[Funding] Enzychem's Bold Move to Improve Profitability... A Matter of Life and Death in the Vaccine Business

Stock Price Decline Shrinks Fundraising to 168.5 Billion KRW
COVID-19 Vaccine 80 Million Doses Production Cost Estimated at 387 Billion KRW
Vaccine Business Expected to Yield 103 Billion KRW Profit if Successful... Inventory Burden if Failed

[Asia Economy Reporter Hyungsoo Park] The stock price of Enzychem Lifesciences has been falling continuously, raising warning signs for its fundraising plans. The fundraising scale has been reduced to about half, and there are significant concerns about a large number of forfeited shares. This is expected to cause setbacks in the production of the COVID-19 vaccine, which is being promoted to break away from a perennial deficit structure.

According to the Financial Supervisory Service's electronic disclosure system on the 22nd, Enzychem Lifesciences has set the new share issuance price at 31,800 KRW through a rights offering followed by a general public offering of forfeited shares. It will issue 5.3 million new shares to raise 168.5 billion KRW. For every one existing share, 0.608 new shares will be issued.

Enzychem Lifesciences held a board meeting on September 17 last year and resolved to conduct a paid-in capital increase. The planned issuance price was 59,700 KRW, and the total public offering scale reached 316.4 billion KRW. As the stock price fell more than 50% compared to the time of the paid-in capital increase decision, the fundraising scale was reduced by about 148 billion KRW.

With the reduction in fundraising scale, the fund usage plan was also revised. Enzychem Lifesciences received technology transfer for manufacturing the COVID-19 vaccine developed by Indian pharmaceutical company Zydus Cadila. Initially, 228 billion KRW was planned to be used for purchasing raw materials for vaccine production, but 49.4 billion KRW will be used first for vaccine manufacturing costs. Subsequent operating funds will be covered by cash flow from business activities. If the COVID-19 vaccine business proceeds as planned, expected revenue this year will reach 103 billion KRW. It is expected to produce 80 million doses this year and achieve sales of 755.2 billion KRW. Next year, it is estimated to produce 120 million doses, with sales of 1.133 trillion KRW and profits of 141.7 billion KRW.

The reason for promoting the COVID-19 vaccine business is also to improve profitability. Enzychem Lifesciences has continued to incur losses while investing in new drug development. Operating losses were 14.3 billion KRW in 2018, 16.4 billion KRW in 2019, and 19.1 billion KRW in 2020. The cumulative operating loss for the third quarter of last year was 15.5 billion KRW, with operating losses occurring every year. At times, more than 50% of sales revenue is used for research and development costs.

However, if vaccine sales are sluggish, it could become a liability. According to the technology transfer contract, Enzychem Lifesciences must pay 20 million USD in royalties regardless of sales volume. Since vaccine sales approval has not yet been granted, the obligation to pay royalties has not yet arisen. Sales can begin after going through vaccine approval procedures in each country.

KB Securities, the lead manager of the paid-in capital increase, judged that the manufacturing license technology transfer contract carries significant sales risk. If issues arise in the approval process or sales channels, a large inventory of vaccines could accumulate. The expected production cost for 80 million doses is estimated at 387 billion KRW.

As of the end of the third quarter last year, there was debt of 57.7 billion KRW on a consolidated basis. The debt ratio was 70.0%, and the dependence on borrowings was 35.7%. Continuous operating losses have led to fundraising in the market to cover deficits. The consolidated debt ratio increased from 14.0% in 2018 to 70.0% as of the third quarter last year.

The repayment burden for the second tranche of privately placed convertible bonds worth 50 billion KRW issued on November 6, 2020, is increasing. The conversion request period started on November 6 last year, and the early redemption request period begins on November 6 this year. The conversion price is 70,138 KRW, which is higher than the current stock price. If the stock price remains below the conversion price until the early redemption request date, investors are likely to exercise the early redemption right. As of the end of the third quarter last year, the company held 8.5 billion KRW in cash and cash equivalents.

Enzychem Lifesciences is striving to achieve concrete results in new drug development alongside vaccine production. Recently, it recruited four overseas licensing experts. The licensing team consists of Dr. Castellana, former vice president of BMS; Dr. Hamrick, former chief medical officer of the capital division at HCA; Dr. Fleming, former FDA official; and Dr. McMenamin, an expert in medicine and law.

Son Ki-young, chairman of Enzychem Lifesciences, said, "Enzychem Lifesciences aims to realize the value of new drug development by successfully global licensing of EC-18 oral mucositis treatment and AVI-3207 wet age-related macular degeneration treatment this year."

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