Bought a 'Bakery Factory' to Avoid Delisting... Promising Bio Firm Chooses 'Business' Over Drug Development [Listing Regulations Crushing Bio Dreams]①

Due to Listing Maintenance Requirements, Only 3 to 5 Years After IPO
Turning to Bakeries and Real Estate Instead of New Drug Development

Editor's NoteNew drug development is a race against time and a test of patience. It often takes more than a decade and hundreds of billions of won in investment before any results are achieved. However, Korean bio startups are being forced into a high-speed competition lasting only three to five years. In reality, they have no choice but to rely on the stock market for initial funding, but if they fail to meet short-term evaluation criteria based on simple metrics such as net loss before tax or revenue, they are expelled from the market and deprived of their future. The fact that bio startups, which entered the market with the ambition to lead the future of 'K-Bio' with their technological capabilities, are now focusing on 'bookkeeping' and clinging to completely unrelated businesses is a reflection of this structural problem. Asia Economy examines these phenomena and their causes, and proposes long-term solutions.

[Listing Regulations Crushing Bio Dreams]①How Did This Promising Bio Company End Up Selling Bread?

[Listing Regulations Crushing Bio Dreams]②"After 27 Years of Chasing My Dream, I'm Leaving Korea for the US Nasdaq"

[Listing Regulations Crushing Bio Dreams]③Worsening Internal and External Conditions Squeeze 'Bio Seedlings'

[Listing Regulations Crushing Bio Dreams]④"R&D Investment Should Be Treated as an Asset, Not a Cost"

Cellid, a company developing immuno-oncology vaccines, acquired the bakery company Forbaker in March last year. The company, facing the risk of being delisted from KOSDAQ if it failed to achieve annual sales of 3 billion won after listing, sought immediate ways to increase revenue and ended up purchasing a bakery factory.

According to the industry on June 18, Cellid has not achieved annual sales of 3 billion won in the five years since its technology-based special listing on KOSDAQ in 2019. If a company with a technology-based special listing fails to reach annual sales of 3 billion won after a five-year grace period, it is designated as an administrative issue. Last year, Cellid recorded zero sales, with 480 million won in 2022 and 909 million won in 2021.

Kang Changyul, CEO of Cellid, explained that after a contract manufacturing deal fell through and the company failed to meet its sales target, "we acquired Forbaker to ensure stable sales." Forbaker, a bakery company with annual sales of around 4 billion won, was merged into Cellid, allowing the company to narrowly avoid being designated as an administrative issue for delisting this year and to catch its breath for now.

Cellid is not the only company to adopt such a 'distorted survival strategy.' Clinomics, a startup developing early cancer detection technology, acquired a hotel in Seoul and a smart farm mushroom factory last year. Olipass, a developer of RNA therapeutics, has turned to real estate investment rather than pharmaceuticals. Olipass signed a contract to purchase 241 rental apartments in Suwon for about 71.7 billion won, investing 10 billion won of its own funds.

These companies have turned to such 'side businesses' because survival in the stock market becomes difficult otherwise. Clinomics, which listed via the technology-based special listing at the end of 2020, has seen its sales decline and losses increase over the past two years, failing to meet the net loss before tax requirement. Olipass, which listed in 2019 through the growth-based special listing, has posted some sales, but large-scale R&D losses over the past three years have deepened its capital impairment, resulting in its designation as an administrative issue.

The reality that biotech companies, which should be focusing on new drug development, are diversifying into completely unrelated businesses such as bakeries, hotels, and real estate just to maintain their listing status is a harsh aspect of the bio special listing system, which fails to reflect the industry's characteristics. A system originally intended to give innovative companies breathing room is now driving startups, who entered the market with ambitions to lead the future bio industry, into a distorted 'side business competition.'

On average, it takes 10 to 15 years to develop a single new drug. During that period, massive R&D expenditures are inevitable, resulting in little to no revenue and accumulating losses. Ignoring this reality, Korea's technology-based special listing system forces companies to show results just a few years after listing.

According to current KOSDAQ delisting review regulations, a regular listed company is designated as an administrative issue and faces delisting if its annual separate sales fall below 3 billion won or if its net loss before tax exceeds 50% of its equity capital more than twice in the past three years. For companies with a technology-based special listing, these requirements are deferred for a certain period after listing: the net loss before tax standard is deferred for three years, and the sales standard for five years.

The problem is that from the fourth or fifth year after listing, these financial requirements are applied as they are, putting a significant number of bio companies at risk of simultaneous delisting. According to the Korea Health Industry Development Institute, 83% of biotech firms listed through the technology-based special listing fail to meet the continuing operations loss requirement after listing. Industry insiders lament, "New drug development is a long-term battle of at least 10 years, but the more Korean bio startups devote themselves to R&D for this, the more they are caught in a strange structure of management risk."

There are also criticisms that when the technology-based special listing system was first introduced, accounting-focused approaches based on financial statements were prioritized over consideration of industry characteristics. As soon as the grace period for maintaining listing status ends, the harsh requirement to deliver results is crushing the dreams of bio startups in many cases. Following Cellivery, which was the first to go public under the growth-based special listing in 2017, PharmAbcine, which was developing a targeted anti-cancer bispecific antibody new drug, has also been decided for delisting.