[Funding] Peptron, Large-Scale 75 Billion Won Capital Increase... Dilution of Largest Shareholder's Stake

[Asia Economy Reporter Yoo Hyun-seok] Peptron has decided on a large-scale paid-in capital increase worth 75 billion KRW for clinical trials and debt repayment. However, since the largest shareholder plans to participate in only 20% of the total allocated shares, the shareholding ratio of CEO Choi Ho-il will fall below 10% once the capital increase is completed.

According to the Financial Supervisory Service on the 20th, Peptron will conduct a paid-in capital increase through a rights offering followed by a general public offering of unsubscribed shares. The total number of shares to be issued is 5,300,353, with the planned issue price per new share at 14,150 KRW. The unsubscribed shares will be offered to the public by the lead underwriter Mirae Asset Daewoo. The allocation will be 10% to high-risk high-return investment trusts, 30% to benchmark company investment trusts, and 60% to individual subscribers and institutional investors.

Founded in November 1997, Peptron is a specialized company in research and development of drug efficacy sustainability technology based on peptide, an amino acid compound.

◆ 50 billion KRW for Peptron clinical trials, 25 billion KRW for debt repayment

Peptron plans to use the raised funds for clinical trials of its pipeline and debt repayment. The company expects that 44.2 billion KRW will be consumed solely for new drug development costs by 2022.

Among these, 12.8 billion KRW and 11 billion KRW will be invested respectively in 'PAb001-ADC' and 'PAb001-CarT'. 'PAb001' is an antibody therapeutic targeting mucin 1 for triple-negative breast cancer (TNBC), a challenging breast cancer treatment. Existing mucin 1-targeting antibody therapies focus on the part where cancer cells are cut off. In contrast, PAb001 directly targets the protruding part on the surface of cancer cells.

Peptron explains that in animal experiments of PAb001, which is being developed as ADC (antibody-drug conjugate) and CAR-T, complete remission of cancer cells was confirmed, increasing the possibility of a cure. Additionally, technology licensing (L/O) is being pursued at the early development stage for PAb001-ADC.

63 hundred million KRW will be invested in 'PT320'. Currently, phase 2 clinical trials are underway targeting Parkinson's disease patients in Korea. As of the end of last month, dosing has been conducted on 61 patients. Recruitment of a total of 99 patients is expected to be completed by the end of this year. The funds will be used for the rapid completion of phase 2 trials and global commercialization clinical trials. 'PT105' is Peptron's own pipeline prostate cancer treatment drug, Rupier Depot, which began sales in 2006. The goal is to conduct a bioequivalence clinical trial in the first half of next year and start commercial production in early 2022. A total of 1.125 billion KRW will be invested.

The remaining 25 billion KRW will be used for debt repayment. Peptron issued a private placement convertible bond (CB) worth 25.5 billion KRW in January 2018. The conversion request period is from January 31 last year to January 24, 2023. The conversion price per share at issuance was 80,674 KRW, but the current conversion price is 28,236 KRW. However, the current stock price is around 14,000 KRW, making conversion unlikely. With only 1 billion KRW in cash assets in the first half of this year, Peptron needs the success of this capital increase.

◆ Low participation rate of the largest shareholder... "Below 10% after capital increase"

Once this paid-in capital increase is completed, the stock value will inevitably be diluted. A large volume of 5,300,353 new shares will be issued, which corresponds to 34.58% of the total shares of 15,326,500. In particular, the newly issued shares from the capital increase will not be subject to lock-up, so the possibility of a stock price decline due to share release cannot be ruled out.

The low participation rate of the largest shareholder is also a concern. Currently, CEO Choi Ho-il, the largest shareholder of Peptron, holds 10.17% (1,559,059 shares). Even when combined with related parties, it amounts to only 1,740,862 shares (11.36%). CEO Choi plans to participate in up to 20% of the allocated shares in this capital increase.

If he participates in all 20%, his shareholding ratio is expected to decrease to 8.06% (1,661,501 shares). The combined shareholding ratio with related parties is also expected to decrease to 8.99%. Peptron explained in the securities registration statement released on the 15th, "Since funds are needed to participate in the capital increase, participation may be low depending on the financial situation," addressing the possibility of dilution of the largest shareholder's stake.