[Reporter's View] Pharmas rethink bio venture investments

Multiple pharmaceutical companies have made significant investments in promising bio ventures, spending a substantial amount to acquire shares.

 

Some have become the largest shareholder, and those holding over 5% of the share are involved in the management.

 

Through the investment, companies anticipate sharing R&D results in the future.

 

However, such expectations pose challenges.

 

First, ventures require regular funding.

 

Venture pipelines are mostly in early clinical stages.

 

They must secure costs for the later phase of clinical trials.

 

However, it is uncommon for ventures to generate sales regularly.

 

As they advance to later phases of clinical trials, they may quickly need funds.

 

Listed ventures depend on exterior funds, such as recapitalization and convertible bonds (CB).

 

This process works by issuing new stock to raise funds.

 

Pharmaceutical companies investing in ventures want to secure liquidity through clinical trials.

 

However, the percentage of shares owned by pharmaceutical companies decreases with new stocks.

 

Some companies have complained that unnotified funding disrupts their business plans.

 

Pharmaceutical company A owner complained, "We have invested in Venture A by acquiring over 5%.

 

However, our stock share reduced to 3% after Venture A received multiple funding.

 

Frequent funding of Venture A caused a market liquidation signal, leading to decreased stock prices.

 

Unnotified funding has resulted in a setback for our business plan.

 

We are reconsidering whether to hold the share." Moreover, pharmaceutical companies are also concerned about the gap between the venture's plan for clinical trials before going public and the present.

 

In this case, a decrease in stock prices could result in a reduction in stock share value.

 

In the fifth year of listing, most pipelines of TiumBio did not reach the originally planned clinical stage or achieve technology transfers.

 

Their accumulated net loss is over KRW 100 billion.

 

Before being listed on the KOSDAQ at the end of 2019, TiumBio expected to turn a net profit from 2022, anticipating generating a net profit of KRW 54.1 billion by 2023.

 

However, the company has been in deficit.

 

The company also expected to raise operating revenue of KRW 81.5 billion in 2023 but realized operating revenue amounted to KRW 4.9 billion instead.

 

During this time, TiumBio's market capitalism plunged by one-fourth over three years and a half.

 

Consequently, pharmaceutical companies are withdrawing their venture investment shares because of frequent funding and differences in their investment plan compared to the venture's listing.

 

Companies like D and W have retrieved their principal, leaving only the rest of the shares, and another company sold the entire second-quarter stock.

 

Of course, pharmaceutical companies invest in ventures at high-risk and high return because they have invested in the potential R&D of those ventures.

 

However, ventures must also take some responsibility.

 

Ventures must not defend that frequent funding is prerequisite for clinical trials.

 

They must notify all investment partners before raising funds.

 

Additionally, ventures must explain the differences between expected gain and realized loss.

 

They should not argue that delays in earning profits are anticipated outcomes of clinical studies.

 

Many venture companies receive frequent funding, and their outcomes are different from their initial plan before going public.

 

Pharmaceutical companies that have invested in these venture companies are reconsidering their investments.

 

If this trend continues, it may disrupt the virtuous circle of investment between pharmaceutical companies and venture technology.