Retail investors in biotech on verge of losing money over chilled market sentiment

SillaJen is one of the companies in the medical care and pharmaceutical sectors that are embroiled in financial scandals this year. Korea Times file

By Yi Whan-woo

Retail investors in biotech stocks face the risk of losing their invested money, as financial scandals surrounding key listed companies in the healthcare and pharmaceutical sectors are chilling market sentiment after a rough start in 2022.

The related stocks on both the benchmark KOSPI and tech-heavy KOSDAQ took a tumble in general, over embezzlement scandals linked to Osstem Implant and SillaJen, and the bourse operator's preliminary measure to delist them from the KOSDAQ indefinitely.

The market capitalization of SillaJen once hovered around 10 trillion won ($8.3 billion) but shrank to 1.24 trillion won in the wake of the scandal.

Another KOSDAQ-listed company, Kolon TissueGene, awaits the Korea Exchange's (KRX) final decision as to whether it should be delisted permanently. Its shares have been temporarily suspended from trading since May 2019 over the mislabeling and false reporting of ingredients.

KOSPI-listed Celltrion is worsening the situation, due to suspected accounting fraud concerning the company and its two affiliates, Celltrion Healthcare and Celltrion Pharm.

Celltrion Healthcare, after being the No. 1 in market cap for about four years on the KOSDAQ, retreated more than 15 percent.

“Any delisting of the involved companies will deal a blow to minority shareholders, and furthermore, deepen investor distrust in the biotech sector,” said a senior representative of KoreaBIO, an organization representing the interests of the industry.

The fact that retail investors account for a considerable share of the aforementioned companies is adding to the dim outlook of the market.

Minority shareholders account for 55.6 percent of Osstem Implant's shares, 92.6 percent of SillaJen's, 34.5 percent of Kolon TissueGene's, 64.29 percent of Celltrion's, 55.38 percent of Celltrion Healthcare's and 45.04 percent of Celltrion Pharm's shares.

“Unlike institutional or foreign investors, the minority shareholders will have no alternative means to retrieve the money they lost,” a market observer said.

A dental implant manufacturer, Osstem was temporarily delisted on Jan. 3, after the company reported that one of its employees allegedly embezzled 188 billion won in its funds.

The amount is believed to be equivalent to 91.81 percent of Osstem's equity capital of 204.76 billion won. The case is the largest-ever embezzlement case in the history of the country's listed firms.

Drug maker SillaJen was delisted on Jan. 18, following a trading ban of its shares since May 2020, when its management was mired in an embezzlement scandal.

Concerning Celltrion, the Financial Services Commission (FSC) will open a discussion as to whether punitive measures should be taken over the accounting fraud.