Korean pharmaceutical companies have been increasingly raising funds through mezzanine financing, a hybrid of stocks and bonds, to attract investors who remain reluctant to invest in drug development projects due to high risk of loss.

JW Pharm Group is one of the most active pharm firms in the capital market to raise funds through mezzanine financing for its development programs, according to sources on Wednesday. JW Holdings, the parent of the group, recently issued exchangeable bonds worth 77 billion won ($69.1 million) with its holding of JW Pharm shares as underlying asset and injected the money into JW Pharm in the form of new share purchasing. JW Pharm also issued 43 billion won redeemable convertible preference shares (RCPS), raising a total of 120 billion won group-wide.

JW Pharm is due to release results of a phase I study of its targeted cancer drug sometime in September. The company expects the drug development will lead to profitable license deals with global pharma companies. JW Pharm has eight other candidates in its pipeline.

JW Pharm’s subsidiary JW CreaGene also raised 50 billion won in March by selling JW Pharm’s CBs and RCPS. Retail investors even chipped in some 10 billion won in the fundraising through private equity funds, sources said.

Among other pharma companies, Genexine raised 80 billion won by selling convertible preferred stocks and CBs, while Peptron (38 billion won) and CHA Biotech (24 billion won) followed suit in fundraising.

Investors of pharm firms’ EBs and CBs, types of mezzanine financing, can expect stable fixed income from bonds and gain additional profit from conversion into stocks after their companies hit breakthrough in drug development. Such a hybrid debt instrument is designed to facilitate fundraising for highly risky projects while reducing the risk of loss for investors.

By Jeon Kyung-woon

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