Wednesday, November 13, 2019
Specially Listed Biotech Companies Abuse Stock Options
Stock Options Overly Issued
Specially Listed Biotech Companies Abuse Stock Options
  • By Choi Moon-hee
  • November 6, 2019, 11:58
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Specially listed biotech companies have been found to impair the value of existing shareholders by over-issuing stock options.

The Financial Supervisory Service recently analyzed the stock options granted and exercised in 58 KOSDAQ-listed companies specially listed between January 2015 and the first half of this year and announced on Nov. 5 that 51 companies granted a total of 39.28 million stock options to 2,240 persons. According to the organization, those companies that benefited from the special listing, which is to allow listing for loss-making yet technologically competitive companies, impaired the value of existing shareholders by over-issuing stock options.

The over-issuance is particularly conspicuous in pharmaceutical and biotech companies. During the period, 36 such companies benefitted from the special listing and granted stock options to their executives and staff members without exception. The 36 companies account for 85.1 percent of the total stock options and the ratio amounted to 96.1 percent in 2015 and 2016.

92.5 percent of the stock options were granted by new stock issuance and 51.3 percent of the granted options went to a small number of executives. Specifically, the number of granted stocks per executive is 59,784 whereas that per staff member stands at 10,029. 77.6 percent of the 51 companies granted stock options before listing and 43.7 percent of the options granted during the period were exercised with 91.5 percent of the exercise taking place immediately after listing and the following surge in stock price.

The Financial Supervisory Service also said that non-profit-making companies are increasingly exercising stock options to cause an increase in cost burden and stock value dilution on the part of existing shareholders. “Only eight out of the 51 companies were posting operating profits and most of the 51 companies increased their stock option exercise year after year in spite of an increase in current net loss,” it explained, pointing out that measures such as performance-based stock option exercise need to be considered.