GTreeBNT Accelerates Bio Business as Major Distributor of AZ Vaccine

Expectations for Stable Governance Following Major Shareholder Change
Attention on Clinical Results Amid False Disclosure Controversy Resolution

As COVID-19 vaccination began domestically, interest in vaccine-related companies has also increased. These companies contribute to public health and quarantine efforts, from the development and production of effective vaccines to their safe distribution. The global vaccine market is growing at an average annual rate of over 8%, recording a higher growth rate than other pharmaceutical markets. However, the entry barriers to the vaccine market are relatively high. Not only fundamental technology but also manufacturing facilities for large-scale production are required. Both technological capability and financial strength must be supported. It is considered an attractive industry in which global pharmaceutical companies continuously invest. Domestic companies are also aggressively expanding their vaccine-related businesses in line with the increased demand for vaccines due to the spread of COVID-19. This article examines the growth strategies, financial status, and sustainability after the end of COVID-19 of companies that have seized new opportunities amid the high growth of the vaccine market.

[Asia Economy Reporter Jang Hyowon] GtreeBNT's stock price recently experienced a rollercoaster ride due to news of being selected as a COVID-19 vaccine distributor and controversy over false disclosure of clinical trial results. The company immediately dismissed the false disclosure controversy and took steps to resolve the issue. The market now expects GtreeBNT to show results in the bio business based on a stable governance structure.

Sales Increase through COVID-19 Vaccine Distribution

GtreeBNT was originally established in 2000 with proprietary technology called 'Embedded Graphic User Interface Software Solution.' Currently, it operates mainly in the vaccine business and electronics business through mergers with several companies.

As of the end of the third quarter last year, the vaccine distribution business accounted for 70.6% of GtreeBNT's sales. The electronics business, including transformers, motors, and pumps, accounted for about 29%. The remaining 0.4% of sales came from the bio business segment.

On January 26, GtreeBNT signed a consignment contract worth 9.1 billion KRW with SK Bioscience for the distribution management of the AstraZeneca COVID-19 vaccine. This contract represents 15.4% of the 2019 sales revenue. The contract period lasts until the end of this year. If the contract amount remains unchanged, it is expected to significantly contribute to sales growth this year.

However, GtreeBNT is a deficit company. On a consolidated basis, it recorded operating losses for nine consecutive years from 2011 to 2019. As of the third quarter last year, cumulative operating losses reached 7.7 billion KRW. There was a net profit once in 2018, but that was due to a one-time gain from the disposal of a subsidiary.

Nevertheless, the company holds a stable level of cash. As of the end of the third quarter last year, GtreeBNT's cash equivalents amounted to 27.1 billion KRW. With total borrowings of 25.8 billion KRW, net borrowings excluding cash equivalents are negative.

The reason for having a lot of cash despite losses is thanks to the issuance of convertible bonds (CB). GtreeBNT issued convertible bonds worth 48 billion KRW in 2019 alone. CBs are bonds that can be converted into shares. When CBs are converted into shares, capital increases, improving the financial structure, but the number of shares also increases, diluting the price per share.

Last year, convertible bonds worth 23 billion KRW were converted, amounting to 1,194,058 shares. This represents a 4.6% increase in total issued shares. There are still 24.8 billion KRW worth of convertible bonds, or 1,315,570 shares, outstanding.

Stable Governance... Focus on New Drug Development

GtreeBNT recently underwent a change in its largest shareholder. On the 26th of last month, CEO Yang Wonseok, the largest shareholder of GtreeBNT, transferred 1,053,890 shares (3.92%) to Gtree Holdings at 34,040 KRW per share, totaling 35.8 billion KRW. Gtree Holdings is a special purpose company (SPC) established by Bayside PE. Bayside PE also acquired 309,638 treasury shares of GtreeBNT at 28,611 KRW per share, totaling 8.8 billion KRW.

Bayside PE plans to acquire convertible bonds worth 45 billion KRW as well. This will secure a total stake of 8.5%. After selling shares, CEO Yang plans to participate as a subordinated limited partner (LP) in Bayside PE's private equity fund and continue management.

GtreeBNT is now expected to focus on the bio business. Since entering the bio business, under CEO Yang's leadership, the company has concentrated on new drug development and the VRDO (Verified Research Development Only) business. The VRDO business model involves importing verified new drug substances, conducting clinical trials, and then exporting them.

Attention is also focused on the clinical trial results of the dry eye treatment drug, which was previously involved in a false disclosure controversy. A GtreeBNT official stated, "We plan to disclose the results in Korea and the United States as soon as the statistical analysis of all evaluation variables, including the primary endpoint and all protocol-specified evaluation variables, is completed."