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Sillajen’s trouble heralds fall of one of most prominent biotech firms

Lee Han-soo  Published 2019.08.05  16:55  Updated 2019.08.05 16:55

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Shares of Sillajen continued to take a nosedive Monday after the biotech firm announced that it was in danger of aborting its phase 3 clinical trial for Pexa-Vec (trial name: PHOCUS) treating liver cancer.

The company, which once had a market value of 10 trillion won ($8.2 billion), said Friday that it was advised to suspend the clinical trials by the Independent Data Monitoring Committee (DMC), which held a meeting to assess the futility of phase 3 clinical trial. The committee judges whether a candidate drug is worth developing based on whether it is potential as a treatment.

As of 2 p.m. Monday, the company's share stood at 21,850 won, a 29.97 percent decrease from Friday.

Since the company's announcement, the company has lost over 1.5 trillion won of its total market value and plummeted from the third-largest Kosdaq-listed firm by market cap to the 10th place.

Sillajen, established in 2006, had claimed that its lead investigational product, Pexa-Vec, a Wyeth strain vaccinia virus engineered to lyse tumor cells and stimulate anti-tumor immunity directly, can resolve the disadvantage of conventional anti-cancer drugs where the treatment attacks both cancer and normal cells.

The company's claims seemed promising as the company received the go-ahead for phase 3 clinical trials for the treatment in treating liver cancer from the U.S. Food and Drug Administration in 2015. Also, the company managed to enter the Kosdaq market under the government's "technology exception policy," which makes listing easier for smaller firms with technological growth potentials, even though it was a loss-making entity in 2016.

The company's share, which was 10,000 won when it first entered the secondary bourse, soared to 150,233 won in November 2017. The market cap for the company exceeded 10 trillion won and climbed to second-largest Kosdaq-listed firm by market cap.

Despite the company's continued market cap increase, market experts and industry officials have cited the risk in buying shares for the company as it had never recorded a surplus. In 2018, the company posted sales of 7.7 billion won and an operating loss of 59 billion won.

Officials also have been citing the company staffs’ moral hazard, a situation in which one party gets involved in a risky event knowing that it is protected against the risk and the other party will incur the cost, as an issue that needs to be addressed by the company.

Just before the public filing, a company executive sold 8.8 billion won worth of stocks, and CEO Moon Eun-sang also sold shares worth 132.5 billion from late 2017 to early 2018. At the same time, four of Moon's relatives also cashed around 80 billion won.

When confronted with the suspicion of prior knowledge, Sillajen continuously said that the executives and top shareholders sold their stock due to personal reasons.

It is also possible that other employees may have sold shares in advance because the law does not require employees to announce their stock transaction officially. Such suspicions have somewhat been confirmed, as the company's employees used their stock option to cash in more than 200 billion won before leaving the company.

With the latest turn of events, investors are now calling Sillajen a liar, and are intensifying suspicion that the company's executives might have predicted the drug would fail in a futility test and sold their shares in advance.

In an urgent news conference Sunday, Moon addressed such suspicion.

"In the past, there were some people that tainted the reputation of Sillajen by selling stocks and leaving the company," Moon said. "However, they have left, and there are no employees who would conduct such transactions left in the company."

Moon stressed that the company has not yet repaid the money it borrowed from the shareholders, but if the shareholders want the company to obtain more shares, it would borrow more money and buy the shares.

Despite Moon's efforts to stabilize the company, the firm's future is foggy.

Market watchers say that since Pexa-Vec is Sillajen's only major pipeline, if any additional clinical trials of Pexa-Vec fail, it may be the end of the company.

corea022@docdocdoc.co.kr

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