What do see on Sillajen delisting,

On the 18th, the corporate review committee made a decision to delist Sillajen.

When a company is delisted, it means that it is expelled from the exchange. It is often said that when a company in which an investment is delisted, the stock becomes a 'traditional piece'.

Even if you are expelled from the exchange, you can still trade stocks on the over-the-counter market.

Of course, unless it is a special case, it will be difficult to trade at a good price.

Since the over-the-counter market has no floor, the stock price can bottom without any safeguards.

Investors could be seriously hurt.

Sillajen's 160,000 minority shareholders are in a state of chaos.

The number of minority shareholders in Sillajen is approximately 160,000 as of the end of 2020, with a stake of 92.60%.

It is said that there are quite a few shareholders who have invested several hundred million units of this.

They are appealing the exchange's decision and demanding resumption of trading.

The fall of the bio-myth?

Silajen was once the protagonist of the bio myth. Sillajen's core pipeline is a virus-based cancer treatment

It's 'Pexa-Vec'. In 2016, Pexa-Vec obtained significant results in the second global clinical trial to confirm the effect of treating liver cancer.

If it passed phase 3 without success, it could be commercialized as the world's first virus-based liver cancer treatment.

Sillajen, which was listed on the KOSDAQ market at the end of 2016 in anticipation of Pexa-Vec, even climbed to the second place in market cap on the KOSDAQ.

If we look at the process leading to the delisting decision, two bad factors were decisive.

(1) Early termination of the Pexa-Vec clinical trial The first negative factor was the early termination of the Pexa-Vec clinical trial.

Sillajen has been conducting global phase 3 clinical trials with 600 liver cancer patients in New Zealand, the United States, and Korea.

In August 2019, the clinical trial was recommended to be suspended by a clinical advisory body in the United States because it failed to prove the effectiveness of the new drug.

Due to the failure of the Pexa-Vec clinical trial, which was a core pipeline, the stock price of Sillajen plummeted and the market cap evaporated by 1 trillion won overnight.

(2) Management embezzlement and breach of trust In May 2020, another big bad news will occur.

Moon Eun-sang, former CEO of Sillajen, and other executives were arrested on charges of taking unfair profits worth 190 billion won by using undisclosed information about the company.

Executives' embezzlement and breach of trust are the main reasons for the substantive examination of eligibility for listing.

The exchange immediately suspended Shillajen's stock trading.

And after deciding Sillajen as the subject of substantive screening for listing eligibility, in November of the same year, the company review committee gave Shillajen a one-year improvement period.

Exchange and Sillajen's Different Thoughts After the improvement period was over, Sillajen submitted a statement of implementation of the improvement plan.

Sillajen's position is that it has faithfully fulfilled the conditions related to business normalization requested by the exchange.

(1) management change

In July 2021, Jang Dong-taek was appointed as the new CEO in place of the former executive who resigned due to an unfortunate incident.

(2) Governance improvement

The largest shareholder changed as steel manufacturing company M2N acquired 18.23% of Sillajen shares.

 

(3) Securing large-scale funds

In addition, during M2N's acquisition of Shillajen, Sillajen received an investment of 60 billion won.

A total of 100 billion won was secured by attracting an additional 40 billion won through capital increase.

However, the exchange cannot prove Sillajen's business sustainability through such improvement efforts alone.

You must have found it difficult. It is said that it was decided that Sillajen's new drug pipeline development direction was not specific and that additional pipelines other than Pexa-Vec were not sufficient.

How should we view the decision to delist? So, how should we view ShillaJen's decision to delist?

Some even argue that the delisting should be reconsidered as most of the exchange requirements have been fulfilled, as Sillajen claims.

In fact, we have achieved some improvement in management change, governance improvement, and funding.

There is also an opinion that the measure does not fully reflect the characteristics of the biopharmaceutical industry, which requires long-term and high-cost investment in a small number of new drug candidates.

However, even taking into account the characteristics of the biopharmaceutical industry, it is true that there are unclear aspects of ShillaJen's business sustainability, as judged by the exchange.

This is because the dependence on the core pipeline, PexaVec, is too high.

It is said that the global clinical trial of Pexa-Vec is proceeding smoothly for new indications such as kidney cancer and colon cancer, but it is difficult to predict the clinical success possibility.

In other words, there is no guarantee that there will be no more clinical failure cases like 2019.

In addition to Pexa-Vec, Sillajen has an anti-cancer virus platform 'SJ600' pipeline.

This is also still in the preclinical stage, and there is still a long way to go before making a profit with the pipeline.

It is also worth noting that in order for ShillaJen to remain listed from this year, it must meet sales requirements.

ShillaJen entered the KOSDAQ market through a technology special listing.

Technology exception Listed companies do not apply the sales requirement for 5 years after listing.

However, ShillaJen has entered its 6th year of listing. From now on, if the annual revenue is less than 3 billion won, it will be designated as a management item.

Failure to achieve sales of KRW 3 billion for two consecutive years is grounds for exit from the KOSDAQ market.

ShillaJen's sales in 2020 were about 1.6 billion won.

Sales in the first half of last year were about 230 million won.

As there are no product launches or special momentum planned, it is unlikely that the company will meet the annual sales requirements from this year.

It is recording an operating loss of several tens of billions of won each year.

As there are no product launches or special momentum planned, it is unlikely that the company will meet the annual sales requirements from this year.

It is recording an operating loss of several tens of billions of won each year.

In summary, given that the biopharmaceutical industry is a high-risk, high-return industry, there may be disagreements as to whether the delisting decision is an appropriate measure.

To overturn this decision, I think ShillaJen needs to be more persuasive about future business and new drug development plans that will generate profits.

Other Implications from the ShillaJen Incident As such, the decision to delist ShillaJen is making the domestic pharmaceutical and biotechnology industry buzz.

However, the issues surrounding the decision to delist ShillaJen are not unique to ShillaJen.

It is not an exaggeration to say that various bad news and atrocities of delisting have been unfolding recently centering on domestic pharmaceutical, bio, and medical companies.

Osstem Implant, an implant company that has recently attracted public attention on charges of embezzlement of employees, is also under review by the Korea Exchange for listing eligibility.

Kolon TissueGene, a company that develops knee osteoarthritis treatment, was delisted from the company's review committee in 2019.

There are some similarities in the causes and processes of these crises.

1. Is the technical special listing okay?

The special technology listing system is a system for companies that cannot realize profits right away, but possess technological prowess.

In particular, many biotech companies that were difficult to generate sales in the short term used to be listed through this system.

There are many instances in which the listing retention requirements are not met.

It seems that the evaluation model of the technology special listing needs to be specialized and refined more than now.

If the evaluation model is developed into a predictable evaluation model that not only accurately evaluates current technology but also predicts business sustainability to a certain extent, it will help investors make accurate decisions and reduce cases similar to ShillaJen in the future.

2. Bio ants that invest only with fragmentary information

The stock price of ShillaJen jumped 606% in 2017 alone.

Minority shareholders increased from 30,000 at the end of 2016 to 118,000 at the end of 2017.

Many of them are probably shareholders who came in after hearing the news of ShillaJen's successful global phase 2 clinical trial of PexaVec.

Due to the lack of easy access to specialized information, in many cases, excessive risk investment is made only with fragmentary information such as clinical results.

3. The decline in the credibility of biopharmaceutical companies is serious

The biopharmaceutical industry is an industry with particularly large information asymmetry between industry and non-industry people.

Ordinary shareholders are also to some extent accepting that information on pharmaceutical and biotechnology companies is limited when investing.

There are several large-scale cases such as the embezzlement and breach of trust by ShillaJen management, the embezzlement of Osstem Implant's employees, and the false entry of documents by Kolon TissueGene.

These issues have the effect of undermining expectations and trust in the overall pharmaceutical and bio industry, where information asymmetry is severe, and even undermining sound investment sentiment.

In order for biopharmaceutical companies to restore trust, they will need to increase the transparency of their business operations and show a willingness to actively communicate with consumers and investors.

4. Domestic biopharmaceuticals that still lack competitiveness by global standards

The reason Shillajen's phase 3 clinical trial of Pexa-Vec received so much attention was because it thought it was an opportunity to prove Korea's ability to develop innovative new drugs.

It seems clear that this issue of ShillaJen, which led the bio-myth, will remain as a reference for the biopharmaceutical industry in any direction.