[Reporter’s Prospectus Review] Kangstem Biotech Launches Fourth Paid-in Capital Increase, Raising 50 Billion KRW to Focus on Clinical Trials

Three Paid-in Capital Increases from 2018 to 2024... Stock Price Continues to Fall
20 Billion KRW to Be Invested in Osteoarthritis Treatment Clinical Trials

Kangstem Biotech is conducting a large-scale paid-in capital increase worth 50 billion KRW, which amounts to nearly half of its market capitalization. The company plans to use most of the funds raised through this capital increase for clinical trials. In particular, for its osteoarthritis treatment, which requires the largest investment, Kangstem Biotech intends to either pursue technology transfer after completing Phase 2a clinical trials or proceed directly to Phase 3 trials.

Since 2018, the company has raised more than 140 billion KRW through a total of four capital increases, including the current one. However, sales have not increased significantly, and the company continues to post losses, showing lackluster performance. This is why it is critical for Kangstem Biotech to achieve tangible business results with this latest capital increase.

According to the financial investment industry on June 12, Kangstem Biotech is proceeding with a paid-in capital increase through a shareholder allotment followed by a public offering of forfeited shares, totaling 38 million new shares. The total amount is 48.185 billion KRW, which exceeds half of its market capitalization of 94.6 billion KRW as of June 10.

Kangstem Biotech was established in 2010 for the development and manufacturing of stem cell therapies and was listed on the KOSDAQ market in 2015.

The company’s main businesses include stem cells, cosmetics, and biopharma. Sales increased from 5.9 billion KRW in 2022 to 7.7 billion KRW last year. However, the company remains in the red. Operating losses decreased from 20.9 billion KRW in the same period to 14.8 billion KRW last year. In the first quarter of this year, sales were 954.35 million KRW, and operating losses were 4.7 billion KRW. Compared to the same period last year, sales declined and losses widened.

The company will use most of the funds raised from this capital increase for clinical trials. It plans to invest 20.1 billion KRW in clinical trials for its osteoarthritis treatment (OSCA) and 2.6 billion KRW in its atopic dermatitis treatment (Furestem-AD Inj.).

The osteoarthritis treatment is Kangstem Biotech’s core pipeline. The company reports that it confirmed excellent efficacy in reducing inflammation and regenerating cartilage during Phase 1 clinical trials. For the current Phase 2a trial, the company plans to expand the scale from 50 to 108 patients to more precisely evaluate the efficacy of the investigational drug compared to placebo. Additionally, Kangstem Biotech is preparing overseas clinical trials that meet the conditions for the U.S. Food and Drug Administration’s Regenerative Medicine Advanced Therapy (RMAT) and Breakthrough Therapy Designation (BTD), with the aim of either proceeding to Phase 3 trials or pursuing technology transfer overseas. For the atopic dermatitis treatment, the funds will be used for long-term follow-up studies.

2.5 billion KRW will be used to enter the Japanese regenerative medicine market. Kangstem Biotech has completed contracts with local medical institutions in Tokyo, Osaka, and Nagoya to supply autologous adipose-derived stem cells in Japan. Starting in the second quarter, the company plans to actively engage in sales and investment activities to secure patients.

3.4 billion KRW will be allocated to support clinical research of the atopic dermatitis and osteoarthritis treatments through partner medical institutions, facilitate early use of these pipelines, and generate intellectual property (IP). With the revision of the domestic Advanced Regenerative Bio Act now in effect, the company plans to move quickly to commercialize its business.

In addition, Kangstem Biotech will invest 6.3 billion KRW in organoid research and development (R&D) to establish a skin organoid platform. The company will also invest 4 billion KRW in Good Manufacturing Practice (GMP) facilities and allocate 7.8 billion KRW for other operating expenses. The remaining 1.4 billion KRW will be used to repay loans.

Kangstem Biotech previously conducted shareholder allotment capital increases of 36 billion KRW in 2018, 39 billion KRW in 2021, and 21 billion KRW in 2023. Including the current capital increase, the total exceeds 140 billion KRW. However, the company’s stock price has continued to decline since its listing. After reaching 19,677 KRW in 2019, the share price fell to 1,688 KRW as of the previous day.

Given this, it is essential for the company to deliver business results following this capital increase. Each time a capital increase has taken place, shareholders have only experienced dilution of their shares. In this round, 67% of the total 56,054,149 shares will be issued as new shares, making dilution unavoidable.

However, it is positive that the largest shareholder, Sejong, plans to participate in nearly 100% of its allotted shares in this capital increase. In this case, Sejong’s stake is expected to remain at 14.27%.