BioVille Enters GemVax's Shadow as Stock Price Soars 10x in One Year
GemVax Inflates Sale of Korea Stem Cell Shares to BioVille
Also Receives Financial Support from BioVille
Since 2015, the market capitalization share of the bio sector in the KOSDAQ market has grown dramatically. As the bio boom continued for several years, the valuation of listed companies with new drug pipelines soared to unprecedented heights. Many companies took advantage of the soaring stock prices to raise funds for new drug development. Some bio-listed companies raised funds through mergers and acquisitions (M&A). There has been an increasing number of cases where the clinical results of a single new drug candidate affect the stock prices of three to four listed companies. Since the end of last year, as clinical results of new drugs that failed to meet expectations were consecutively disclosed, expectations have been lowered. Asia Economy aims to re-examine the growth story of emerging bio groups.
[Asia Economy Reporter Park Hyungsoo] Despite facing a setback in the process of developing a pancreatic cancer vaccine, the background that allowed GemVax to continue investing in developing a dementia treatment was a successful(?) merger and acquisition (M&A).
In March 2011, when expectations for pancreatic cancer vaccine development were high, GemVax acquired a 15.97% stake (1,038,000 shares) in BioVille (formerly Punggyeong Jeonghwa) for 7.266 billion KRW. Just before GemVax’s acquisition in 2010, Punggyeong Jeonghwa recorded sales of 16 billion KRW, operating profit of 200 million KRW, and net profit of 1.5 billion KRW. It produced intermediate products needed in the plastic processing industry and supplied them to comprehensive chemical companies and automobile parts manufacturers.
After acquiring BioVille, GemVax attempted business diversification. BioVille began to actively pursue bio business and newly appointed Kim Sangjae, CEO of GemVax, as co-CEO of BioVille. While pushing forward with new business, BioVille turned to a loss in 2011. Sales increased by about 35% year-on-year to 21.6 billion KRW, but operating loss was 2.5 billion KRW and net loss was 1.7 billion KRW.
BioVille’s stock price showed a different trend from its performance. Supported by news of pursuing new bio business, BioVille’s stock price rose from the 1,400 KRW range at the end of February 2011 to surpass 14,000 KRW in December. The stock price jumped nearly tenfold in 10 months.
However, from the following year, the stock price declined due to profit-taking from the short-term surge and fatigue from frequent fundraising. The steadily retreating stock price fell to the 5,000 KRW range by February 2013.
In June 2012, BioVille acquired 2.67 million shares (85.5% stake) of Korea Stem Cell Bank for 29.9 billion KRW. It explained that the investment was made to strengthen competitiveness in the stem cell business and to expect synergy effects. At this time, GemVax sold 1.57 million shares of Korea Stem Cell Bank it held to BioVille. The sale proceeds of 17.5 billion KRW were received in convertible bonds (CB) issued by BioVille.
Korea Stem Cell Bank was established in December 2005 with the purpose of ▲adult stem cell storage business ▲development and supply of stem cell therapy technology ▲cell therapy and basic research and industrialization of biotechnology. It possesses technology to extract adult stem cells, safely freeze and store them, and provide them as treatments when diseases occur. In 2011, it recorded sales of 7.5 billion KRW and operating profit of 1.1 billion KRW.
The valuation during the sale of Korea Stem Cell Bank was conducted by With Accounting Firm. With Accounting Firm estimated the value of Korea Stem Cell Bank at 33.5 billion to 41.5 billion KRW. The estimated sales at the time of valuation were 19.8 billion KRW in 2013, 22.9 billion KRW in 2014, and 26.5 billion KRW in 2015, expected to steadily increase. In reality, however, there was a significant gap between the estimates and actual results. Korea Stem Cell Bank recorded sales of 3.6 billion KRW and 7.3 billion KRW in 2014 and 2015, respectively.
In 2014, GemVax sold 2 million shares and management rights of BioVille it held for 15 billion KRW. Among the remaining shares, 500,000 shares were disposed of in December 2016, and 1.96 million shares in March 2017. An additional 13.5 billion KRW was recovered. When the contract to sell the shares was signed, GemVax received promissory notes as payment. The buyer provided the promissory notes and immediately pledged the BioVille shares acquired as collateral to Shinhan Capital.
After acquiring the stake in Korea Stem Cell Bank from GemVax, BioVille also participated in GemVax’s paid-in capital increase. In December 2015, when GemVax issued new shares to raise 9 billion KRW in operating funds, BioVille invested 5 billion KRW.
GemVax acquired BioVille, monetized the Korea Stem Cell Bank stake by selling it, and also received direct financial support through capital increases. From 2011 to 2017, while GemVax held shares in BioVille, BioVille pursued various new businesses and invested considerable funds in acquiring stakes in other companies. However, few of these new businesses yielded results. In 2016, BioVille recorded consolidated sales of 32.7 billion KRW, operating loss of 1.6 billion KRW, and net loss of 10.5 billion KRW.
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