South Korea’s over-the-counter (OTC) market has attracted investors with growing interest in hot bio stocks such as Vivozon, whose investigational non-opioid painkiller is on track for regulatory approval with new clinical data about to be released in the U.S.

The private equity market for unlisted companies achieved a milestone by surpassing 2 trillion won ($1.72 billion) in cumulative transaction value in September. On Nov. 5, daily trading value rose to a record 15.8 billion won.

According to the Korea Finance Investment Association (KITA) that runs the OTC stock market, dubbed K-OTC, on Sunday, nine of the current 12 biotech firms on the market were open to investors after 2018. They include Vivozon, YD Global Life Science and Mediforum. Vivozon is now in the spotlight for its upcoming phase 3 data of new painkiller opiranserin, whose market potential could reach mega million U.S. dollars.

Individual bio stocks on the K-OTC is as large as established biotech firms listed on the Kosdaq in market cap. Vivozon now commands a market cap of 1.81 trillion won, followed by Samsung Medison (890.6 billion won) and Kolmar Pharma (296.6 billion won). The 12 bio stocks now account for one fourth of the entire market cap of the K-OTC.

Tax benefits like exemption from transfer income tax on minority shareholders of SMEs are also driving up investment into K-OTC stocks, market analysts said. Well-established transaction records are helpful to K-OTC SMEs in their future listing on the Kosdaq or the Kospi.

The K-OTC market was established in 2014 as an upgraded version of the Free Board market to help investors trade unlisted stocks of SMEs in a more transparent and convenient manner. The K-OTC market has 136 stocks for trading and their market cap amounts to 15.31 trillion won, three times the size of the Konex, a market for small startups not qualified for the Kosdaq or the Kospi in Korea.

In general, the problem of unlisted stock trading is that the pricing system and settlement process is opaque, as most of trading is done by private brokers. But the K-OTC market provides a stable trading environment as trading is done through securities companies.

By Moon Ga-young and Minu Kim

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