Greenlit by the FDA, yet too cheap to stay? Korea’s penny stock rule puts biotech firms on edge.

Pharmaceutical companies, even those that have secured new drug approvals from the U.S. Food and Drug Administration, and biotech firms with tens of billions of won in assets now face the risk of being pushed off the stock market. The threat comes as so-called penny stocks — companies whose shares trade below 1,000 won (70 cents) — have become subject to delisting rules.

The newly announced delisting standards have sparked competing arguments: Troubled companies need to be weeded out to protect investors, while innovative companies that require years of research and development should be judged by different standards.

Five pharmaceutical and biotech companies — Noul, LabGenomics, Shaperon, Abion Bio and CMG Pharmaceutical — were among 36 listed companies designated as issues for administrative management on Wednesday for failing to meet share price or market capitalization requirements.

The five fell under a new rule covering companies whose shares trade below 1,000 won for 30 consecutive trading days.

The government rolled out new stock market rules that took effect on July 1, including stricter market capitalization thresholds and a new minimum share price rule, the latter of which has been applied to the 36 companies. The minimum market capitalization required to maintain a listing was raised to 30 billion won for Kospi-listed companies and 20 billion won for Kosdaq-listed companies. 

Companies suffer under double regulation

Companies can face delisting risks under the new share price rule even if they meet the market capitalization threshold. Some concerns that share prices alone may not accurately reflect a company’s technological capabilities or financial health.

CMG Pharmaceutical received FDA approval last year for Mezofy, its schizophrenia treatment, but its closing share price over the past 30 trading days ranged from a high of 986 won to a low of 609 won, below the 1,000 won threshold. Its market capitalization stood at 99.4 billion won as of Thursday.

LabGenomics, which operates a diagnostic testing business in the United States, held more than 70 billion won in current assets as of the first quarter, putting it among the industry leaders.

Both companies, however, have fallen afoul of the share price requirement regardless of their technological achievements or financial capacity.

“Many biotech companies have opted for low par values because of factors such as efforts to encourage trading and the predominance of retail investors, so their share prices tend to be relatively low,” said a biotech industry source with 20 years of experience. “Market capitalization is already used as a requirement for maintaining a listing, so imposing an additional 1,000 won share price threshold effectively amounts to double regulation.”

Turning to reverse stock splits

To avoid the risk of delisting, companies are turning to reverse stock splits to raise their share prices.

Designation as an issue for administrative management does not automatically lead to delisting. A company can remain listed if its shares stay at or above 1,000 won for 45 consecutive trading days within 90 trading days of the designation.

CMG Pharmaceutical is therefore pursuing a 10-for-1 reverse stock split, in which it would consolidate 10 common shares with a par value of 500 won each into one common share with a par value of 5,000 won.

“We monitored the share price and market conditions before and after the new rules took effect and decided on the reverse stock split at a board meeting on July 22,” the company said. “If the proposal is approved at an extraordinary shareholder meeting next month, trading will be suspended from Oct. 1 through Oct. 26, with the consolidated shares to be listed on Oct. 27.”

Biotech companies have faced similar pressure in the past over requirements for maintaining their listings, including revenue thresholds.

Drug developer Cellid came under fire in 2024 when it acquired a bakery company and ventured into a business unrelated to its core operations. This time, the introduction of the share price requirement has triggered a wave of reverse stock splits among biotech companies.

Investor protection vs. innovation

The industry broadly agrees with the goal of weeding out troubled companies. However, some argue that the new rules could also become a hurdle to innovation. 

There have been numerous cases in which failed clinical trials or management problems at biotech companies have raised the prospect of significant losses for investors.

For instance, trading in SillaJen shares was suspended for about two years and five months beginning in May 2020 over embezzlement and breach of trust involving former executives. The company had nearly 170,000 retail shareholders at the time.

“Among penny stocks, there are some companies that make you wonder how they have managed to survive this long,” Lee Seung-kyu, vice president of the Korea Biotechnology Industry Organization, said. “Those companies should be removed.”

 While emphasizing the importance of corporate accountability, Lee also expressed concern about applying uniform standards to innovative companies that require years of research and development.

“I question whether innovative technologies can emerge under a system like this,” Lee said. “If the system allows only safe companies to survive, how can we expect them to become globally competitive?”

Industry sources expect the issue to extend beyond biotech. Companies in advanced industries that require long-term investment, including aerospace and quantum technology, could eventually face similar challenges.

“Other countries are using a variety of systems to steer their markets toward fostering innovative technologies, while Korea is moving in the opposite direction in some respects,” Lee said. “We need to strike a balance by removing problematic companies while allowing companies with promising technologies to grow.”

BY CHOI EUN-KYUNG [kim.jiye@joongang.co.kr]