[Funding] PharmAbcine Raises Large-Scale Capital Increase Amid Rising Clinical Costs

Allocation of 0.44 New Shares per Existing Share...590 Billion KRW Fundraising Planned
Issued 100 Billion KRW Convertible Bonds in 2019 but Early Redemption Requested
Major Shareholder's Stake Expected to Shrink to 5.2% After Paid-in Capital Increase

[Asia Economy Reporter Hyungsoo Park] Pamemsin, a developer of antibody therapeutics, is raising a large amount of funds through a rights offering. As technology exports (license outs) are delayed and research and development costs increase, the scale of losses expanded last year. Cash flow is also deteriorating due to ongoing redemption requests for convertible bonds issued in 2019. Since CEO Yujinsan, the largest shareholder, plans to subscribe to only about 30% of the allocated shares, a reduction in the largest shareholder's stake is inevitable.

According to the Financial Supervisory Service's electronic disclosure system on the 29th, Pamemsin is promoting a rights offering followed by a general public offering of forfeited shares, allocating 0.442 new shares per existing share. A total of 6.3 million shares will be issued, with the planned issue price of new shares at 9,370 KRW. A total of 59 billion KRW will be raised and used for research operation expenses and clinical funds.

Pamemsin is developing antibody therapeutics targeting various diseases such as brain tumors, metastatic triple-negative breast cancer, and age-related macular degeneration. Its representative pipeline is the antibody therapeutic Olinbesimab (TTAC-0001). Olinbesimab blocks signal transmission in vascular endothelial cells, inhibiting tumor angiogenesis. Ultimately, it is an anti-angiogenic antibody therapeutic that suppresses tumor growth and metastasis. Last year, it spent more than 20 billion KRW on ongoing research and development costs.

Pamemsin plans continuous capital investment for new drug candidate development, clinical trials of existing candidates, and antibody contract manufacturing. It is expected that meaningful sales will not occur until technology is exported to large domestic and international pharmaceutical companies. Operating losses have increased annually from 6.9 billion KRW in 2018, 10.1 billion KRW in 2019, to 25.5 billion KRW last year. In the first quarter of this year, operating losses reached 8.1 billion KRW. The debt ratio rose from 6.65% in 2018 to 322.77% in the first quarter of this year.

Of the 100 billion KRW '1st Convertible Bonds' issued in May 2019, 50.6 billion KRW remains unpaid. The initial early redemption payment date arrived on the 31st of last month, and 39.46 billion KRW was early redeemed to investors who exercised put options. Considering the conversion price is 23,587 KRW and the current stock price is around 12,000 KRW, additional redemption requests are expected. As of the end of the first quarter this year, Pamemsin holds 39.491 billion KRW in cash and cash equivalents.

To efficiently manage funds according to research and development and clinical plans, Pamemsin invested part of its funds in trade finance products. Four products, including the TA Asia Trade Finance Fund invested in 2019, were affected by COVID-19. Due to suspension of trade transactions, collection of trade receivables constituting the products was delayed, and recovery of invested funds was also postponed. Negotiations are ongoing between the trade finance fund managers and sellers regarding repayment timing, interest rate adjustments, repayment conditions, procedures, and amounts for each product. According to balance certificates received from sellers, the valuation loss for the four products was 647.21 million KRW, but reflecting the individual default risk of the products conservatively, Pamemsin recognized a valuation loss of 4.22372 billion KRW for the four products in the 2020 financial statements.

Yujinsan, CEO and largest shareholder of Pamemsin, holds 6.62% (942,932 shares). Including special related parties, the holding ratio is 9.74%. CEO Yu and related parties plan to participate in up to 30% of the allocated shares. However, since securing funds for participation in the capital increase is necessary, the participation rate may be lower than planned depending on financial circumstances. After the rights offering, CEO Yu's stake is expected to fall from 6.62% to 5.20%. The combined stake of the largest shareholder side is expected to shrink from 9.74% to 7.65% after the capital increase. The company advised that as the shareholding ratio of the largest shareholder and related parties decreases, the risk of hostile mergers and acquisitions (M&A) may increase.