Why Did the Exchange Bring Up the ShillaJen Delisting Card? "Unconvincing Reasons... Heading Toward Litigation?"

[Asia Economy Reporter Lee Seon-ae] "I cannot accept the reasons for delisting given by the Korea Exchange."

Shinilajen, which had been halted for 20 months due to allegations of embezzlement and breach of trust by its management, is now facing the risk of being delisted from the stock market, sparking outrage among the company and its approximately 170,000 small shareholders. Shinilajen stated that the reasons for delisting presented by the Korea Exchange are only acceptable to the exchange and are incomprehensible to them, preparing to take a strong stance by filing an 'appeal lawsuit.' Small shareholders of Shinilajen also interpret the decision as politically motivated and are considering criminal charges against Sohn Byung-doo, chairman of the Korea Exchange. Ultimately, Shinilajen’s fate is expected to lead to a prolonged dispute.

According to the Korea Exchange on the 20th, the final delisting of Shinilajen is pending only the decision of the KOSDAQ Market Committee. On the 18th, the KOSDAQ Market Headquarters held a Corporate Review Committee meeting and decided on Shinilajen’s delisting. The exchange plans to hold a Market Committee meeting within two business days (by February 18) to decide on whether to delist and whether to grant an improvement period of up to one year.

Although the Market Committee is unlikely to overturn the Corporate Review Committee’s decision, it may grant an additional improvement period instead of delisting. To receive an improvement period, a detailed plan explaining the reasons why the exchange had no choice but to propose delisting is required. The fate of small shareholders depends on Shinilajen’s willingness and plan to provide such explanations.

Shinilajen once attracted attention by rising to the second-largest market capitalization in the KOSDAQ market. However, due to allegations of embezzlement and breach of trust involving former and current executives including former CEO Moon Eun-sang, a substantial review of listing eligibility was triggered in May 2020, leading to a suspension of stock trading. In August 2020, the Corporate Review Committee discussed delisting but did not conclude the review, and in November of the same year, the committee granted a one-year improvement period.

So, why did the Corporate Review Committee decide on delisting despite the one-year improvement period?

The exchange judged that the reduction in the new drug pipeline and the uncertainty of maintaining corporate value with the secured 100 billion KRW fund made the situation unclear. The exchange explained, "The new drug pipeline, which is the development product group, has decreased, and since the largest shareholder changed to M2N, the only capital injection was 100 billion KRW, making it unclear whether Shinilajen’s going concern value can be maintained. A concrete plan to sustain the company as a going concern, including the pipeline, is necessary."

Some argue that the Corporate Review Committee, feeling the burden, postponed the decision to the Market Committee. While there are calls for a concrete plan regarding the new drug development pointed out by the Corporate Review Committee, Shinilajen is rather bewildered, emphasizing that it has made sufficient efforts during the improvement period.

So far, Shinilajen has stated that it has worked on improving ▲management transparency ▲financial soundness ▲corporate sustainability as required by the exchange to resume trading. After M2N became the largest shareholder in July last year, the company began full-scale management normalization. It secured 100 billion KRW by receiving a 60 billion KRW investment from M2N and raising an additional 40 billion KRW through a paid-in capital increase. The capital, which was 22.9 billion KRW at the end of 2020, has increased to 120 billion KRW.

Shinilajen also emphasized that it holds the core candidate substance Pexa-Vec (an oncolytic virus). It has focused on research combining it with anticancer drugs from other global pharmaceutical companies. The Phase 2 clinical trial of Pexa-Vec for renal cancer, conducted at 17 clinical institutions in Korea, the U.S., and elsewhere, is expected to complete patient enrollment this month. In 2017, Shinilajen signed a joint development agreement with U.S. partner Regeneron for renal cancer clinical trials, continuing combination research of Pexa-Vec with Regeneron’s immuno-oncology drug (Libtayo). It is also conducting joint research on melanoma with Chinese pharmaceutical company Lishifam. The additional lineup, the oncolytic virus platform 'SJ600,' is currently in preclinical stages.

Many in the industry find the situation absurd. They point out that the exchange’s technical suspicions overlook the nature of the pharmaceutical and bio industry, which expands its business through long-term clinical research on one or two core candidate substances.

Shinilajen plans to actively provide explanations. A Shinilajen official said, "We will prepare an additional corporate improvement plan by concretizing the new drug development direction as requested by the exchange," adding, "The company’s personnel, capital, and new drug pipeline remain intact."

If the Market Committee concludes with delisting, Shinilajen can file an objection, which would lead to a second Market Committee meeting. However, if the result is not overturned in the second meeting, the company will enter the liquidation trading process. The last card Shinilajen can use is an appeal lawsuit. In this case, the liquidation trading process is suspended, and the delisting decision is made according to the court’s ruling.

Shinilajen shows a willingness to pursue an appeal lawsuit. Small shareholders have also begun collective action, holding rallies in front of the exchange demanding the resumption of trading. They argue that the decision is based on political judgment rather than the company’s fundamentals and are prepared for legal action. They are preparing to file criminal charges against Sohn Byung-doo, chairman of the Korea Exchange, for obstructing Shinilajen’s stock trading.

If delisting occurs, the damage will ultimately fall on small shareholders. As of the end of the third quarter last year, Shinilajen had 174,186 small shareholders holding 66,253,111 shares (92.60% stake). Based on the current suspended stock price of 12,100 KRW, the value of shares held by small shareholders amounts to 801.6 billion KRW.

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