Chip Rally Deepens KOSDAQ Biotech Slump[K-Bio Pulse]

[Kim Sae-mi, Edaily Reporter] On June 22, South Korea’s benchmark KOSPI market saw a symbolic changing of the guard Samsung Electronics, which had held the No. 1 spot by market capitalization for 24 years, ceded the throne to SK hynix.

As of the day’s close, SK hynix’s market capitalization stood at 2080. 3782 trillion won, while Samsung Electronics’ came to 2066. 6595 trillion won, based on common shares. One investor quipped “Maybe we should stop calling them ‘Jeon nik’ shorthand for Samsung Electronics and SK hynix and start calling them ‘Nik jeon’ instead.”

In the bio and healthcare industry, concerns are growing over the prolonged concentration of market liquidity in large cap semiconductor stocks. “Market funds are flowing into select semiconductor names such as SK hynix leaving KOSDAQ biotech stocks broadly neglected,” an industry official said. “Even when biotech companies announce licensing deals or clinical catalysts, their share price reactions are not what they used to be.”

Another industry official said Korean biotech investors have become far more selective than before, scrutinizing deal structures and follow up catalysts more closely. “For biotech stocks to rebound, one or two licensing deals by individual companies may not be enough. The industry likely needs a series of tangible achievements,” the official said.

As domestic biotech stocks have remained weak for an extended period, some companies have also stepped up defensive communication with shareholders. They have used public notices, shareholder letters and IR materials to stress that their business operations remain intact and that research and development projects are progressing as planned.

Share price movement of Cho-a Pharmaceutical on June 22 (Source: KG Zeroin MP Doctor)

◇Choa Surges on Penny Stock Exit Hopes

According to KG Zeroin’s MP Doctor, formerly Market Point, shares of Choa Pharmaceutical rose 152 won, or 29.98%, from the previous session to close at 659 won. The stock appears to have been driven by expectations that the company could move out of penny-stock territory.

Cho-a posted a notice on June 19, the previous trading day, convening a shareholders’ meeting. The key agenda item for the extraordinary general meeting scheduled for July 6 is approval of a reverse stock split. If approved, the company will conduct a 5 to 1 reverse split, consolidating five common shares into one share and raising the par value from 500 won to 2500 won.

A reverse stock split reduces the number of outstanding shares while raising the price per share, meaning it does not fundamentally change market capitalization or shareholder value. However, with the Financial Services Commission set to implement new delisting rules for penny stocks from July 1, companies with low priced shares have been given a stronger incentive to take preemptive action through reverse stock splits.

Under the new rules, stocks that trade below 1000 won for 30 consecutive trading days will be designated as administrative issues. If they then fail to recover above 1000 won for 45 consecutive trading days within the following 90 trading days, they will face delisting procedures.

A number of bio and healthcare companies have already moved to conduct reverse stock splits in anticipation of the rule change. In addition to Choa, companies including Humasis, HLB BioStep, NeoImmuneTech, C&R Research, FromBio, PeopleBio and Noul have decided to pursue reverse stock splits this year.

“The tougher delisting rules and penny stock exit requirements may serve as a tool to weed out weak companies, but they could also become a burden for biotech companies that are still in the growth stage,” a financial investment industry official said. “The key question is how to evaluate companies that have yet to generate meaningful earnings.”

Share price movement of CG MedTech on June 22 (Source: KG Zeroin MP Doctor)

◇CG MedTech Gives Back CGBio Deal Gains

CG MedTech Co.,Ltd. gave back part of the gains it posted on June 19 when the stock hit its daily upper limit on news related to its largest shareholder. On June 22 shares of CG MedTech plunged 328 won or 20.27% from the previous session to close at 1290 won.

CG MedTech, which focuses on the production of orthopedic medical devices, is majority-owned by CGBio, a regenerative medicine and biomaterials-based medical device company. CGBio is a Daewoong Group affiliate that has been controlled by Yoon Jae seung chief vision officer of Daewoong Pharmaceutical, and related parties. CG MedTech shares had surged after reports that CGBio would be acquired by domestic private equity firm IMM Private Equity.

According to the pharmaceutical and biotech industry, IMM PE is expected to sign a stock purchase agreement this week with Yoon and related parties to acquire a 51% stake in CGBio for 561 billion won.

The parties are also said to have agreed on a conditional put option under which an additional 28.1% stake would be sold for another 561 billion won if CGBio’s annual earnings before interest, taxes, depreciation and amortization reach 100 billion won, roughly double the current level. If the condition is met, IMM PE’s stake could rise to 79.1%, and the total transaction value could reach up to 1.122 trillion won.

If IMM PE secures control of CGBio, the effective controlling party of CG MedTech will also shift from Daewoong’s owner family to IMM PE. However, the deal does not mean IMM PE is directly acquiring shares of CG MedTech. Rather, CG MedTech would be indirectly brought under IMM PE’s umbrella as a subsidiary of CGBio.



◇Hair Loss Stocks Gain on Coverage Hopes

Shares of hair loss related stocks also continued to rise on expectations that national health insurance coverage for hair-loss treatment could be expanded.

JW SHINYAK CORPORATION rose 395 won, or 16.92%, from the previous session to close at 2730 won. SAMIK PHARM gained 550 won, or 6.54%, to finish at 8960 won.

JW Shinyak has a lineup of hair loss treatments, including finasteride-based products Monard Tab. and Monastar Tab., as well as dutasteride based Dutamoa Tab.

Expectations may also have partially reflected JW Group affiliate JW Pharmaceutical’s hair-loss drug candidate JW0061. JW0061 is a topical hair loss drug candidate targeting the GFRA1 receptor. It has drawn attention as a treatment with a mechanism different from existing hair-loss therapies centered on male hormone suppression.

Samik Pharm has been linked to the hair loss theme through its long-acting injectable platform technology. Earlier this year the company registered a patent related to polymer microsphere manufacturing technology that could be used to develop a long-acting injectable formulation of baricitinib, a JAK inhibitor used for alopecia areata.

“Some of the gains in hair loss related stocks appear to be driven by theme based trading flows.” a pharmaceutical industry official said. “Investors need to examine whether hair-loss-related momentum is directly tied to each company’s fundamental value.”