Cellivery at risk of delisting after receiving a disclaimer opinion from auditor
Cellivery Therapeutics, a Korean biotech firm, warned its investors Friday that it could be delisted because it received a disclaimer of opinion from its outside auditor.
This led to a trading suspension for the company's shares on the tech-heavy Kosdaq market on the same day.
Grant Thornton, which performed the audit, cited the uncertainty of the company’s ability to stay afloat, the invalidity of investment and financing transactions, and the inadequacy of accounting standards as the basis for the disclaimer of opinion.
The accounting firm particularly cited Cellivery's liquidity problem as a major concern.
"Cellivery's liabilities amounted to 55.1 billion won ($42.5 million) in 2022, which was 25.1 billion won more than its current assets (30 billion won)," the auditor said. "Also, while the put option for 35 billion won worth of Cellivery's convertible bonds is due to be exercised in October, Cellivery only has 14.6 billion won in cash and cash equivalents."
The put option allows investors to demand an early return of their principal and interest.
The auditor further stressed that it could not obtain sufficient and appropriate audit evidence to determine the appropriateness of the company's accounting standards and, therefore, could not determine whether additional modifications were required.
Due to the disclaimer of opinion from its auditor, Cellivery now faces the possibility of delisting, with the trading suspension period being extended until the expiration of the appeal period for the delisting.
Cellivey has until April 13 to file an appeal. If there is no appeal, the delisting process will proceed.
The suspension of Cellivery came as a shock to the company's shareholders as it was known to be a promising biotech company two to three years ago.
Cellivery's stock price, around 6,000 won until August 2019, surged more than 10 times during the Covid-19 pandemic.
At its peak, the stock price exceeded 100,000 won and ranked 14th in market cap among Kosdaq-listed firms in January 2021.
However, the stock price steadily declined over the past two years, closing at 6,680 won on Thursday, just before the trading halt, a 93.5 percent drop from its peak.
The stock trade suspension has also raised suspicions among shareholders of insider trading as Cellivery's stock price, which opened at 9,120 won on Thursday, plummeted to its lower limits 40 minutes before market close to 6,680 won.
Shareholders of the company also expressed frustration after Cellivery officials dogged all of their calls and did not respond to any inquiries after the Korea Exchange (KRX) suspended trading of the company's shares.
With frustration and anger toward the company growing, Cellivery finally posted its apology and future plans about the trade suspension around 1:00 p.m. Friday.
"We humbly accept the results of this audit," Cellivery said. "We will immediately file an appeal with the KRX and will do our best to be granted an improvement period."
Moving forward, Cellivery promised to do its best to restore market confidence and protect the rights of its shareholders by promising to use all of the CEO's assets in reviving the company, selling subsidiaries and all tangible and intangible assets, and promptly concluding license-out agreements.
However, the company received additional backlash from the shareholders after the company's CEO Jo Dae-woong admitted in a follow-up apology that he underestimated the timing of the licensing agreement.
The company and its CEO had been hyping investors about a possible licensing agreement with a multinational pharmaceutical company since 2021.
"We underestimated the timing of the licensing agreement," Jo said in his apology letter to shareholders. "As a result, we didn't prepare for any contingencies as I, and my team's confidence that the deal will happen soon was so high."
However, the deal is still ongoing, so the company will make concessions and do everything in its power to conclude the deal, Jo added.