"Preventing Another Samchundang Pharm"... Significantly Strengthened Pharmaceutical and Biotech Disclosure Standards

FSS Announces Comprehensive Improvement Measures for Pharmaceutical and Biotech Disclosures
IPO Pricing to Specify Clinical Success Probability and Market Size
Complete Pipeline and Discontinued Project History Will Be Clearly Presented

Going forward, pharmaceutical and biotechnology companies will be required to specifically disclose information such as the expected market size and clinical success rates when determining offering prices prior to listing. After going public, they will also be required to distinguish between upfront payments for technology transfers and milestone payments (development performance compensation) in their disclosure filings. The overall disclosure system for pharmaceuticals and biotechnology will be extensively revised.

The Financial Supervisory Service announced on the 30th that it has established a “Comprehensive Improvement Plan for Pharmaceutical and Biotechnology Disclosures.” This plan aims to prevent excessive interpretation of research and development (R&D) outcomes such as clinical trial results, and to reduce investor confusion caused by discrepancies between disclosure filings and media reports.

The pharmaceutical and biotechnology industry has been criticized for inflating contract values and making aggressive sales projections, which have caused market disruption. The stock crash of Samchundang Pharm is a representative case. Samchundang Pharm was designated as an unfaithful disclosure company by the Korea Exchange in April for failing to fulfill fair disclosure obligations related to business performance forecasts. Its stock price, which had risen to 1,158,000 won on March 26, plummeted to 126,500 won as of the previous day.

Accordingly, the Financial Supervisory Service has improved the requirements for securities registration statements at the initial public offering (IPO) stage. Companies will have to detail four key assumptions for offering price calculation: expected market size, probability of clinical trial success, regulatory and review risks, and development timeline and costs. For the expected market size, companies must provide the basis of calculation by distinguishing between the total market and the actual target market. The probability of clinical trial success must be derived from objective sources such as academic papers or existing statistics, minimizing arbitrary company estimates.

For regular disclosures after listing, companies must now include a “Comprehensive R&D History Table” that allows for an at-a-glance review of not only the current development pipeline, but also any discontinued programs and product approvals. Delays from the original schedule must be explained with reasons and revised plans, so that the progress and outlook of R&D activities can be easily understood.

In particular, technology transfer contracts must specify the upfront payment, development milestones, approval and sales milestones, and royalties separately. This aims to prevent investors from misjudging the actual amount that pharmaceutical and biotechnology companies are likely to receive based solely on the total contract value.

Improvements are also underway to make ad hoc disclosures easier for investors to understand. The Korea Exchange is reviewing plans for allowing investors to review pipeline history in periodic reports, from the initial disclosure up to the most recent, and for including explanations and interpretations of clinical trial terms.

The Financial Supervisory Service has also prepared “Guidelines for Pharmaceutical and Biotechnology Media Reporting,” which require that important information be disclosed publicly before being released to the media. This is intended to prevent investor confusion caused by overstated profit expectations in media releases issued prior to official disclosure.

A Financial Supervisory Service official stated, “We aim to ensure that key information is disclosed in a consistent manner, enabling investors to easily analyze data across companies and make rational assessments of corporate value.”

This content was produced with the assistance of AI translation services.