[At a Crossroads] Ewha Compotech③ Capital Erosion Begins Amid 'Liminatus Pharma' Losses

Accumulated Deficit Reaches 82.8 Billion Won
Impact of Liminatus Pharma’s Share Price Plunge
Controversy Over Risky Investment
Missed Opportunity Cost from Zura Bio

KOSDAQ-listed company Ewha Compotech has fallen into capital erosion. This is due to a large-scale valuation loss following a sharp plunge in the share price of Liminatus Pharma, a U.S. biotech company in which Ewha Compotech had invested. With the risk of delisting if the capital erosion continues, the market is paying close attention.

According to the Financial Supervisory Service’s electronic disclosure system on November 18, Ewha Compotech recorded a total comprehensive loss of 13.8 billion won in the third quarter of this year. As a result, the company’s total equity (10.7 billion won) has dropped below its capital stock (19.9 billion won), putting it in a state of capital erosion. The capital erosion rate stands at 46.3%. The accumulated deficit also increased by about 39% from the end of last year, reaching 82.8 billion won.

For KOSDAQ-listed companies, if the capital erosion rate exceeds 50% for two consecutive years, the company is designated as an administrative issue, and if it continues for three consecutive years, it becomes subject to a substantive review for listing eligibility. In Ewha Compotech’s case, if it records a net loss of more than 800 million won in the fourth quarter of this year, its capital erosion rate will exceed 50%.

The main reason for Ewha Compotech’s large-scale loss is “other comprehensive loss.” Ewha Compotech reflected 14.4 billion won as other comprehensive loss in the third quarter of this year. Most of this other comprehensive loss resulted from the valuation loss on the shares of Liminatus Pharma, a U.S. NASDAQ-listed company, held by Ewha Compotech.

On April 11, Ewha Compotech acquired 1,126,397 shares of Liminatus Pharma for 16.3 billion won. The company contributed 6,108,050 shares of Zura Bio, another NASDAQ-listed company it previously held, as payment in kind, and offset a loan of 3.32 million U.S. dollars (about 4.8 billion won) it had extended to Liminatus Pharma to subscribe for new shares. Effectively, Ewha Compotech acquired Liminatus Pharma shares at 10 dollars per share.

Liminatus Pharma is a U.S. biotech company developing next-generation immunomodulatory cancer therapies. The company is known to have five pipelines, including a solid tumor CAR-T therapy. Liminatus Pharma was listed on the NASDAQ through a SPAC merger on May 1.

After the listing, Liminatus Pharma’s share price was highly volatile before plummeting. As of the previous day, the share price stood at 1.07 dollars. This represents a decline of more than 90% from Ewha Compotech’s acquisition price. As a result, Ewha Compotech set the book value of its Liminatus Pharma holdings at 2.6 billion won in the third quarter of this year. This means a valuation loss of 13.7 billion won occurred in just about six months.

Moreover, considering the opportunity cost of the Zura Bio shares contributed in kind, the scale of the loss is even greater. Zura Bio is a biotech company developing treatments for alopecia areata, other inflammatory diseases, and type 1 diabetes. It is a NASDAQ-listed company headquartered in London, United Kingdom.

At the time Ewha Compotech acquired Liminatus Pharma at 10 dollars per share, it valued Zura Bio shares at 1.3 dollars per share. As of the previous day, Zura Bio shares were trading at 4.08 dollars per share. If Ewha Compotech had retained its Zura Bio shares instead of acquiring Liminatus Pharma, it could have avoided a 90% loss and realized a return of over 200%.

Regarding this, a representative of Ewha Compotech stated, “According to the contract at the time, we are to receive an additional 4.4 million shares of Liminatus Pharma. Currently, these are under a lock-up agreement and we have not received all of them yet, but once the lock-up is lifted, we will recover them sequentially.”

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