Once high-flying bio stock hit by financial fraud scandal

Helixmith Co., once No.2 stock on the junior Kosdaq market, has lost 40% in the past week following its disclosure of $233 million investment in high-risk assets over the past few years. Its financial investment included an undisclosed amount injected into a domestic private equity fund that has suspended redemptions amid a high-profile financial scam case.

Its heavy losses in the past five trading sessions may raise the odds that the once high-flying biotech stock will join two Korean peers at the risk of being delisted from the secondary bourse, analysts say.  

Shares in Helixmith suffered double-digit declines on both Monday and Tuesday, before rebounding to close up 4.6% on Oct. 21.

But its market capitalization at 549 billion won stays at just one tenth of its peak market value reached in March 2019.

“It constitutes a breach of trust for the top management to invest the money it raised for new drug development in high-risk funds,” a minority shareholder told The Korea Economic Daily.

While developing treatments for Lou Gehrig's disease and diabetic peripheral neuropathy, Helixmith has poured 264.3 billion won ($233 million) into private equity and debt investments since 2016.

It has been unable to recover about one sixth of the investment, or over 40 billion won, which represents more than 10 times its 2019 revenue of 4.5 billion won.

The pharmaceutical company has also invested in Optimus Asset Management’s private equity fund, which is under investigation for alleged embezzlement and fraud involving politicians and government officials.

The investment losses could slam the brakes on its announced plan to raise 286.1 billion won in a rights offering later this year.

If the capital-raising plan falls through, it is highly likely for Helixmith to be designated as a stock under supervision, given that losses may outweigh its equity capital for a second straight year, according to analysts.

In the worst-case scenario, the stock will face delisting. Once top-performing biotech stocks on the Kosdaq – SillaJen Inc. and Kolon TissueGene Inc. – are awaiting the Korea Exchange’s decision on whether they will be delisted.

SillaJen, once the largest stock on the Kosdaq by market value, has had its trading suspended since early May, after its top management was indicted on charges of embezzlement and breach of trust.

Its former Chief Executive Moon Eun-sang was arrested earlier this year on charges of selling the company stock using insider information gleaned from the halted clinical trials of its anti-cancer drug.

Trading in Kolon TissueGene Inc. has been halted since May 2019, after ingredients in its knee osteoarthritis medicine, Invossa, were found to have been mislabeled.

Analysts warned against investors’ unfounded expectations about biotech stocks, with their investment decisions based in large part on documents provided by those companies.

“Asset management companies and venture capital firms have one to two managers specializing in biotechnology, respectively. But there is no way to know whether they manipulated their documents,” said a Korean asset management official.

Several brokerage companies had Buy recommendations on the three biotech companies until their clinical trials for new treatments were suspended.

Additionally, a number of Sillajen’s former employees left the company, pocketing heavy gains from stock options before the stock was suspended.

Write to Ui-Myung Park at uimyung@hankyung.com
Yeonhee Kim edited this article.