Pharmaceutical and Bio Companies Hampered by 'Judicial Risks' Despite COVID-19 Boom

Representative CEOs of major pharmaceutical and bio companies facing judicial risks. From the left, Moon Eun-sang, CEO of Sillajen; Lee Woo-seok, CEO of Kolon Life Science; Hong Ji-ho, former CEO of SK Chemicals.
[Image source=Yonhap News]

[Asia Economy Reporter Kim Hyung-min] Although our pharmaceutical and bio companies have recently experienced a boom, they are not entirely smiling. This is because 'judicial risks' continue to persist.

Pharmaceutical and bio companies have recently raised their stock prices by leveraging the spread of the novel coronavirus infection (COVID-19). Diagnostic kits and quarantine-related products made by these companies are being exported worldwide and are receiving attention as part of the so-called 'K-quarantine,' so the soaring trend is expected to continue for the time being.

Nevertheless, according to the business and legal circles on the 17th, these companies are suffering from 'judicial risks.' Executives of the companies are undergoing trials in court, and some cases are still under prosecution investigation, raising concerns about the absence of employees.

First, SK Chemicals is notably on trial due to the 'humidifier disinfectant incident' that surfaced in 2011. SK Chemicals is a bio company that has SK Bioscience, which is developing COVID-19 treatments, as its subsidiary.

SK Chemicals is suspected of having recognized the potential human harm of 'Humidifier Mate' when it took over the humidifier disinfectant business division from Yukong in 2000 but sold the product without additional testing.

As a result of this incident, in May 2019, former SK Chemicals CEO Hong Ji-ho and others were arrested and indicted on charges of professional negligence causing death and are currently on trial.

Meanwhile, on the 13th, the prosecution secured documents containing evidence that SK Chemicals recognized the harmful potential of its products before the humidifier disinfectant incident, which has emerged as a variable in the trial.

The report is known to include requests to replace chloromethylisothiazolinone (CMIT) and methylisothiazolinone (MIT), the raw materials of 'Humidifier Mate' manufactured and sold by SK Chemicals.

Legal circles view that if the authenticity and preparation process of this report are clearly revealed, it could serve as evidence proving that SK Chemicals executives recognized the harmful potential of the humidifier disinfectant but neglected verification.

Executives of Kolon Life Science, including CEO Lee Woo-seok, who were indicted on suspicion related to the osteoarthritis gene therapy drug Invossa, began their trial on the 29th of last month.

Lee and others are accused of being involved in deceiving the Ministry of Food and Drug Safety regarding the components of Invossa to obtain approval.

Lee's side argued in court that "there is no problem with Invossa's safety," adding, "Recently, Korean companies have received worldwide praise for releasing diagnostic kits during the COVID-19 crisis, and if Invossa receives approval from the U.S. Food and Drug Administration (FDA), it will boost national pride."

Moon Eun-sang, CEO of SillaJen, was arrested on the 12th on charges including selling stocks in advance using undisclosed information, putting SillaJen at the crossroads of delisting.

Moon is reportedly accused of using internal company information to sell a large amount of stocks before publicly announcing the clinical trial suspension of 'Pexa-Vec,' an immuno-oncology drug candidate developed by SillaJen, thereby avoiding significant losses.

SillaJen's stock price once soared due to expectations for Pexa-Vec development but plummeted after the clinical trial suspension was announced.

Moon is also suspected of improperly acquiring company shares by acquiring bonds with warrants (BW) through a paper company without capital.

In addition, Samsung employees indicted for destroying evidence related to the Samsung Biologics accounting fraud allegations are undergoing a second trial.

At the trial held in March, the employees argued, "Whether Samsung Biologics committed accounting fraud should be judged based on the results of related investigations and trials and considered during sentencing."

Medytox CEO Jung Hyun-ho was also indicted without detention on the 17th of last month and is awaiting trial. Jung is accused of producing Botox products with unauthorized raw materials from late 2012 to mid-2015 and manipulating raw material information to obtain national shipment approval 83 times.

A legal insider said, "Judicial risks in the pharmaceutical and bio industry have spread since last year's Samsung Biologics accounting fraud allegations and the Invossa KJ incident and continue to have repercussions," adding, "Considering the rise in stock prices of companies, the impact does not seem significant, but there is always a possibility of adverse effects depending on the results of trials and prosecution investigations in the future."

This content was produced with the assistance of AI translation services.