[Funding] Korea BNC Raises Large-Scale Funding Thanks to COVID-19 Treatment

Early This Year, Signed Treatment Rights Contract with Golden Biotech
Stock Price Surged from 4,000 Won to 20,000 Won Range
Improved Financial Structure and Secured R&D Funding

[Asia Economy Reporter Hyungsoo Park] Korea BNC has embarked on a large-scale fundraising through a rights offering. The funds will be used for debt repayment to improve the financial structure and to establish a new production line at the Sejong plant for the production of biopharmaceutical raw materials, finished pharmaceuticals, and raw pharmaceuticals.

According to the Financial Supervisory Service's electronic disclosure system on the 7th, Korea BNC will issue 13 million new shares through a rights offering followed by a general public offering of forfeited shares. The planned issue price per new share is 15,650 KRW, raising a total of 203.4 billion KRW. The allocation ratio is 0.256 new shares per one existing share.

Choi Wankyu, the largest shareholder and CEO, will participate in the subscription for only 50% of the 3,338,984 shares allocated to him. To prepare the subscription funds, he plans to sell approximately 1,171,639 shares from his existing holdings through over-the-counter transactions or secure funds through stock-backed loans. After the rights offering, the largest shareholder’s stake is expected to decrease from 25.28% to 20.96%. However, he can acquire additional shares by exercising the call option on convertible bonds (CB) issued in April this year.

Korea BNC plans to use about 28.883 billion KRW of the raised funds to repay debt in the first half of next year. They expect this to improve the debt ratio and reduce financial costs through financial structure improvement.

As of the end of the third quarter this year, Korea BNC’s total liabilities stood at 100 billion KRW, with borrowings amounting to 88.8 billion KRW. The debt ratio worsened from 82.80% at the end of last year to 263.98% at the end of Q3 2021, and the total borrowings dependency increased from 35.49% to 64.40% during the same period. This was due to the issuance of convertible bonds and convertible preferred shares to raise funds for facility investments and operating capital aimed at strengthening competitiveness in the new raw pharmaceutical materials business.

The 125.3 billion KRW allocated for operating funds will be used for research and development activities and operating expenses. They plan to invest 76.5 billion KRW in developing peptide drugs for diabetes and obesity treatment, and have allocated 9 billion KRW each for the development of specialized pharmaceuticals for double chin fat removal and cellulite removal.

In January this year, Korea BNC secured exclusive manufacturing and sales rights in Korea, Russia, Turkey, and Ukraine for Antroquinonol, a COVID-19 treatment candidate, from Taiwan’s Golden Biotech. They agreed to pay milestone fees during the development process of Antroquinonol, totaling 14 million USD (approximately 16.7 billion KRW).

The company stated that the Phase 2 clinical trial for the COVID-19 treatment Antroquinonol is progressing smoothly and expects that patient enrollment and dosing will be completed as planned. Upon completion of dosing, clinical trial data will be released and analyzed. If the clinical trial results are successfully confirmed, they plan to apply for emergency use authorization from the US FDA as scheduled.

SK Securities, the lead manager of the rights offering, advised that the industry inherently contains uncertainties, making it difficult to reasonably estimate the specific market size and competitiveness of oral COVID-19 treatments. They expect continuous costs and time consumption for the development of the Antroquinonol treatment. Even if clinical trials proceed as planned and new drug approval is obtained, there remains a possibility of failure to generate profits due to lack of market competitiveness or other reasons.

Korea BNC’s stock price rose from 4,250 KRW at the end of last year to 70,500 KRW on September 28. Expectations for Antroquinonol were one of the main factors driving the stock price increase. Subsequently, when US pharmaceutical company Pfizer began Phase 2 clinical trials for an oral COVID-19 treatment, a wave of sell-offs for profit-taking occurred. The stock price fell to 17,200 KRW on the 11th of last month but recently rebounded to the 20,000 KRW range. This represents an approximately 450% increase compared to the end of last year. The planned issue price for the new shares is about three times higher than the stock price before the Antroquinonol contract was signed. Korea BNC recorded sales of 19.4 billion KRW and operating profit of 950 million KRW last year. For the first three quarters of this year, sales amounted to 18.2 billion KRW with an operating loss of 8.75 billion KRW.

Selling and administrative expenses have steadily increased. These expenses rose from 8.15 billion KRW in 2019 to 9.72 billion KRW in 2020, and to 18.33 billion KRW by the third quarter of 2021. This year, license fees for the oral COVID-19 treatment, clinical trial costs, and ongoing research and development expenses increased. With the operation of the Sejong GMP plant, depreciation and operating expenses increased, and advertising expenses for the IceT cosmetics brand also rose, resulting in a 183.4% increase in selling and administrative expenses compared to the same period last year.