Aprogen Biologics, Overcoming Thorny Path to Improve Financial Structure

Promotion of Capital Increase through Paid-in Capital and Rights Offering... Debt Repayment and Operating Fund Preparation
Korea Investment & Securities and Others Subscribe to Remaining Shares... 18% Fee

Aprogen Biologics, which recorded a large-scale operating loss last year, has embarked on improving its financial structure. However, continued stock price declines are expected to make fundraising difficult.

According to the Financial Supervisory Service's electronic disclosure system on the 7th, Aprogen Biologics has planned to raise 72.4 billion KRW by issuing 65.75 million new shares. The planned issue price per share is 1,101 KRW, and the final issue price will be confirmed on May 3.

The stock price of Aprogen Biologics has fallen 45% since the beginning of this year. The price plummeted after deciding to consolidate shares by merging 10 common shares into one share of the same par value to improve the financial structure. Last year's sales amounted to 87.4 billion KRW, a 34.0% increase compared to the previous year. Operating losses reached 57.5 billion KRW, with the loss scale increasing tenfold from the previous year. Although sales have increased over the past three years, the company has continued to operate at a loss due to an inability to cover fixed costs such as selling and administrative expenses.

The funds raised will be used for factory operating expenses and facility improvement costs for biosimilar production. Among the raised funds, 30.9 billion KRW will be used to repay debt. Aprogen Biologics borrowed 53.5 billion KRW from its largest shareholder, Aprogen. If the debt is repaid as planned, the debt ratio will decrease from 58.5% last year to 42.2%.

Aprogen holds a 53.77% stake in Aprogen Biologics. Of the 65.75 million shares to be issued, 35.8 million shares will be allocated to Aprogen. Aprogen will subscribe to 60% of the allocated shares. It will participate in the capital increase through its own cash holdings and proceeds from the sale of subscription warrants. The structure involves investing over 23 billion KRW to receive new shares and later recovering about 30 billion KRW. Aprogen plans to use the funds received to conduct clinical trials for the Herceptin (AP063) biosimilar drug.

Aprogen Biologics signed technology transfer agreements with Aprogen in August 2009 and January 2010, respectively, transferring all rights related to domestic clinical development and sales of Remicade and Herceptin biosimilars. It was expected that once product approval is obtained domestically, profitability would improve over five years based on exclusive domestic sales rights.

If funds are smoothly raised through the capital increase, there will be more flexibility in clinical development and production facility maintenance. The problem is that recent stock price declines cannot guarantee a successful subscription. Considering the share consolidation, the current stock price is about 40% higher than the planned issue price. If the stock price shows a rebound, a successful subscription from existing shareholders can be expected. Conversely, if the stock price steadily declines, the fundraising scale may shrink.

To succeed in fundraising, Aprogen Biologics has signed standby underwriting agreements with Korea Investment & Securities and SangSangin Securities. If there are remaining shares after subscriptions by existing shareholders and public offerings to general investors, an additional 18% forfeiture fee will be incurred.

Korea Investment & Securities, the lead underwriter for the paid-in capital increase, stated that major countries worldwide are pursuing drug price burden relief, creating a favorable environment for biosimilar companies with price competitiveness. However, they expressed concerns that as competition intensifies in the biosimilar market, price competition could lead to deteriorated profitability.

An investment banking (IB) industry insider explained, "While funds are flowing into the initial public offering (IPO) market, there seems to be little interest in paid-in capital increases of existing listed companies," adding, "There is expected to be intense strategic maneuvering during the subscription warrant sale period."

An Aprogen official said, "Repaying loans will promote global clinical trials," and added, "It will increase the possibility of rapid product approval for drugs under development by Aprogen."