As financial authorities overhauled the disclosure system for pharmaceuticals and biotech, the market and industry voiced both expectations and concerns. While the stricter disclosure standards could boost trust in corporations, they could also burden fundraising and global operations.
In particular, while the pharmaceutical and biotech sector agreed on the need to strengthen disclosures to protect investors, critics said the detailed standards do not reflect the characteristics of new drug development and the biotech industry at all.
According to the industry on the 4th, the Financial Supervisory Service announced a "comprehensive plan to improve pharmaceutical and biotech disclosures" on the 30th of last month. It was prepared based on discussions by the "pharmaceutical and biotech disclosure comprehensive improvement task force (TF)" that operated from April to June.
This is a remedial step in response to several cases where business results—such as research and development outcomes or the size of technology transfer contracts—were overinterpreted, or where a company's disclosures differed from the press releases it distributed, sparking controversy in the investment market, as in the case where share prices swung sharply in a short period like the Sam Chun Dang Pharm incident.
◇ Will the IPO bar rise… debate over valuation standards
The most notable change in the new plan is the valuation criteria for biotech corporations seeking to list via the technology special listing track.
From now on, corporations must categorize and state in the securities registration statement the key assumptions reflected in offering price calculations at the initial public offering (IPO) stage as ▲ expected market size, ▲ probability of clinical trial success, ▲ approval and review risks, and ▲ development period and required expense. When assessing expected market size, corporations must distinguish between the market their product can theoretically enter and the market they actually aim to target, taking into account production capacity and other factors.
The probability of clinical trial success must be prepared based on objective data such as papers to minimize arbitrary corporate estimates, and risk factors that may arise during the marketing authorization process even after clinical success must be specified. The overall development period and required funds must also be presented by stage.
In effect, this standardizes assumptions that corporations had each applied differently. Financial authorities and the market expect this to make cross-corporation comparisons easier and help investor decision-making by reducing "no-questions-asked valuations."
A professor at a medical school in the United Kingdom said, "Compared with Japan, due to the investment environment where Korean biotech firms and venture investors aim more for an IPO than for completing new drug development, corporate valuations and IPO offering prices have been assessed excessively high."
On the other hand, the industry has repeatedly pointed out that biotech's unique characteristics were not reflected.
Lee Seung-gyu, vice chair of the Korea Biotechnology Industry Organization, said, "We agree with strengthening disclosures to clean up the market, but requiring a uniform presentation of clinical success probabilities is an approach that does not sufficiently reflect the characteristics of the biotech industry."
Lee said, "Global clinical success probabilities are averages calculated based on data from about 200 corporations, so corporations ultimately have no choice but to present those figures," adding, "But success prospects vary greatly by indication, technology, and regulatory environment, so there are limits to valuing individual candidates using only averages."
Even at the same clinical stage, success prospects differ greatly depending on the indication, technology platform, and regulatory environment. In particular, for advanced modalities such as cell and gene therapies, radiopharmaceuticals, and Antibody-Drug Conjugate (ADC), comparable clinical data are scarce, making it difficult to apply global averages—prompting criticism that the guidance fails to account for these characteristics.
There are also concerns that the growth soil for biotech ventures could become barren.
Vice Chair Lee said, "If average success rates are applied, innovative corporations just beginning to attempt something can only present low probabilities, which could work against them in valuation and fundraising." He continued, "If innovative technology corporations lose opportunities in the market before they are even evaluated, we need to question why the KOSDAQ market exists," voicing strong concern.
An executive at a KOSDAQ-listed biotech corporation said, "For domestic biotechs, an IPO is not just a listing; it is a crucial step to secure follow-up clinical and research and development (R&D) funding," adding, "If valuation criteria are applied too conservatively, it could also affect fundraising."
◇ Microscope-level disclosure on contracts is positive… burden on global negotiations is a variable
The strengthening of disclosures for technology transfer contracts drew largely positive reviews.
Going forward, corporations must disclose not only total contract size but also break out upfront payments, development, approval, and sales milestones, and royalties. Investors will be able to more easily see the actual revenue structure of large technology transfer deals.
Sam Chun Dang Pharm presented business prospects of about 5.3 trillion won in a press release in Feb. regarding an exclusive distribution contract for oral GLP-1 (semaglutide) in 11 European countries, but controversy arose in the market over differences from the confirmed contract terms disclosed.
It also disclosed projected Canadian sales for an Eylea biosimilar on its website before an official filing, and was designated an unfaithful disclosing corporation and given five penalty points by the Korea Exchange (KRX) for "failure to comply with fair disclosure of forecasts or outlooks on operating results."
Alteogen saw its share price swing sharply amid diverging interpretations of the contract structure after the royalty level in a global technology transfer deal was reported to be around 2%, lower than market expectations.
However, some industry workers said there could be practical burdens. A representative at a biotech corporation said, "Because disclosure systems in the United States and Europe differ from domestic standards, there needs to be a process to make global corporations understand," adding, "In contracts with big pharma where the power dynamic is unequal, having to negotiate even the scope of disclosures burdens working-level staff."
◇ "Unverified good news" openly on YouTube and Telegram… gag for corporations and media?
The Financial Supervisory Service (FSS) also included media guidelines for pharmaceutical and biotech corporations in this plan. Information that materially affects investment decisions must be disclosed first, and corporations must not add undisclosed material information to press releases or provide content to the media that differs from disclosures.
The Financial Supervisory Service (FSS) recommended that corporations establish internal approval procedures to review the appropriateness of press releases before distribution, and said it plans to finalize them after consultations with the Financial Services Commission and the Korea Exchange (KRX).
Considering some corporate cases that prompted the strengthening of this disclosure regime, critics say the focus of regulation may be somewhat off. Recent controversies around some corporations grew as unverified information and expectations spread via online investment recommendation channels such as YouTube and Telegram, while the corporations in question did not actively clarify the facts.
Even so, critics say that, while leaving out countermeasures for such corporations, authorities created a guideline that "information that materially affects investment decisions must be disclosed first," which may discourage corporate market communications and media reporting.
An industry source said, "I was puzzled to see media guidelines included in this plan," adding, "It is questionable how much investor protection will be served by creating regulations on corporate press releases and the media without taking action against online investor enticers who eroded trust in the pharmaceutical and biotech sector and spread false and exaggerated information, or against certain corporations."