[Reporter Reading Securities Report] BridgeBio's Rapidly Deteriorating Financial Structure... 26.3 Billion Won Capital Increase

Bridge Biotech, a bio company that entered the KOSDAQ market through a special technology listing, is conducting a large-scale paid-in capital increase worth 26.3 billion KRW. Since its listing, Bridge Biotech's financial structure has rapidly deteriorated due to poor performance.

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According to the financial investment industry on the 26th, Bridge Biotech recently announced through a public disclosure that it will proceed with a paid-in capital increase through a rights offering followed by a general public offering of unsubscribed shares. The planned issue price per share is 1,917 KRW, and 13.7 million new shares will be issued. Through this, a total of 26.2629 billion KRW will be raised. The expected listing date is July 25 of this year.

Founded in 2015, Bridge Biotech focuses on the NRDO (No Research, Development Only) business. NRDO refers to a method where companies or research institutes introduce substances discovered by other entities from outside, develop them, and generate revenue through technology exports at the mid-development stage.

Bridge Biotech plans to use the raised funds for research and development (R&D) and acquisition of securities of other companies. It will invest 24.3 billion KRW in R&D funds for new projects, including the idiopathic pulmonary fibrosis drug candidate 'BBT-877' and the lung cancer drug candidate 'BBT-207.' Additionally, 700 million KRW will be used for operating expenses, and 1.3 billion KRW will be consumed as investment funds for the R&D and operating expenses of subsidiaries.

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The reason Bridge Biotech is conducting the paid-in capital increase is interpreted as due to its deteriorated financial structure. In July 2019, it signed a technology export contract worth 1.145 billion euros (approximately 1.52 trillion KRW) with the multinational pharmaceutical company Boehringer Ingelheim for BBT-877. Based on this, it also listed on KOSDAQ. However, in November 2020, Boehringer Ingelheim returned all rights to BBT-877, which caused the company's performance to plummet.

In 2020, Bridge Biotech expected sales of 57.2 billion KRW and operating profit of 31.2 billion KRW, but actually recorded sales of 1.924 billion KRW and an operating loss of 26.4 billion KRW. Last year, the gap between expectations and actual results widened further. The sales and operating profit forecasts were 139.3 billion KRW and 73.4 billion KRW, respectively. However, actual sales were 100 million KRW with an operating loss of 40.4 billion KRW.

As performance worsened and costs poured into R&D, the financial structure deteriorated. As of last year, Bridge Biotech's capital stock was 13.214 billion KRW, and total equity was 19.72 billion KRW, with an individual basis capital erosion rate of -49.2%. Capital erosion means that total equity is less than capital stock, indicating that accumulated losses have reduced the company's equity capital. If the capital erosion rate exceeds 50%, the company is designated as a management item. Although there is still some margin, the consolidated capital erosion rate worsened sharply from -321.02% in 2022 to -46.07% last year.

The company also explained in its securities registration statement, "As of 2023, the capital erosion rate is -49.2%, so it does not fall under the 'Investment Warning Item' category," but added, "If a large net loss and accumulated deficit continue in the first half of this year, and the capital erosion rate exceeds 50% in 2024, there is a possibility of being designated for a substantial review of listing eligibility (management item designation)."

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In addition, Bridge Biotech is in a situation that meets the management item criteria of 'pre-tax continuing operations losses exceeding 50% of equity capital for two or more years within three years.' From 2021 to 2023, it recorded pre-tax continuing operations losses exceeding 50% for three consecutive years. Since last year was a grace period, capital expansion seemed necessary.

After the paid-in capital increase is completed, the reduction of the largest shareholder's stake is also a concern. CEO Lee Jung-kyu holds 13.04% of Bridge Biotech's shares. He plans to participate in more than 50% of the subscription in this paid-in capital increase but intends to conduct a block deal (large-scale off-market sale) of some of his shares to raise funds. As a result, his stake is expected to drop to 9.24%, and after the paid-in capital increase, it is projected to fall further to 8.34%.

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