FSS moves to end inflated biotech tech-transfer disclosures

Financial regulators have decided to overhaul what the pharmaceutical and biotech industry has long been criticized for: disclosure practices that inflate the apparent value of technology-transfer deals.

The reform will strip away the illusion created by conditional milestone payments lurking behind splashy "2 trillion won ($1.39 billion) blockbuster" headlines, requiring companies to break out non-refundable upfront fees and future payment conditions in transparent, itemized disclosures. Industry participants have welcomed the move, saying it offers an opportunity to restore the credibility of the broader biotech sector, which has been tarnished by the opaque disclosure practices of some companies.

The Financial Supervisory Service announced a comprehensive plan to improve pharmaceutical and biotech disclosures, developed with external advisers and industry experts. The overhaul covers a more granular tech-transfer disclosure regime, standardized criteria for setting IPO offering prices, and new media-relations guidelines.

The centerpiece of the reform is the tech-transfer contract disclosure system. Under the existing framework, disclosures focused on total contract value, blurring the line between upfront fees and stage-by-stage milestones — making it difficult for investors to tell whether money would arrive immediately upon signing or only if clinical trials succeeded.

In practice, some companies had been propping up their share prices by trumpeting "trillion-won deals" that combined milestones and royalties — amounts that would never materialize if clinical trials failed — even when the confirmed, non-refundable upfront fee amounted to just 1 percent of the total. When setbacks such as development delays, technology returns or contract terminations occurred, companies frequently failed to disclose them promptly, compounding investor losses.

The FSS will now require companies to disclose technology-transfer contracts by clearly separating four items: the confirmed upfront fee, development milestones tied to each clinical stage, approval and sales milestones linked to commercialization, and sales-linked royalties. Companies must also disclose the payment conditions and nature of each amount. Even when a counterparty's identity is kept confidential, the disclosure must include at minimum the counterparty's size and business capabilities.

The overhaul also takes aim at unfair trading practices, including front-running, in which key information leaks through press releases or informal media briefings before official disclosure, allowing insiders and related parties to trade on it first.

The FSS reaffirmed the principle that material information must be disclosed through official channels first and recommended that companies establish internal approval procedures before distributing press releases. It also called on companies to avoid unsubstantiated, hyperbolic language — such as "miracle new drug" or "approval imminent" — not backed by objective clinical data.

The pharmaceutical and biotech industry has broadly welcomed the disclosure reform. An official at one biotech company said the ambiguity between upfront fees and milestones "had in some ways fueled confusion in the market," adding that "the system needs to be further strengthened so that negative developments such as delays or technology returns can also be clearly disclosed to the market."

An FSS official said the reform marks "a first step toward turning corporate disclosures into ones that investors can understand intuitively and rationally," adding that the agency "will strictly check compliance with the guidelines during the review of securities registration statements and will actively close the information gap in the market through correction requests and other measures as needed."