Genexine’s Stake in ToolGen Falls to 12.52%, but … the Strategy Behind the Patent War

Genexine’s stake in ToolGen fell from 16.64% to 12.52%, a decline of 4.12 percentage points. Genexine disclosed in a report on the ownership status of specific securities held by executives and major shareholders that it holds a total of 1,128,007 shares, including 1,118,347 ToolGen shares and 9,660 subscription rights. Based on 8,997,629 total shares outstanding, its ownership ratio is 12.52%.

The decline in the ownership ratio was not caused by Genexine selling shares. It was a natural dilution resulting from ToolGen’s rights offering, which increased the total number of shares outstanding. Genexine continues to hold 1,118,347 shares, unchanged from the previous report dated Dec. 21, 2020.

According to the detailed changes, Genexine was allocated 96,602 subscription rights through the rights offering. It subsequently sold 86,942 of them over the counter at 2,182 won per share, leaving 9,660. In effect, it converted most of the subscription rights into cash.

ToolGen’s purpose in conducting the rights offering and Genexine’s strategic choice

Behind ToolGen’s rights offering is the ongoing dispute over foundational patents for the global CRISPR-Cas9 gene-editing technology. ToolGen is currently engaged in interference proceedings in the United States with the Broad Institute, a joint institute of MIT and Harvard, and the CVC group at the University of California, Berkeley. The funds raised through the rights offering are expected to be used for legal expenses in the long-term litigation and for R&D. ToolGen’s initial fundraising target was approximately 70 billion won, but the final amount was adjusted to about 24 billion won because of fluctuations in the share price.

The U.S. Patent Trial and Appeal Board (PTAB) recently approved ToolGen’s request to resume the proceedings, reaffirming ToolGen’s status as the “senior party.” This means the Broad Institute, the junior party, will bear the burden of directly proving that its invention date was earlier. Intellectual property attorneys in the United States analyze this framework as favorable to ToolGen.

Genexine sold most of its subscription rights but retained its position as ToolGen’s largest shareholder. Even after its stake fell to 12.52%, it remains the overwhelming No. 1 shareholder. Monetizing part of the allocated subscription rights was a choice to secure short-term liquidity while minimizing the burden of defending management control. Genexine acquired its stake in ToolGen in 2020 for the joint development of next-generation cell and gene therapies and became its largest shareholder.

The impact of the CRISPR patent dispute

CRISPR gene-editing technology is an innovative technology that received the 2020 Nobel Prize in Chemistry and is a core foundation of the biopharmaceutical market, which is expected to grow to hundreds of trillions of won. Once the final patent rights are established, the technology could generate large-scale licensing agreements and royalty revenue from global pharmaceutical companies. Industry experts say that if ToolGen secures a favorable outcome in the U.S. interference proceedings, the commercial value of the related foundational patents could be assessed at a level far beyond the company’s current valuation.

This scenario is also important for Genexine. If ToolGen’s patent value is validated in the global market, Genexine’s value as its largest shareholder could also be reassessed upward. This is why the analysis that the decline in the ownership ratio may appear to be a numerical setback but is actually only one phase of a long-term race for global patent dominance is gaining credibility.