Chong Kun Dang and Oreum Therapeutics Announce Large-Scale Technology Export Contract
Bio Sector Index Rises Amid Temporary Short-Selling Ban Measures That Previously Saw Heavy Short-Selling
As news of large-scale technology exports to global big pharma companies spreads in the domestic pharmaceutical and bio industry, there are signs of a positive breeze blowing through the long-stagnant pharmaceutical and bio sectors.
According to the Korea Exchange on the 8th, the KRX300 Healthcare Index closed at 2302.84 the previous day. After hitting a yearly low of 2098.30 on October 23, it reversed its downward trend and rose about 10% in approximately two weeks. The KOSPI200 Healthcare Index also showed an increase of around 8% during the same period.
The two indices representing the stock price levels of the pharmaceutical and bio sectors have been on a continuous downward trend since the end of 2020. During the COVID-19 crisis, the U.S. significantly lowered its benchmark interest rates and injected liquidity into the market, resulting in abundant funds. This led to a heated investment interest in bio stocks, which are considered high-risk, high-return sectors. However, as the U.S. began raising interest rates after the end of the COVID-19 pandemic, investments rapidly withdrew like a receding tide, suppressing stock prices.
The light at the end of the tunnel for the pharmaceutical and bio sectors, which had been declining for about three years, came on the 6th. On that day, the domestic pharmaceutical company Chong Kun Dang announced a technology export contract worth $1.305 billion (approximately 1.73 trillion KRW) with global big pharma Novartis for the new drug candidate ‘CKD-510’.
This technology export is the largest in Chong Kun Dang’s history. It is also the first technology contract news in the domestic pharmaceutical and bio industry this year. Chong Kun Dang will receive an upfront payment of $80 million (approximately 106.1 billion KRW) and a total milestone payment of $1.225 billion (approximately 1.6241 trillion KRW) depending on the development and approval stages.
On the same day, the unlisted bio company Orum Therapeutics also signed a technology export contract worth $180 million (approximately 233.6 billion KRW) with Bristol-Myers Squibb (BMS). The upfront payment alone was $100 million (approximately 129.8 billion KRW), which, considering that upfront payments usually do not exceed 30%, is interpreted as BMS highly valuing Orum Therapeutics’ new drug success potential.
Along with the news of large-scale technology exports by pharmaceutical and bio companies, the government’s ban on short selling also supported stock prices. The financial authorities announced on the 5th that short selling would be completely banned until the first half of next year. The intention is to reconsider the existing short selling system, which had controversies over an ‘uneven playing field’ among individuals, institutions, and foreigners, and to prevent illegal naked short selling.
As a result, short covering volumes came in, and on the 6th, the KOSPI and KOSDAQ surged by about 5% and 7%, respectively. In particular, the bio sector index, which had accumulated a large amount of short selling due to the depressed market sentiment, also showed a sharp rise of 5-6% that day.
The market is focusing on the large-scale technology exports by Chong Kun Dang and Orum Therapeutics, although the ban on short selling also had an impact. Looking at the trends in the global big pharma industry, it is expected that technology exports by domestic companies will continue following these deals.
Researcher Kim Jeong-hyun of Kyobo Securities said, “Global big pharma companies have difficulty maintaining the overall profit growth trend of the rapidly growing industry over the past decade and are thirsty for innovation,” adding, “Big pharma is expected to actively seek external assets, so there will be investment opportunities in domestic biotech.”
Researcher Kim Seung-min of Mirae Asset Securities said, “Due to issues such as the large-scale technology exports by Chong Kun Dang and Orum Therapeutics and the complete ban on short selling, investment sentiment in the pharmaceutical and bio sectors is expected to recover rapidly,” and added, “The top preferred stocks in the sector this year are Yuhan Corporation, SK Biopharmaceuticals, HanAll Biopharma, and LegoChem Biosciences.”
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