Korean pharma, biotech firms choose buybacks to enhance stock value

[Courtesy of Celltrion]

South Korean pharmaceutical and biotech companies are resorting to share buybacks to protect their declining stock prices.

Celltrion Inc. has been particularly aggressive in the strategy. In a recent board meeting held on Wednesday, the company decided to purchase 333,556 shares of its own stock, amounting to 50 billion won ($38.37 million) based on the previous day’s closing price of 149,900 won per share. The latest move marks the company’s fourth share buyback this year alone, with total spending of around 200 billion won to acquire 1.31 million outstanding shares. It purchased its 1.56 million shares last year.

“The company has been undervalued due to market instability, prompting it to buy back to stabilize the stock price and enhance shareholder value,” said an unnamed official from Celltrion. Consequently, Celltrion’s stock price closed at 152,600 won per share, a 1.8 percent increase from the previous trading day, following the buyback announcement.

On the same day, Yuyu Pharma Inc. also revealed a plan to buy back and cancel 200,000 shares of its stock on July 12. The company completed a stock buyback worth 2 billion won last year.

“Among all available options, the management chose a buyback to enhance shareholder value,” said an official from the company. “As the recent merger with Yuyu Healthcare Co., which held 168,251 common shares of YuYu Pharm, has been completed, we expect the buyback to be effective.”

Similar trends can be observed among other pharmaceutical and biotech companies, such as Dong-A ST Co. and Kwangdong Pharmaceutical Co., which have engaged in share buybacks to improve shareholder value. Market experts attributed the wave of buybacks to the declining stock prices of pharmaceutical and biotech firms.

The Kospi pharmaceutical index has experienced an 8.5 percent decline year-to-date as of Wednesday. An industry insider noted that “Pharmaceuticals and tech firms are investing money to protect their stock prices, as the Covid has subsided, leading to stock price slumps,” said an unnamed source from the industry.