[Funding] Eutilex Continues Investment in New Drug Development... Big Capital Increase as a Bold Move

[Asia Economy Reporter Hyungsoo Park] UtilX, which is developing next-generation immune checkpoint inhibitors, will issue new shares through a rights offering followed by a general public offering of unsubscribed shares to raise clinical trial costs. Kwon Byung-se, the largest shareholder and CEO, will sell some of his existing shares and acquire 30% of the newly allocated shares.

According to the Financial Supervisory Service's electronic disclosure system on the 25th, UtilX will issue 7 million new shares to raise 96.6 billion KRW. For every one existing share, 0.41 new shares will be issued, with the planned issue price set at 13,800 KRW per share.

UtilX is a bio venture established in 2015 with the goal of developing new immunotherapies to treat intractable diseases such as cancer and autoimmune diseases without side effects. It is developing next-generation immune checkpoint inhibitors such as T-cell therapies, CAR-T cell therapies, and immune-modulating antibody therapies that minimize side effects of existing anticancer drugs and improve therapeutic efficacy. The company possesses an immune checkpoint inhibitor development platform that activates killer T cells to maximize anticancer effects. The immune checkpoint activator 4-1BB, first discovered by CEO Kwon Byung-se, plays a key role in activating the cytotoxicity of killer T cells, enhancing immune memory, and improving survival capabilities.

Of the funds raised through the rights offering, 86.6 billion KRW will be invested over the next two years in clinical trials. 21 billion KRW will be allocated to antibody therapies, 40.8 billion KRW to T-cell therapies, and 24.8 billion KRW to CAR-T cell therapies. The remaining 10 billion KRW will be used to expand the Good Manufacturing Practice (GMP) facilities. UtilX currently lacks sufficient production capacity for the planned clinical trials. The existing GMP facilities can produce about 220 batches annually. If clinical trials proceed as planned, production will need to exceed approximately 600 batches annually by 2025. The company has planned GMP production facility investments considering the pace of the planned clinical trials.

Continuous investment is necessary to develop new drugs. Discovering candidate substances and conducting clinical trials require significant time and capital until technology transfer or new drug launch. UtilX has been operating at a loss since its establishment in 2015. Operating R&D expenses were 9.8 billion KRW in 2020 and 18.2 billion KRW last year, accounting for 71.8% of total operating expenses last year. Operating losses increased from 24.9 billion KRW in 2020 to 33.5 billion KRW last year.

If the rights offering is successfully completed, the debt ratio will decrease from 57.8% to 24.7%. However, if the scale of the capital increase is reduced due to stock price fluctuations, the effect on improving the financial structure may be diminished.

In a situation where external funding is necessary to continue new drug development, dilution of the largest shareholder’s stake is inevitable. CEO Kwon Byung-se and related parties are expected to be allocated 2,314,028 new shares in the rights offering. CEO Kwon and related party Han Myung-hee plan to participate in the subscription for about 30% of the allocated shares. To raise subscription funds, they will sell approximately 400,000 and 150,000 existing shares respectively through block deals (off-market large-volume trades). These shares are expected to be disposed of at an appropriate discount rate before the subscription rights certificates are listed. If they participate in 30% of the allocated shares as planned, the largest shareholder’s stake will decrease from 16.8% to 11.6% after the rights offering. Including related parties, the largest shareholder group’s stake will fall from 33.1% to 23.0%. There are also concerns about further dilution due to the existence of the 2nd series convertible preferred shares, 1st series convertible bonds, and stock options.

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