SEOUL, South Korea – Biotech investors in South Korea are carefully assessing the outlook for the industry after a series of scandals and reverses have rocked a sector touted as a key area for development in the country.
The latest issue to hit investors is the cancellation of a merger plan by two of the country's biotechnology companies.
Immunotherapy producer Genexine Inc., based in Seongnam, and gene-editing technology developer Toolgen Inc., based in Seoul, walked back a merger in August after the cost of compensating shareholders, who opted to sell their shares instead of converting them over to a new merged entity, topped the stated limits. (See BioWorld, June 27, 2019.)
From July 30 to Aug. 19, shareholders opposed to the merger rushed to tap appraisal rights beyond the purchasing limits of the two companies. The claims from Genexine shareholders would have impacted almost 3.5 million regular shares worth KRW234 billion (US$194 million) and another 1.5 million preferred shares worth KRW99 billion. Toolgen shareholders put in claims for a little more than 1.5 million shares worth KRW122 billion. All those claims combined far exceeded the limits of KRW130 billion for Genexine and KRW50 billion for Toolgen.
The failure of the deal may point to a broader change in sentiment in South Korea toward biotech investments and toward the economic outlook in general.
"As the investment sentiment has recently worsened in the biopharmaceutical sector, investors weren't sure that the two firms' stock price would recover," Myoung-sun Lee, an analyst at Shinyoung Securities Co. Ltd. in Korea, told BioWorld.
The Korea Exchange (KRX) Healthcare Index, which includes 73 Korean bio-health care companies including Samsung Biologics Inc., Celltrion Inc. and Sillajen Inc., has plummeted by more than 25% since April, when the Invossa-K scandal surfaced. The drop in biotech has been larger than any other industrial index, according to KRX, and is the result of a series of reverses to the industry as a whole.
Earlier this year, the sector was rocked by a labeling scandal involving Invossa-K, a first-in-class gene therapy for osteoarthritis. Seoul-based drugmaker Kolon Life Science Inc., the maker of Invossa-K, was taken to court on allegations that it mislabeled one of the main components of the drug. Prosecutors say the company used GP2-293 cells in the drug instead of the cartilage-derived cells it listed when it received regulatory approval. GP2-293 cells come from the kidney and could be oncogenic.
The U.S. FDA has ordered a halt to a phase III trial for the drug while South Korea's Ministry of Food and Drug Safety (MFDS) took back the marketing license for the drug. (See BioWorld, May 30, 2019.)
Kolon announced on Aug. 22 that a recent medical research paper said Invossa-K is safe, but the markets have punished the company. Kolon's shares (KRX:102940) closed at KRW16,600 on Sept. 19, down 18% since March. The punishment was much greater for the developer of the drug, Kolon Tissuegene Inc. (KRX:950160), which saw its share price plummet from KRW52,000 in September 2018 to KRW8,010 in May, when trading was halted after a public listing eligibility screening.
And that is not the only negative impact to the biotech industry in South Korea over the past few months.
One involved HLB Life Science Co. Ltd. (KRX:67630), which failed phase III trials for its cancer drug, rivoceranib, causing its share prices to fall sharply in July. The Seongnam-based company had been trading at KRW24,750 in September 2018 but fell to KRW5,120 after the news. Shares rose slightly to KRW7,480 on Sept. 19 after the company got the green light from the FDA to undertake a phase II trial.
Another setback involved Seoul-based Hanmi Pharmaceutical Co. Ltd., which saw its licensing deal valued at $915 million canceled in July. Janssen Pharmaceutica NV, Johnson & Johnson Co.'s subsidiary based in Beerse, Belgium, handed back to Hanmi exclusive rights to develop and commercialize HM-12525A, a biologic GLP-1/glucagon dual receptor agonist to treat certain diabetes patients. The Belgian company revoked the deal as the blood glucose control in obese patients with accompanying diabetes did not meet its internal standards after phase II trials. Hanmi's stock (KRX:128940) dropped to KRW295,500 on Sept. 19 from KRW422,000 on June 21. (See BioWorld, July 9, 2019.)
Bad news also hit Busan-based Sillajen Inc. The company had to abort phase III trials for its liver cancer treatment, Pexa-Vec. On Sept. 18, Sillajen's partner, Transgene SA, a French pharmaceutical company based in Strasbourg, halted clinical trials, based on recent advice by the independent data monitoring committee.
In August, the Korean company announced the failure of Pexa-Vec in phase III to assess a combination of the oncolytic virus and Nexavar (sorafenib), a cancer drug developed by Bayer AG and Amgen Inc. A few weeks before the announcement, Sillajen executive Hyunpil Shin sold all of his 167,777 common stocks citing "personal reasons," but the move worried a wide cross section of company stakeholders. (See BioWorld, Aug. 5, 2019.)
Sillajen (KRX:215600) saw its shares plummet to KRW10,950 on Sept. 19 from a high of KRW111,000 on Sept. 20, 2018.
Yet, despite the stumbles, some industry observers still strike a positive tone.
"The recent negative cases in the biopharmaceutical industry shouldn't cause a fall-off in investment," Jurie Hwang, marketing deputy director at the Korea Biotechnology Industry Organization, told BioWorld. "The biopharmaceutical industry of Korea is in a youthful phase, and some of the failures will help the market be mature."