[After CB Issuance] 'FutureChem' Overcomes Redemption Concerns Amid Technology Export Boom... CB Investors Convert to Stocks

[Asia Economy Reporter Yoo Hyun-seok] FutureChem, a developer of radiopharmaceuticals, is breathing a sigh of relief. The conversion price of the convertible bonds (CB) issued in 2018 worth 30 billion KRW had long been below the stock price, raising concerns about early redemption. However, due to positive factors such as technology exports, the stock price has risen, and the bonds are being converted into shares one after another.

FutureChem secured funds to prepare for CB redemption by conducting a paid-in capital increase worth 30 billion KRW last July. However, as the CBs are converted into shares, the raised funds can be used elsewhere instead of repayment. The company plans to invest in the development of new drugs for prostate cancer treatment and subsequent pipelines.

◆ 2nd Series CB... Gradually 'Converted' into Shares

According to the Financial Supervisory Service on the 3rd, FutureChem will list 248,323 new shares on the 14th following a CB conversion request worth 3 billion KRW. The conversion price is 12,081 KRW, while the previous day's closing price was 15,350 KRW. If FutureChem maintains the current stock price level until the new shares are listed, CB investors can expect a return of about 27%.

Conversion requests were already made on the 5th and 9th of last month. The total requested amount was 6.5 billion KRW, and 538,033 shares were listed. Since FutureChem's stock price hovered around 14,000 to 15,000 KRW at the end of last month when the shares were listed, it is estimated that investors made more than 20% profit if they sold the shares immediately on the listing day. The remaining convertible shares total 1,324,393 shares, equivalent to 16 billion KRW. Since the coupon and maturity interest rates were 0.0% at issuance, if the stock price maintains or rises from the current level, all will likely be converted into shares.

FutureChem issued the '2nd Series Private Convertible Bonds' worth 30 billion KRW in March 2018. The conversion period is from March 29 last year to February 28, 2023. Of the raised funds, 17 billion KRW was used for facility construction, clinical trials, and working capital.

Specifically, the funds were used to establish a Good Manufacturing Practice (GMP)-standard radiopharmaceutical production facility at Ewha Womans University Seoul Hospital in Magok District, Gangseo-gu, Seoul. The company also holds FC303, a candidate radiopharmaceutical for prostate cancer diagnosis, and FC705, a candidate drug for prostate cancer treatment, and used funds for clinical trials related to these. According to the Q3 report, the remaining CB balance is 13 billion KRW, all held in deposits.

◆ Total of 43 billion KRW from Paid-in Capital Increase and CB Balance... Investment in Prostate Cancer Treatment New Drugs

Until July, FutureChem was more burdened by redemption than stock conversion. As of July 1, the conversion price was 15,736 KRW, significantly different from the closing price of 10,700 KRW. The stock price rose in the second half of the year due to technology exports.

On September 1, FutureChem signed a Technology Co-Development Agreement with China's radiopharmaceutical specialist HTA for the prostate-specific membrane antigen (PSMA) prostate cancer diagnostic new drug FC303. The total contract size, including running royalties, is expected to reach up to approximately 650 billion KRW over 15 years, a large-scale contract. Along with this positive news, securities firms forecast possible future technology exports to the United States, and the stock price rose from 10,500 KRW on September 1 to 15,000 KRW this month.

The stock price increase was good news not only for CB investors but also for FutureChem. As of the first half of the year, FutureChem had only 3 billion KRW in cash equivalents and a CB balance of 15 billion KRW, so if investors had demanded early redemption, it would have been a burden. Conscious of this, the company raised 30.3 billion KRW through a rights offering in July, of which 29 billion KRW was planned to be used for CB redemption.

However, with reduced redemption pressure, the company now has the flexibility to use the funds raised through the capital increase and CB for other purposes. It currently holds a total of 43 billion KRW, including 30 billion KRW from the capital increase and 13 billion KRW from the CB balance. The company plans to focus most of the funds on pipeline development.

A FutureChem official said, "Assuming all CBs are converted, we plan to use 7 billion KRW for the development of prostate cancer diagnostic new drugs and invest 20 billion KRW in prostate cancer treatment drug development." He added, "The remaining 13 billion KRW will be used as working capital." He continued, "We also plan to develop subsequent pipelines such as myocardial infarction diagnosis, brain tumor diagnosis, and lung cancer treatment drugs, investing 3 billion KRW in these areas."