"Preventing Another Sam Chun Dang Pharm"... Financial Supervisory Service Launches Pharma-Bio Disclosure Improvement Task Force

Following the sharp decline in the share price of Sam Chun Dang Pharm, financial authorities have officially begun efforts to improve disclosure practices in the pharmaceutical and bio sectors.

Officials are taking a commemorative photo as the Financial Supervisory Service launched the Pharmaceutical and Biotechnology Disclosure Improvement Task Force (TF) on the 10th. Photo by Financial Supervisory Service

The Financial Supervisory Service announced on the 12th that it had established a Task Force (TF) on the 10th to enhance disclosures in the pharmaceutical and bio industries. The TF comprises officials from the Financial Supervisory Service, academia, and industry, and aims to complete a disclosure guide within the first half of this year.

The reason for establishing the TF is the high level of uncertainty surrounding key information in the pharmaceutical and bio industries, which distinguishes them from other sectors. Unlike other industries where sales or profits determine corporate value, in these industries, research and development (R&D) achievements—such as clinical trials—are the decisive factors. However, many companies present their results using technical jargon and complex structures, resulting in a significant gap between the disclosures made and the actual outcomes.

The sharp drop in Sam Chun Dang Pharm's share price is a representative example. The company's share price closed at 1,184,000 won on the 31st of last month, but fell to 505,000 won on the 10th. This occurred after the company announced a contract with a European pharmaceutical firm valued at around 5 trillion won only through a press release and failed to make an official disclosure, prompting the Korea Exchange to announce its intention to designate the company as an unfaithful disclosure entity. During this process, suspicions of contract exaggeration and overly aggressive revenue forecasts arose, leading to market confusion.

The TF plans to restructure the entire disclosure process for pharmaceutical and bio companies, from pre-listing to media reports, into a more easily understandable format. At the listing stage, the focus will be on improving securities registration statements to more clearly reveal the basis for corporate valuation. Previously, estimates used in determining IPO prices were often presented only in formality; going forward, the TF will encourage companies to clearly state the assumptions under which IPO prices are calculated.

After listing, companies will be required to present not just a simple list of clinical phase 1, 2, and 3 trials in their business reports, but also to clearly specify the probability of success at each stage, major risks, and timelines. In addition, the Financial Services Commission and the Korea Exchange plan to work together to develop improvement measures to minimize factors that may hinder rational investment decisions, such as the tendency for media reports to present disclosure content in an overly positive light.

An official from the Financial Supervisory Service stated, "The TF will not simply add more information, but will focus on transforming difficult disclosures into ones that are understandable, and will draw up improvement measures with this goal in mind."

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