Korea Tightens Delisting Rules, Raising Risks for Low-Priced Pharma Stocks

Tighter delisting requirements are heightening anxiety across South Korea’s pharmaceutical and biotech sector, particularly among smaller drugmakers that have posted losses for years and now trade below 1,000 won a share.

Industry officials said March 5 that starting in July, any stock that stays below 1,000 won for 30 consecutive trading days will be designated an “issue for administration.” If it then fails to recover for at least 45 trading days within 90 days, it must enter delisting procedures. The single-price threshold effectively strengthens oversight of so-called “penny stocks.” Joa Pharmaceutical and Kyungnam Pharmaceutical are among companies currently trading below 1,000 won per share.

Drugmakers typically must invest in research and development before generating revenue from successful commercialization. New-drug development generally requires spending more than 10% to 15% of sales on R&D, and shares often plunge when planned technology-transfer deals fall through. That makes it difficult to judge companies solely on short-term earnings or price-to-earnings ratios, industry officials said. “The pharmaceutical business has characteristics that make it hard to evaluate only by short-term performance or PER,” one industry official said. “We need to consider whether a single standard like share price sufficiently reflects a company’s intrinsic value.”

Others argue the risks are not only structural. Some companies have accumulated firm-specific problems such as aging brands, a lack of new growth engines and unstable management, another industry official said. “Companies that failed to move beyond brand dependence or delayed restructuring will be hit hardest by the tighter rules,” the official said.

Joa Pharmaceutical has posted losses for seven straight years. Its business is weighted toward over-the-counter drugs and relies on a pharmacy sales network. It operates a network through its subsidiary Medipharm, which runs about 1,000 franchised pharmacies nationwide, but it has not shown clear results in securing new growth drivers, according to the assessment in the industry.

Kyungnam Pharmaceutical has strong brand recognition centered on its vitamin C product Lemona. But its revenue is concentrated in a single brand, a structural limitation often cited. The company has recently expanded its inner-beauty product lineup, but a new growth engine that could replace Lemona has yet to take hold. Repeated management changes and recurring talk of a sale have also weighed on investor sentiment. Its largest shareholder, Humasis, also trades below 1,000 won, and market concerns about financial stability have not fully eased.

Some in the industry said the new rules could become a turning point that separates stronger and weaker smaller drugmakers. Even accounting for the R&D-heavy nature of the sector, the market is demanding both financial soundness and credible growth strategies, they said. “The intent is reasonable as a warning to companies that have settled for the domestic market,” one official said. “The market will more strictly distinguish between companies with innovation capabilities and those without.”

Still, some observers said a wave of delistings is unlikely. They expect selective restructuring or consolidation through mergers and acquisitions rather than broad removals. “Considering the market impact, a phased cleanup is more realistic than blanket delistings,” an industry official said. With profitability pressured by factors such as drug price cuts, companies may look to M&A for synergies or shift into higher-margin areas such as health functional foods, the official said. “If management stabilizes and R&D results become visible, it could be a turning point for corporate value,” the official added.