Kolon TissueGene, an affiliate of Kolon Life Science, is on the verge of being kicked out of the Kosdaq market.
The Korea Exchange (KRX)'s Corporate Review Committee decided to delist Kolon TissueGene on Monday. The decision gives the regulator 15 business days to open a meeting of the Kosdaq Market Committee and make the final ruling by Sept. 18.
If the company appeals the decision of the Kosdaq Market Committee, the regulator has to review the matter again. Monday’s decision was the first of the three-tiered ruling, similar to a three-tiered judicial system. Until the final decision comes, the company stays listed, but the suspension of stock transactions remains.
The corporate review board ruled that the company deliberately or mistakenly submitted a false document about its osteoarthritis gene therapy Invossa-K, or omitted a significant piece of information, before going public.
Although the KRX did not explicitly say why it decided to delist Kolon TissueGene, it reportedly considered recent developments involving the mislabeling of Invossa’s ingredient.
The company received a notice from a contract manufacturer in March 2017, before listing, that the second fluid of Invossa contained kidney-derived (GP2-293) cells, not cartilage-derived cells as labeled. However, the company did not mention the mislabeling in the document submitted to the KRX.
The Ministry of Food and Drug Safety revoked the license of Invossa due to a false document submitted to the ministry.
The company requested a court to suspend the government’s decision to nullify the Invossa license, but the court turned down the request.
The U.S. Food and Drug Administration also had sent a letter to suspend the phase-3 trial on Invossa in 2015.
The stock market regulator’s decision put Kolon TissueGene in panic.
“We’re disconcerted because we did not expect that the KRX would decide to delist our company as we were still trying to resume the trial in the U.S.,” an official at Kolon TissueGene said. “We don’t have any other choice but to exert every effort to remain on Kosdaq. We will also do our best to resume the U.S. trial.”
Kolon TissueGene, a U.S. subsidiary of Kolon Life Science, was set up as a biotech startup in 1999 by a research team at Kolon’s central research institute at the time, as the team successfully developed the initial substance of Invossa.
After winning local approval for Invossa, Kolon TissueGene went public on Kosdaq on Nov. 6, 2017. The company received high valuation with strong anticipation for Invossa, and its market capitalization reached 1.7 trillion won ($1.4 billion) at the time of listing. The market cap went on to surge to hit as high as 4 trillion won.
In just 18 months after the listing, however, Kolon TissueGene is facing the crisis of delisting. The stock transactions have been suspended since May 28, and the stock price has remained at 8,010 won for three months.
The company’s market cap shank to 489.6 billion won. If Kolon TissueGene is delisted, all of its stocks will become worthless. As Kolon and Kolon Life Science holds 27.26 percent and 12.57 percent stake in TissueGene, respectively, the two will suffer losses.
In particular, 60,000 minority shareholders will suffer losses inevitably. As of late 2018, minority shareholders had a combined 36.66 percent stake, worth 180 billion won.
More than 2,000 shareholders have filed seven lawsuits against the company for damage compensation. If the final ruling orders delisting, the company may face more lawsuits.