EOFlow shares plunge amid rights offering and patent lawsuit by Insulet

EOFlow, a Korean medical device company, saw its stock price plummet to its lower limits by nearly 30 percent on Thursday, following announcements of a significant rights offering and an ongoing patent dispute with a U.S. competitor, Insulet. 

The company disclosed plans on Wednesday for an 82.3 billion won ($61.6 million) rights offering, triggering a sharp decline in its share price. By the end of the trading day on Thursday, EOFlow's stock had fallen 29.94 percent to 8,730 won, touching a three-month low.

Under the terms of the offering, shareholders will be entitled to approximately 0.3 new shares for each share held. The record date for the rights issue is set for Sept. 26, with the subscription period running from Oct. 31 to Nov. 1, with the newly issued 9.1 million shares are scheduled to be listed on Nov. 9.

EOFlow plans to use the proceeds for various purposes, including 57.3 billion won for operating expenses, 20 billion won for debt repayment, and 5 billion won for facility investments. However, this allocation has drawn criticism from some shareholders.

They express dissatisfaction that over 90 percent of the funds raised through the rights offering are earmarked for operating expenses and debt repayment.

Shareholders argue that since most of the money secured through the rights offering will not be used for new investments, it may not serve as a catalyst for stock price growth.

Adding to investor worries, EOFlow disclosed on Thursday that it is facing a patent infringement lawsuit from competitor Insulet in Europe. This announcement, made immediately after the rights offering disclosure, has drawn criticism from shareholders.

Insulet alleges that EOFlow's wearable insulin pump, EOPatch, infringes on its clutch patent registered with the European Patent Office. The company has filed for an injunction with the Unified Patent Court (UPC) to prohibit the sale of EOPatch in UPC member countries, which include 17 nations such as Germany, France, and Italy.

Regarding criticism from shareholders regarding the notification delay, EOFlow stated that it became aware of the injunction request about a month ago but delayed the announcement until officially receiving the court documents, in accordance with disclosure regulations.

The company stressed that it plans to vigorously defend itself, arguing non-infringement and patent invalidity based on prior art. A hearing is scheduled for October, with the outcome potentially having severe implications for EOFlow's operations and financial status in key European markets.

This European lawsuit follows a similar legal challenge in the U.S., where Insulet filed a patent and trade secret infringement suit against EOFlow in August of the previous year.

Although an initial injunction was granted, EOFlow successfully appealed to have it overturned. The main trial is still ongoing, with potential consequences including monetary damages and sales bans in major markets if EOFlow loses the case.

EOFlow has assured investors that the patent in question is only registered in the U.S. and Europe, and sales in other regions will not be affected by the litigation outcome.