Minority shareholders of Kolon Life Science and its subsidiary Kolon TissueGene are pursuing more than 25 billion won ($211.5 million) compensation for their investment losses. They argue the damage was incurred by the suspension of osteoarthritis gene therapy Invossa-K following the mislabeling of the drug’s ingredient.
On May 27, Jeil, a law firm, moved first to file a claim of compensation for damage of about 6.5 billion won, representing 142 shareholders of Kolon TissueGene. The law firm’s suit is against nine entities or people, including Kolon TissueGene, Kolon TissueGene CEO Lee Woo-sok, and former Kolon Group Chairman Lee Woong-yeol.
On May 31, another law firm, Hannuri Law, followed suit to fight against six entities or people, representing 294 shareholders of Kolon TissueGene for 9.3 billion won compensation.
A third law firm, Hankyul, is receiving applications for damage compensation by June 15 from investors who bought shares of Kolon Life Science and Kolon TissueGene. To date, over 300 investors have joined the lawsuit, and they are expected to demand over 10 billion won compensation.
Joining the trio is Oh Kims Law, which is also collecting investors of the two firms until mid-July for a similar lawsuit.
“Kolon TissueGene and Kolon Life Science deceived the Ministry of Food and Drug Safety to obtain the sales license of Invossa, promoted it as if it legitimately developed it as the world’s first knee osteoarthritis gene therapy, and recruited goodwill investors,” a lawyer at Oh Kims said.
“We are filing a joint lawsuit of shareholders (against Kolon) to ask for liability for false statements including a business report, under Article 1 of the Financial Investment Services and Capital Markets Act.”
Damage compensations demanded by the shareholders grew rapidly, especially after the two companies were revealed to have provided false information in public disclosure even though the companies had known that they had a drug ingredient labeling error.
The law recognizes a liability for damages if the company deliberately or mistakenly omitted a significant piece of information that may have affected the investment.
As the probability that the company intentionally hid the mislabeling went up, shareholders are increasingly confident about winning their case.
Kim Kwang-joong, an attorney at Hankyul, said in an interview with Korea Biomedical Review on May 23 that the shareholders were highly likely to win the lawsuit because Kolon Life Science omitted a public disclosure that Kolon TissueGene had known the mislabeling of the ingredient in March 2017.
In the wake of the Invossa suspension, stock prices of Kolon Life Science and Kolon TissueGene kept plummeting. Kolon Life Science, which was around 75,200 won per share before the suspension, plunged by 71 percent to 21,800 won on May 31. The market capitalization of Kolon Life Science shrank from 858.2 billion won to 248.8 billion won during the cited period.
The value of Kolon Life Science's minority shareholders (59.23 percent as of the end of March) has decreased by 360 billion won from 508.4 billion won.
During the same period, Kolon TissueGene shares also nosedived 76.7 percent from 34,450 won to 8,010 won. The market cap went down by 1.6 trillion won from 2.1 trillion won to 489.5 billion won.
The value of stocks owned by Kolon TissueGene’s minority shareholders (36.66 percent as of late last year) dropped from 778 billion won to 180.9 billion won.
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