Venture companies seeking to develop biopharmaceuticals and biotechnologies are experiencing significant difficulties in sales ( Lazonick & Tulum, 2011 ). In particular, considering that these companies aim to develop new biological medications, most do not have products that can generate sales. Instead, they run the company through investment ( Rosiello & Parris, 2009 ). Unlike synthetic drugs, biological medications use biological molecules, including antibody treatment, gene therapies using nucleic acids, cell therapies, and protein treatments for cancer, inflammation, and infectious diseases ( Chow et al., 2022 ; Cohen et al., 2019 ). Compared with other industries, biopharmaceutical development is highly technology-intensive, requires high expertise, has a long investment period, and is subject to high risks ( Kesik-Brodacka, 2018 ). However, if it has successfully developed a new global blockbuster drug, it can create enormously high added value. Therefore, biopharmaceutical development is classified as a future growth industry ( Kesik-Brodacka, 2018 ). An immune checkpoint inhibitor, known as an antibody treatment, is a new type of treatment that induces the activity of immune cells and eliminates tumors ( de Miguel & Calvo, 2020 ). Keytruda, developed by Merk in the United States, is a representative example of an immune checkpoint inhibitor ( Emancipator, 2020 ). Keytruda generated sales of $1.11 trillion in 2019 and is expected to reach $2.49 trillion by 2026 ( Urquhart, 2021 ). However, notably, the development of these biological medications requires significant costs, and their development success is not guaranteed.

The startup of a bio venture company is based on intangible technology. Proving the future value of these technologies is important, as securing immediate sales is difficult ( Strömsten & Waluszewski, 2012 ). Most bio venture companies announce their technologies as patents, and they secure corporate value based on these to attract investment ( Michelino et al., 2017 ). Furthermore, they can secure funds through licensing in/out based on patents. However, attracting these investments alone is inefficient in completing the development of biological medications pursued by bio venture companies. Therefore, most bio venture companies secure funds through initial public offering (IPO) and further use them as research and development (R&D) funds for biological medications.

Biological medications require an extensive R&D process and considerable funding to be approved for market release ( Kesik-Brodacka, 2018 ). New drug development consists of basic research, preclinical trials, and clinical trials 1, 2, and 3. After successfully completing these studies, the medication can only be sold once the product is approved ( Taylor, 2015 ). After basic research, in the preclinical trial stage, side effects, toxicity, and therapeutic effects of newly developed candidates are checked in animals before using them in humans ( Taylor, 2015 ). This stage is for safety evaluation through animal testing, which also involves studying the drug’s in vivo kinetics and pharmacology ( Mohs & Greig, 2017 ; Sinha & Vohora, 2018 ). Phase 1 clinical trials focus on confirming the drug’s safety in healthy people, including the drug’s administration method, absorption, side effects, and body dynamics. The number of people recruited ranges from 20 to 80, which takes 1 - 3 years, and the cost is approximately $4 million. The efficacy of a new drug in humans is examined in phase 2 clinical trials. Drugs are administered to 100 - 200 patients to verify side effects and effectiveness during phase 2 clinical trials. In addition, phase 2 clinical trials determine the optimal method and dosage for entering phase 3 clinical trials. Phase 2 clinical trials will be conducted over 2 - 4 years and require approximately $15 million in funding. Phase 3 clinical trials evaluate the effectiveness of a drug on a large number of patients. Drug efficacy, including safety, is established by administering the drug over a long period to hundreds to thousands of patients. As the final stage of clinical trials to obtain marketing approval, a comparative control group and a test treatment group are simultaneously established to determine efficacy, effectiveness, usage, dosage, and precautions for use. This process takes 3 - 5 years and costs more than $80 million ( Mohs & Greig, 2017 ; Sinha & Vohora, 2018 ).

Developing these new biological medications requires a total period of 10 - 15 years and over 0.1 - 1 billion dollars in funding ( Kesik-Brodacka, 2018 ; Mohs & Greig, 2017 ). In a business that requires enormous funds, bio venture companies without sales are bound to experience great difficulties. Bio venture companies in South Korea are exploring methods such as attracting investment or IPO to secure funds for R&D of biological medication. For the growth of the biological medication field, being listed on the Korean stock market (KOSPI, KOSDAQ) is supported and encouraged to bio venture companies. Hence, about 70 venture companies have been listed on the Korean stock market since 2018. Among them, 24 companies are biological medication developing companies; the rest are testing agencies and chemical pharmaceutical companies.

As the development cost of biological medication is considerable, most Korean bio venture companies hope to be listed on the Korean stock market. Although research funds can be secured through IPO, an analysis of the funds invested in research is lacking. In addition, analysis data on the progress of R&D of biological medication in the companies after IPO are lacking. Therefore, this study aims to compare and analyze the progress of the R&D stage according to the financing of companies developing biological medications among bio venture firms listed on the Korean stock market since 2018. Particularly, the number of patent applications, licensing in/out, and entering next phase of clinical trials during 2 years before and 2 years after listing on the Korean stock market has compared to understand the impact of listing on the KOSDAQ. Therefore, the remaining of the study is structured as follows: 1) The changes of numbers in patent applications for 2 years before and 2 years after the IPO. 2) The changes of numbers in technology transfer for 2 years before and 2 years after the IPO. 3) The changes in the numbers of clinical trials entering the next phases during 2 years before and 2 years after the IPO is statistically analyzed.

Companies are IPO owing to the ease of raising necessary funds, increased corporate awareness, and smooth corporate restructuring promotion, among others. Most studies have focused on revenue reform, and very few direct studies have been conducted on the relationship between R&D performance and IPO. In this study, patents, licensing, and clinical trials were selected as R&D outcomes of bio venture companies. The analysis focused on how patent applications, licensing in/out, and the progression to the next phase of clinical trials changed in the 2 years before and the 2 years after the IPO. Accordingly, the previous research literature related to this topic was confirmed below.

As mentioned before, IPO plays a crucial role in securing the necessary funding for the company, given that bio venture companies often have minimal sales. Bio venture companies seem to make various efforts to be listed on the stock market. In addition, the funds secured through IPO were expected to be invested in R&D and affect R&D performance, for the company’s survival and expansion. However, this study produced results that were completely different from expectations. Most of the patent application performance and licensing in/out performance decreased and were found to be statistically insignificant. In the case of licensing in, even if it increased, it was found to be completely insignificant in statistical analysis. In the case of entering the next phase of clinical trials, there was no statistical significance at all in the cases where there was an increase, and even in cases where there was statistical significance (when entering from preclinical to phase 1), the performance decreased for 2 years after the IPO. The hypothesis of this study that R&D performance would improve after the IPO was rejected. In the end, it can be concluded that the IPO is not directly related to the R&D investment of Korean bio venture companies and is not a clear factor in improving R&D performance.

What should be additionally considered through the results of this study is that the R&D performance of Korean bio venture companies tends to decrease in the 2 years after IPO than in the 2 years before IPO. It must consider why R&D performance tends to reduce for 2 years after IPO. The following three points can be regarded as against the background of the tendency for R&D performance to slow down after IPO. First, the company may have focused on its short-term competency with the goal of IPO. Ultimately, corporate capabilities concentrated for IPO were exhausted, leading to a decline in R&D performance after IPO. The second reason for the decreasing R&D performance of bio venture companies during the 2 years after IPO may be the preemptive recognition and announcement of results from R&D to list their stocks on the market. Third, the IPO of the bio venture companies may proceed regardless of the funding schedule for R&D. For some other reason, IPO may have pursued irrespective of the company’s R&D schedule and the need for funds to support it. Therefore, the IPO of bio venture companies had no significant impact on R&D performance.

The answer to the question in the title of this paper was “no”. Therefore, it has faced with a new question. Why do bio venture companies work hard to get listed on the stock market? By analyzing the results of this study, it determined that other factors may be related to the IPO strategy of Korean bio venture companies, other than R&D investment. Most bio venture companies in Korea receive investments from various investors before IPO to fund R&D based on technology, although they have virtually no sales. The investment structures of a bio venture company starts with angel investment at the startup stage and goes through stages such as Series A–C and Pre IPO. This investment is used for R&D. Prior to investing, financial investors (FIs), mainly venture capital, require IPO of the bio venture companies at a certain point in the future as a condition of initial investment. This is because the most successful recoup on investment or the most effective exit strategy for FI’ investments can be smoothly carried out through the IPO of bio venture company stocks. In other words, the IPO of the bio venture companies may have been influenced by the exit strategy of the FI rather than securing funds for R&D. This idea is supported by the fact that 22 out of 24 biotech ventures secured significant investments from FIs before the IPO and used the funds for R&D activities, and most of these FIs recovered their investments immediately after the IPO.

Share ratios found that bio venture companies gearing up for an IPO have previously secured investments from investors. The 24 bio venture companies that were the subject of this study attracted investment from FIs before IPO, and FIs were found to hold an average of more than 32.0% of the shares per 24 bio venture companies ( Table 7 ). Only two companies did not receive investment from FIs, in the case of bio venture companies that showed the highest FI shareholding ratio before IPO, FI held more than 72.9% of the shares. The shares ratio of FI was remarkably higher than it expected.

Source: Annual report of each company, https://dart.fss.or.kr (electronic disclosure fining system).

In addition, before IPO, the number of FI holding more than 5% of the shares in the 24 bio venture companies was 45 FI ( Table 8 ). They held an average of 14.5% of the shares per the companies. In other words, 1.88 investors hold more than 5% of the shares per bio venture company, and the average share is more than 7.7%. Interestingly, this number of FI (more than 5% of the share) remained only 12 institutions 1 year after IPO, and the average rate of FI shares per company dropped substantially to 4.1%. Particularly, the number of investors holding shares of more than 5% decreased dramatically to 0.50 per bio venture company ( Table 8 ). Moreover, 14 out of 24 bio venture companies do not have FIs with more than 5% of their shares a year after the IPO. Although the analysis results were limited to FIs holding more than 5% of the shares, it believes that FI who had invested to bio venture companies collected their investments by selling considerable shares on the stock market after the IPO.

If the exit rate of FIs post-IPO was that high, would this have had an impact on the stock price? It further analyzed the stock price changes of 24 bio venture companies 2 years after their IPO. There was difficulty in setting the starting price after the IPO to check the stock price fluctuation. It was possible to set the starting price under various conditions, such as the publicly announced stock price at the time of the IPO, the stock market closing price on the first day of the IPO, or the average price for three months after the IPO. It applied the closing price on the first day of stock market trading after the IPO as the starting price, under the assumption that the value of the company after the IPO should be evaluated by the market. Among the 24 companies, one company had an unusually high stock price increase of more than 600%. Hence, it was excluded from these statistics, and the stock prices of the remaining companies were analyzed.

The stock prices of 6 out of 23 companies increased, whereas the stock prices of 17 companies showed a decreasing trend ( Figure 1(a) ). The average stock price change rate of these 23 companies 2 years after IPO was found to be −21.51% ( Table 9 ). Looking at the relative rate of return compared to the KOSPI and KOSDAQ index of the Korea Exchange, the stock price of bio venture companies over the 2 years after IPO was found to be even lower ( Figure 1(b) ). The average relative return rate of 23 companies was -34.19% (average difference = −21.51% - 12.68%), which was lower than the absolute rate of return ( Table 9 ). The average rate of return of 23 bio venture companies’ stock 2 years after listing was lower than the average KOSPI or KOSDAQ index increase rate during the same period, and the statistical analysis results show that the difference between the average stock price return and the average index increase rate is significant ( Table 10 ).

In the end, considering the decline in R&D performance after IPO, the associated decline in stock prices, and the collection of investments from existing

investors, the investment in newly listed bio venture companies in the Korean stock market will require careful consideration. The IPO of Korean bio venture companies does not show the primary effects of IPO, such as effective financing of companies and provision of attractive investment opportunities to investors. These results provide sufficient evidence that new policies may be needed to address the possibility of the bio venture companies’ ill-timed IPO.

It examined changes in R&D performance and stock price of Korean bio venture companies for 2 years before and 2 years after their IPO. When evaluated based on domestic and foreign patents, licensing in/out, and entering next phases of clinical trials, the study found that overall R&D performance did not increase for 2 years after IPO, rather R&D performance tended to decrease for 2 years after IPO. This result is contrary to the existing hypothesis that IPO bio venture companies on the stock market will lead to improved R&D performance. In addition, bio venture companies showed a tendency for their stock prices’ relative returns to KOSPI and KOSDAQ were found to be significantly poor. It is assumed that these phenomena were because the intention of bio venture companies’ IPO was more influenced by FIs’ exit strategies than by raising funds for R&D strategies of the bio venture companies.

This study revealed that the IPO of bio venture companies tends to be used as a means for FI to recoup their investments rather than as a means of R&D performance. IPOs are generally conducted with the purpose of attracting investment from the public and enhancing the future growth of corporate value. However, based on the results of this study, the purpose and meaning of the IPO are considered limited. Therefore, more complementary institutional or administrative procedures may be needed for the IPO of bio venture companies. In the listing review process in stock market for bio venture companies, there is a need to make the evaluation of future R&D plans and expected performance more stringent, focusing on the plan for using the public offering funds. Furthermore, more efficient disclosure of R&D information is needed, and systematic provision of information on the existence of FIs and their investment conditions should be reported as more important disclosure information during the IPO process.

In this study, R&D performance was compared for 2 years before and after IPO. It was thought that 2 years would be sufficient to derive R&D performance, but confirming changes in performance over a longer period would also be necessary. In addition, the COVID-19 pandemic may have occurred during the period covered by this study and caused various variables. Moreover, this study provides information limited to bio ventures listed on the Korean stock market. In future studies, considering these matters, it has plan to conduct research to analyze the correlation between R&D performance and IPO of bio venture companies in foreign countries such as the U.S., the U.K., and China as well as the behavior of FIs in post-IPO.