“Drug development is inherently a loss-making business. Companies need to survive that period to have a future 10 or 20 years down the road.”
That is the view of one biotech industry official as concerns mount across South Korea’s pharmaceutical and biotechnology sectors ahead of stricter Kosdaq delisting requirements set to take effect in July. While industry participants broadly support efforts to remove so-called zombie companies and strengthen investor protection, they argue that applying uniform standards without accounting for the unique nature of biotech could ultimately undermine innovation.
Market Cap, Penny Stock and Capital Impairment Rules Tighten in July
According to industry sources on June 23, the Financial Services Commission announced a delisting reform package in February, and the Korea Exchange finalized amendments to listing regulations in May. Key measures include raising minimum market capitalization requirements (from 15 billion won to 20 billion won and eventually 30 billion won), delisting penny stocks, introducing reviews for companies with complete capital impairment on a semiannual basis, and strengthening penalties for disclosure violations.
Brokerages expect the reforms to improve market credibility by removing financially distressed companies. Analysts at KB Securities said the changes could improve corporate competitiveness and lead to a revaluation of the broader market, producing positive long-term effects.
An analysis of Korea Exchange classification data by News1 found that 21 of the 230 companies listed under the Kosdaq pharmaceutical and medical device sectors already fall below either the market capitalization threshold or penny stock criteria. If the minimum market capitalization requirement is raised to 30 billion won in January 2027 as planned, another 13 companies would enter the risk zone.
“Pharmaceuticals and Biotech Should Not Be Judged by the Same Standards”
Industry officials argue that pharmaceutical companies and biotech firms should not be treated as a single category.
“Pharmaceutical companies are essentially manufacturers with stable revenue and operating profits, so most of the new requirements are not particularly sensitive for them,” one biotech executive said. “But most biotech ventures are listed through the technology-special listing program, so their situation is completely different.”
The technology-special listing system was introduced in 2005 to help innovative technology companies secure funding despite lacking revenue or profitability. Companies deemed to possess strong technological capabilities and growth potential can list on the Kosdaq without meeting traditional earnings requirements.
Drug development, however, requires substantial long-term investment. According to an analysis by the Korea Health Industry Development Institute of 38 domestically developed drugs approved since 1999, bringing a new drug to market took an average of 10.7 years and required an average investment of 42.3 billion won.
Industry officials argue that biotech ventures are structurally vulnerable to capital impairment because they generate little or no revenue while continuing to spend heavily on research and development.
“Without sales, there can be no operating profit, but R&D personnel costs and development expenses continue,” the executive said. “Each pipeline requires at least five years and often as long as 10 years. During that period, companies inevitably depend on outside financing.”
An earlier News1 analysis of 20 major biotech companies listed under the technology-special program found that five would struggle to survive for one year without additional funding. Eight companies, or 40% of the group, lacked sufficient cash reserves to operate for two years.
Delisting Pressure Could Attract Less Transparent Capital
Industry participants warn that greater delisting pressure could worsen the quality of available financing.
“In the past, companies could raise capital on favorable terms based on the strength of their pipelines,” another industry official said. “But when delisting becomes an immediate threat, companies may be forced to accept funding from investors whose primary goal is gaining management control. That increases the risk of opaque capital inflows.”
Some also fear that measures intended to protect investors could encourage companies to exaggerate pipeline prospects or pursue aggressive diversification strategies.
Venture capital investors have already become increasingly selective, focusing on companies with strong cash positions and advanced pipelines. Industry observers say tighter delisting standards could leave cash-strapped firms with fewer financing options and force them to raise capital under increasingly unfavorable conditions, weakening the broader biotech ecosystem.
“Companies Need a Viable Path to Survive”
Industry representatives argue that reforms should go beyond stricter delisting standards and include listing maintenance criteria better suited to biotech businesses.
They warn that technology-special listing companies may be forced to pursue short-term revenue-generating products only a few years after listing, diverting capital raised through public offerings away from innovative research and into businesses designed to meet financial requirements. Such an outcome, they say, would undermine the original purpose of the technology-special listing program.
Instead of emphasizing revenue-based benchmarks, industry participants are calling for standards that reflect biotech-specific characteristics, including clinical development progress, technology licensing achievements and patent portfolios.
“Biotech is an industry where investors fund future potential rather than current earnings,” an executive at a major pharmaceutical company said. “Applying the same standards used for traditional manufacturing companies could create significant side effects in both capital raising and market function.”
At the same time, the executive acknowledged that safeguards are necessary.
“Authorities must prevent companies from exploiting the system by acquiring businesses unrelated to their core operations or using it for improper fundraising,” the executive said. “Since the government has consistently emphasized fostering the biotech industry, regulatory design should be aligned with broader industrial development goals.”