[Bio Shaking the Market] ① Aprogen, Will It Enter the Domestic Stock Market?

Considering Merger with Aprogen KIC... Trillion-Won Listed Company to Emerge if Merged
Aprogen Group Holding Company 'Gibase' Secures Option to Strengthen Control

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 have taken advantage of the soaring stock prices to raise funds for new drug development. Some bio-listed companies have raised funds through mergers and acquisitions (M&A). There are increasing cases where the clinical results of a single new drug candidate affect the stock prices of 3 to 4 listed companies. Since the end of last year, as clinical results of new drugs that failed to meet expectations have been disclosed one after another, expectations have been lowered. Asia Economy aims to reexamine the growth story of bio groups.

[Asia Economy Reporter Hyungsoo Park] Expectations are growing for the merger between Aprogen, a biosimilar-based new drug development company, and Aprogen KIC, a company listed on the KOSPI market.

Aprogen KIC has been pursuing a merger with Aprogen since January 2018 to actively promote biosimilar development and new drug development. Considering various situations comprehensively to enhance shareholder value, the merger has not yet been finalized. In May last year, Shinhan Investment Corp. was selected as the lead manager for the merger promotion. After signing the lead manager contract, Aprogen KIC announced plans to request a valuation of Aprogen’s issued shares from an accounting firm at an appropriate time in consultation with Shinhan Investment Corp. If the value of Aprogen’s shares and the merger ratio reach a level that gains approval from Aprogen KIC and Aprogen shareholders, the merger procedure will be initiated.

On the 10th of last month, the Ministry of SMEs and Startups announced that Aprogen was listed as a unicorn company by the global market research firm CB Insights. This is the first case in the domestic biotechnology sector. Aprogen developed a biosimilar of the rheumatoid arthritis treatment ‘Remicade’ in 2009. It is the third in Korea after Celltrion and Samsung Bioepis. Aprogen also received product approval from the Japanese Ministry of Health, Labour and Welfare. It is also preparing to enter the U.S. market. It completed Phase 3 clinical trials in the U.S. in May last year.

Upon completing the U.S. clinical trials, Aprogen received an investment of 20 billion KRW from Lindeman Asia Investment. When issuing convertible bonds, the conversion price was set at 34,031 KRW. This implies that Lindeman Asia Investment agreed that Aprogen’s corporate value exceeds 1 trillion KRW.

At the time of the investment attraction, Aprogen promised to list on the Korea Exchange’s KOSPI or KOSDAQ market within two years. Investors holding the convertible bonds can request repayment of the principal if Aprogen fails to list by May 31, 2021, which is two years after the bond issuance date. The criteria for judging the fulfillment of the listing obligation is the date of passing the preliminary listing review by the Korea Exchange or the date of acceptance of the merger report by the Financial Supervisory Service.

Considering the lead manager contract for the merger promotion and Aprogen’s investment attraction clauses, concrete merger movements are expected to appear after last year’s audit report is released. Based on the current Aprogen KIC stock price and the convertible bond conversion price, the post-merger corporate value is estimated to be around 2 trillion KRW.

If Aprogen and Aprogen KIC merge, Gbase, the holding company of the Aprogen Group, also has a card to strengthen its control. Gbase holds 31.35% of Aprogen shares and 20.48% of Aprogen KIC shares. Moreover, Gbase has the right to purchase 50% of the principal of convertible bonds issued by Aprogen KIC in 2018?2019. Aprogen KIC issued convertible bonds worth 50 billion KRW in May last year to Inocom Tree Investment Association and Chorokbaem Media. The conversion price at issuance was 3,480 KRW, but reflecting the stock price decline, the conversion price dropped to 2,155 KRW. According to the option terms, Gbase can request the underwriter to buy 50% of the bond principal from Gbase or a third party designated by Gbase until the day before 1 year and 6 months from the bond issuance date. Currently, Aprogen KIC’s stock price exceeds the conversion price. Gbase thus holds an option to expand its stake in Aprogen KIC at a price lower than the current stock price.

However, it is not easy to draw a merger ratio satisfactory to both Aprogen and Aprogen KIC shareholders. If there are many dissenting shareholders, massive capital outflows due to the exercise of appraisal rights are inevitable.