[CB Crisis] Xenofocus Faces Profitability Decline Amid Increased R&D Expenses

Cumulative Sales Increased in Q3 but Losses Also Expanded
Profitability Worsened Due to Increased Investment in New Drug Development
Operating Expenses Covered by External Financing

[Asia Economy Reporter Hyungsoo Park] Genofocus, which experienced significant stock price volatility due to merger and acquisition (M&A) issues in the second half of this year, has fully repaid the 3rd series convertible bonds (CB) issued in August 2020. While raising external funds to cover research and development and facility expenses, its debt ratio continues to rise. Although sales are increasing, losses are also growing, making efforts to improve profitability urgent.

According to the Financial Supervisory Service's electronic disclosure system on the 29th, Genofocus repaid the 3rd series CB holders principal of 9 billion KRW plus interest of 620 million KRW.

Genofocus's stock price recorded a yearly high of 9,280 KRW on September 13 and then declined continuously. As the 3rd series CB conversion price of 5,881 KRW was undercut, bondholders appear to have exercised their early redemption rights (put option). Two years ago, Genofocus issued 10 billion KRW worth of 3rd series CB to K2 Expedio Investment Association. The nominal interest rate and maturity interest rate were 0% and 3%, respectively. The raised funds were used for facility investments.

Since August, Genofocus has been plagued by rumors of a sale. As rumors spread that Harim and Lotte were acquiring Genofocus, the stock price surged. The stock price, which had hovered around 6,000 KRW, rose nearly 50% in a month, surpassing 9,000 KRW. In response to an inquiry disclosure, Genofocus stated, "We are reviewing various strategic options to strengthen business competitiveness," and "No decisions have been made yet."

Genofocus is a company developing customized enzymes using microbial metabolism. It is also developing microbiome new drugs utilizing microbial-derived proteins. Up to the third quarter of this year, it recorded sales of 20 billion KRW and an operating loss of 3.8 billion KRW. Although sales increased by 7.5% compared to the same period last year, the loss scale grew due to increased selling and administrative expenses.

As costs increased, Genofocus's debt ratio rose from 205.4% at the end of last year to 300.9% at the end of the third quarter this year. Short-term borrowings and bonds increased from 31.7 billion KRW at the end of last year to 66.2 billion KRW. In July, it issued the 4th series CB, raising 23.2 billion KRW.

While pursuing new drug development, operating funds have steadily increased. Although enzyme sales are growing, profits are insufficient to cover research and development costs. Genofocus's research and development ratio relative to sales rose from 40.3% last year to 40.9% in the third quarter this year.

Genofocus is continuously seeking partners who can create synergy effects while raising external funds to cover facility and research and development expenses. Interest from large corporations that highly value its technology appears to have sparked M&A-related rumors.

As of the end of the third quarter, it holds 5.2 billion KRW in cash and cash equivalents and 46.4 billion KRW in short-term financial products. As the stock price returned to pre-M&A rumor levels, it repaid 9.6 billion KRW. Although issuing the 4th series CB means there will be no immediate funding concerns, improving profitability remains a challenge.

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