholders' equity value and an expansion of overhang (potential sell orders). In the end, critics noted that fundamental restructuring and the backing of research and development (R&D) data verification and earnings growth are necessary.
◇ Bio stocks struggle to escape "penny stock" status
According to the Financial Supervisory Service's electronic disclosure system on the 20th, from January this year to the date, a total of 257 KOSPI and KOSDAQ-listed companies filed disclosures for a "reverse stock split decision." That's about a 23-fold surge from the same period last year (11). A reverse stock split is a capital restructuring method that consolidates multiple shares into one to reduce the number of shares outstanding and raise the per-share price.
In particular, decisions on reverse stock splits have been spreading recently among pharmaceutical, bio, and healthcare corporations. Following ChoA Pharmaceutical(034940) and Kyungnam Pharm(053950), KM Pharmaceutical(225430), and Hwail Pharmaceutical(061250), Shaperon(378800) and CG MedTech(056090) decided on a 5-to-1 reverse split. Aptamer Sciences(291650) is also pursuing a 2-to-1 split. The market views this as an effect of the tougher delisting regime that took effect this month.
According to the Korea Exchange (KRX), if a market capitalization below 20 billion won persists for 30 consecutive trading days, the company is designated as under surveillance. If it fails to exceed the market cap threshold for 45 or more consecutive trading days during the 90 trading days after designation, it is immediately delisted. Also, if the closing price remains below 1,000 won for 30 consecutive trading days, it is designated as under surveillance. If it fails to recover 1,000 won for 45 or more trading days during the subsequent 90 trading days, it becomes subject to a delisting review.
In other words, as delisting pressure has intensified on so-called "penny stocks" with share prices below 1,000 won, companies are pulling the "reverse stock split" card as one self-rescue measure to escape penny stock status.
But a reverse stock split is not a fundamental solution either. It only raises the nominal share price and does not change corporate value itself. In fact, there are many cases where the stock falls again after trading resumes.
In the financial investment and bio industries, some predict that if KOSDAQ investor sentiment remains weak and share prices continue to slump, more bio stocks will face designation as under surveillance and delisting risks.
◇ Conversion price cuts mount as shares fall
Cases are also increasing of companies moving to adjust conversion prices (CB refixing) due to falling share prices. This is also read as a sign that funding conditions for bio corporations are deteriorating.
CB refixing is a mechanism that, if the share price falls below a certain level, lowers the conversion price under the contract to maintain the value of the conversion right. As a condition to protect investors, corporations often include this clause to attract investment.
According to the Financial Supervisory Service's electronic disclosure system, a total of 14 bio and healthcare corporations disclosed conversion price adjustments due to a drop (fluctuation) in market prices over the past month (Jun. 15–Jul. 15).
They include Syntekabio(226330), MEDIPOST(078160), META BIOMED(059210), RNT-X(123010), ENCell(456070), ProGen, HLB Pep(196300), Neoimmunetech(950220), 아리바이오LAB, GeneOne Life Science(011000), ISU Abxis(086890), Prestige Biologics(334970), LAMEDITECH(462510), and FutureChem(220100).
MEDIPOST and ENCell recently lowered conversion prices to the minimum adjustment thresholds under their contracts.
MEDIPOST cut the conversion price of its 50 billion won CB from 17,981 won to 12,587 won, increasing the number of shares convertible by about 43%. ENCell also adjusted the conversion price of its 22.5 billion won CB from 14,295 won to 11,436 won, raising the number of convertible shares by about 25%. Syntekabio, too, adjusted its conversion price from 3,720 won to 3,473 won as market prices fell, increasing the number of convertible shares by about 7%.
But there are concerns. When the conversion price drops, investors can receive more shares for the same amount of money, diluting existing shareholders' equity value. If conversion rights are exercised in the future and a large volume of shares floods the market, there is also the latent possibility of overhang exerting downward pressure on prices. In short, refixing triggered by falling share prices can become a vicious cycle that further saps investor sentiment.
◇ Fears of a boomerang from stopgap measures… calls to postpone KOSDAQ promotion and relegation system
Recently, uncertainty over interest rate policy has grown alongside concerns about the fundraising environment. When rates rise, funding expenses increase, investor sentiment weakens, and share prices tend to fall.
As share prices fall, conditions for issuing mezzanine securities become less favorable for corporations, and fears of dilution among existing investors can grow, making it harder to attract new funding. Some in the industry also say that, given the prolonged Middle East war and inflation concerns, the introduction of KOSDAQ's promotion and relegation system should be delayed.
The head of a bio company, who requested anonymity, said, "As the marginalization of bio corporations deepens, the burden of fundraising is growing with added regulations such as tougher delisting requirements and KOSDAQ promotion and relegation," and argued, "The financial authorities should reconsider the timing of introducing the KOSDAQ promotion and relegation system." The person said, "If investor sentiment fails to recover and the regulatory environment tightens, the difficulties of small and midsize corporations could worsen."
Among market experts, there are growing projections that "sorting the wheat from the chaff" in Korea's pharmaceutical and bio sectors could intensify. This means the direction of individual corporations' share prices could diverge depending on data and proof of results.
Jeong Jae-won, an analyst at iM Securities, noted, "In KOSPI, which is centered on pharmaceutical companies, the logic applies that proving an earnings-based growth story lifts share prices, while in KOSDAQ, which is dominated by biotechs, the criteria are the potential value and narrative of a company's pipeline, such as technology transfer to global drugmakers and joint development partnerships."
He diagnosed, "In the first half of this year, investor sentiment flocked to semiconductor corporations, so even though KOSPI drugmakers' earnings grew, they didn't receive much attention, and in KOSDAQ, issues arose with the key logic that had driven share price narratives at individual corporations, repeatedly heightening market concerns."
Jeong emphasized, "In the end, the market is reacting to pharmaceutical and bio corporations whose data have been verified," stressing that data verification and earnings growth are key.