[IPO Spotlight] GI Innovation, Large-Scale Profit Turnaround After Overcoming Critical Phase?

2.4 Trillion Technology Transfer Contract... Clinical Funding Secured Through IPO
IPO Price Expected to Be Low... Existing Investors Bear Losses

[Asia Economy Reporter Hyungsoo Park] GI Innovation, a developer of immune checkpoint inhibitors, is preparing to list on the KOSDAQ market, drawing attention to the success of its demand forecast.

According to the Financial Supervisory Service's electronic disclosure system on the 6th, GI Innovation is offering 2 million new shares for its initial public offering (IPO). The expected price range is 16,000 to 21,000 KRW per share, aiming to raise 32 billion to 42 billion KRW.

GI Innovation will conduct a demand forecast targeting institutional investors from the 21st to the 22nd of next month and finalize the offering price. The company aims to list in early March. NH Investment & Securities and Hana Securities are the lead underwriters, with Samsung Securities participating as a co-manager.

Founded in 2017, GI Innovation is a bio-venture company researching and developing next-generation immunotherapies based on fusion proteins. It focuses on immune checkpoint inhibitors and treatments for immune diseases. Its main pipelines include a bispecific fusion immune checkpoint inhibitor (GI-101) and an allergy treatment (GI-301). GI-101 is a bispecific fusion protein that acts on immune cells in the peripheral lymph nodes and tumor microenvironment of cancer patients to promote tumor cell apoptosis. GI-301 is a sustained-release protein-based allergy treatment in the form of an 'immunoglobulin E inhibitor.'

Founder and CEO Myungho Jang previously served as a professor at the Immunology Frontier Research Center at Osaka University in Japan and has 7,514 citations on Google Scholar. He oversees new drug development and clinical development. The company has signed technology transfer agreements with Chinese pharmaceutical company Simcere and Yuhan Corporation. GI Innovation licensed the preclinical immune checkpoint inhibitor GI-101 to Simcere for $790 million (approximately 969.3 billion KRW). The allergy treatment GI-301 was also licensed at the preclinical stage to Yuhan Corporation for approximately 1.409 trillion KRW. Although these are large-scale technology transfer contracts, aside from upfront payments of $6 million and 20 billion KRW respectively, the remaining payments depend on milestones achieved during clinical trials and royalties based on product net sales. The full amounts will only be received upon successful completion of each clinical phase and commercialization.

GI Innovation plans to use the funds raised from the IPO for necessary clinical trials and research and development expenses through the second half of this year. The larger the amount raised, the more financial flexibility the company will have to conduct clinical trials.

The underwriters applied performance estimates to assess the company's value. Sales are projected at 10.9 billion KRW this year, 148.6 billion KRW next year, and 104.5 billion KRW in 2025. The company is expected to record significant losses until this year but turn profitable starting next year. Operating losses were 68.8 billion KRW last year and 53.7 billion KRW this year, with operating profit expected to reach 92.6 billion KRW next year.

The projected sales growth rate is rapid compared to past performance. These estimates assume successful clinical trials of the pipelines under development and successful technology exports to overseas pharmaceutical companies. The underwriters explained that uncertainties regarding future performance estimates, discount rates for present value, and potential subjective judgment by evaluators cannot be ruled out.

GI Innovation is pursuing listing based on the technology growth special case requirements. SCI Evaluation Information, which conducted the technology evaluation, analyzed that GI Innovation signed technology transfer contracts with major pharmaceutical companies based solely on preclinical data necessary for commercialization, but efficacy must be confirmed in Phase 2 or later clinical trials for commercialization. They pointed out that additional research and development and phased investment costs will be burdensome.

The offering price depends on how much institutional investors accept the blueprint presented by the underwriters and GI Innovation during the demand forecast. Institutions are expected to consider the current IPO market conditions and the sentiment toward new drug development bio companies in the stock market. If the offering price is set below expectations, investors who previously invested in GI Innovation may propose delaying the listing.

After the offering, CEO Myungho Jang, the largest shareholder of GI Innovation, will hold only 6.81% of shares. Including related parties, the stake amounts to 11.46%. This reflects the development of pipelines through external investments. The company received investments not only from domestic institutions but also from Yuhan Corporation, iMarket Korea, Progen, and Genexine. In 2021, when liquidity was abundant, it raised 160 billion KRW. At that time, investors estimated GI Innovation's corporate value at around 500 billion to 600 billion KRW. They appear to have invested expecting the corporate value to exceed 1 trillion KRW upon listing.

Based on the current expected price range, the market capitalization is estimated at 350 billion to 460 billion KRW. Existing investors will inevitably face valuation losses once the offering price is finalized. Clinical trials must continue to receive milestone payments from technology exports, but it is difficult to secure clinical trial funding by means other than the IPO. Existing investors have no choice but to cooperate in raising funds through the listing, even if it means additional contributions or losses. Yuhan Corporation and Progen have voluntarily agreed to a three-year lock-up on 1.56 million shares they hold, corresponding to a 7.08% stake after the offering.