The financial authorities are overhauling the disclosure system for pharmaceutical and biotech companies. The focus will shift from future value explanations, such as expectations of clinical success or large technology transfer contracts, to providing investors with concrete figures on success probabilities, development costs, and contract structures.
On July 30, the Financial Supervisory Service (FSS) announced a comprehensive improvement plan for pharmaceutical and biotech disclosures aimed at enhancing reliability and investor understanding. The FSS operated a task force from April to June, involving external advisors and industry participants, to review securities registration statements, regular and interim disclosures, and media reporting methods.
Initially, the FSS will standardize key assumptions used in pricing during the initial public offering (IPO) process. Going forward, pharmaceutical and biotech companies must specify four key items: expected market size, clinical trial success probability, regulatory review risks, and development timelines and costs.
Previously, companies often relied on their own estimates for target market size or new drug value. Now, they will need to differentiate between the total market and the actual target market they can enter. Clinical success probabilities will also be based on objective data from research papers or existing statistics to minimize discrepancies in company estimates.
Risks associated with the approval process will be disclosed separately. Even if clinical trials succeed, there is a possibility of delays or failures during regulatory reviews, allowing investors to identify related risks in advance.
The disclosure system will also change post-listing. Currently, information is primarily provided on ongoing pipelines, making it difficult to see major developments such as past project terminations or technology transfers at a glance. To address this, a new 'Research and Development History Management Summary Table' will be established in regular reports to track the entire process, including completions, terminations, and approvals.
If there are delays, companies will be required to explain the reasons and outline future plans.
The method of disclosing technology transfer contracts will also be revised. Some companies have emphasized the signing of multi-billion dollar technology transfer contracts, but the actual contract amounts and future milestone and royalty conditions were often not clearly distinguished, leading investors to misinterpret the contract size as actual revenue.
In the future, technology transfer contracts must be divided into contract amounts, development milestones, approval and sales milestones, and royalties, with each amount disclosed separately. Companies must also explain when and under what conditions these payments will be made. Even if the counterparty remains undisclosed, at least minimal information about the counterparty's size and business capabilities must be provided.
Disclosures of clinical trial results will be improved to meet investor expectations. Instead of relying on technical jargon, companies will provide explanations of key terms and how to interpret the results to ensure general investors can understand them.
Guidelines will also be established for how pharmaceutical and biotech companies communicate with the media. Important information that could influence investment decisions must be disclosed first, and subsequent media reports must align with the disclosed content. Adding unreported important information or using exaggerated or subjective expressions will also be restricted.
Providing information exclusively to specific investors will be prohibited. The FSS plans to establish internal review procedures before distributing press releases and will recommend actions according to internal regulations in cases of guideline violations.
An FSS official stated, “This improvement plan marks the first step in transitioning from a method where companies list information they want to convey to one that provides disclosures understandable to investors. We will continue to enhance the disclosure environment so that investors can assess growth potential and risk factors in a balanced manner.” The FSS will finalize the media reporting guidelines in consultation with the Financial Services Commission and the Korea Exchange, and will hold briefings for market participants to facilitate the implementation of the new system.
This improvement plan comes in response to recent instances in the pharmaceutical and biotech sectors where clinical trial results or technology transfer scales were excessively interpreted, leading to confusion among investors due to discrepancies between company disclosures and media reports. Stock prices have surged significantly based on new drug expectations, but there have been cases where prices evaporated by over 90% when expectations for clinical results and development achievements fell short. Kolon TissueGene saw its stock price soar this year due to expectations for the U.S. Phase 3 trial of TG-C (formerly Invossa), but following the announcement of clinical results, the company's value was reassessed, leading to a decline of over 90% from its peak in May as of July 29. Similarly, Samchundang Pharm experienced a significant rise in stock price due to expectations for new drug pipelines like oral obesity treatments, but its stock price has since dropped nearly 90% from its early-year peak, highlighting the limitations of biotech stocks driven solely by expectations.
* This article has been translated by AI.
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