Alleged Lobbying Scandal Surrounds COVID-19 Treatment Trial Approval as Genencell Investment Value Evaporates
核心洞察
South Korea's Justice Minister nominee Kim Seung-won allegedly lobbied the MFDS in 2021 to expedite approval of Genencell (搜索)'s COVID-19 (搜索) treatment candidate ES16001, prompting calls for a special prosecutor investigation.
Genencell (搜索)'s Phase 2/3 trial was suspended in May 2023 after recruiting only 109 patients (23.6% of target), and founder Professor Kang Se-chan was convicted of fabricating data.
Sejong Medical (搜索) fully impaired its 11.3 billion won Genencell (搜索) stake to zero won and received a delisting decision, while retail investors suffered heavy losses.
Allegations that Kim Seung-won, nominee for South Korea's Minister of Justice, intervened in the 2021 clinical trial approval process for a COVID-19 (搜索) treatment candidate have resurfaced, as it has been confirmed that the investment value of Genencell (搜索), the biotech venture at the center of the controversy, has effectively evaporated. KOSDAQ-listed Sejong Medical (搜索), which invested 11.3 billion won (approximately $8.4 million) in Genencell, has fully impaired its stake to a book value of zero won and ultimately received a delisting decision following an audit opinion disclaimer.
Timeline of the Clinical Approval and Investment
On September 23, 2021, Genencell (搜索) submitted an Investigational New Drug (IND) application for Phase 2/3 clinical trials of ES16001, a COVID-19 (搜索) treatment candidate based on Daphniphyllum macropodum extract, to South Korea's Ministry of Food and Drug Safety (MFDS). A week later, on September 30, the MFDS requested supplementary materials on 14 items, including detailed supporting data for clinical trials conducted in India. The Phase 2 data from India involved a study of 60 patients with mild-to-moderate symptoms, but no statistically significant difference was confirmed between the treatment and placebo groups in the moderate patient cohort. The study had only been released as a preprint without peer review.
Professor Kang Se-chan of Kyung Hee University, founder of Genencell (搜索), concerned about delays in clinical approval, sought help from Yang Su-jin, CEO of Gusta, with whom he had a mentor-student relationship. On October 12, 2021, Yang contacted Kim, specifying the responsible MFDS departments and requesting expedited processing. That same day, Kim sent a message to Kim Gang-lip, then head of the MFDS, stating: "The work is divided among three departments — the Herbal Medicine Formulation Division, the Clinical Trials System Division, and the Statistical Analysis Team," and adding, "Please ensure the responsible staff can process this quickly."
Following Kim's request, events unfolded rapidly. A week later, on October 19, Sejong Medical (搜索) acquired 660,000 Genencell (搜索) shares held by Professor Kang for approximately 6.3 billion won (approximately $4.7 million) and purchased convertible bonds worth 5 billion won (approximately $3.7 million), investing a total of 11.3 billion won to become the largest shareholder. Another week later, on October 26, the MFDS approved Phase 2/3 clinical trials for ES16001.
Independent lawmaker Han Dong-hoon claimed at a National Assembly briefing: "The investment was contingent on Phase 2 clinical approval. Since the investment could only be executed once clinical approval was granted, Genencell (搜索) was desperate for approval." He characterized the sequence of clinical approval and investment following Kim's request as "successful lobbying," urging that "this is a matter that warrants a special prosecutor investigation into new drug lobbying, not just a confirmation hearing."
Stock Price Surge and Crash
The market's reaction was heated but short-lived. On October 27, 2021, when the IND approval became public, Sejong Medical (搜索)'s stock price surged more than 15% at one point in early trading, while Korea Pharma (搜索) also rose over 5%. However, Sejong Medical's stock price reversed sharply the same day, plunging to the daily lower limit of 5,300 won (approximately $3.9). The following day it plummeted another 22%, and on the 29th it fell to 4,115 won (approximately $3.1). Compared to the closing price of 7,840 won (approximately $5.8) on the 25th, just before clinical approval, the stock had fallen 47.5% in just four trading days.
It was revealed that over the two days of October 27-28, three institutional entities and one individual sold 14,874,830 shares, representing approximately 37% of total outstanding shares. The Korea Exchange designated Sejong Medical (搜索) as an investment caution stock due to "single-account trading volume concentration." Retail investors who had bought in anticipation of treatment approval bore the full brunt of the crash.
Clinical Trial Failure and Data Fabrication
The COVID-19 (搜索) treatment development itself did not proceed as planned. Genencell (搜索) had originally planned to conduct Phase 2/3 trials with approximately 1,100 patients across five countries, but after failing to recruit patients, it scaled back to a Phase 2 trial and revised the target to 424 patients. Ultimately, only 109 patients were recruited, with 100 actually randomized — just 23.6% of the target. The trial was suspended in May 2023, citing "interim statistical analysis and clinical strategy revision," and there has been no news of ES16001 COVID-19 treatment development resuming since.
Issues with false data also emerged during the development process. Professor Kang was indicted on charges of submitting materials to the MFDS that differed from actual experimental results while pursuing IND approval. During the investigation and trial, it was revealed that adverse results — including hamster deaths in animal testing — had not been properly reflected in the submitted materials. The Seoul Western District Court found him guilty of obstruction of official duties through deception and other charges in December 2024, sentencing him to three years in prison with five years of probation.
Investment Losses and Sejong Medical's Downfall
The clinical trial suspension was directly reflected in the value of investment assets. Sejong Medical (搜索)'s Genencell (搜索) stake, acquired for approximately 6.3 billion won, was fully impaired to a book value of zero won, and the stake was subsequently disposed of. Korea Pharma (搜索)'s Genencell investment of approximately 3 billion won (approximately $2.2 million) also has both fair value and book value of zero won.
Sejong Medical (搜索)'s collapse cannot be explained by the Genencell (搜索) investment alone. The medical device company, which had achieved the first domestic production of laparoscopic trocars in South Korea and held the top domestic market share, changed direction in 2021 when founder and CEO Jeong Hyeon-guk sold his stake to Time Investment. In July 2022, CanariaBio (搜索) M (now Hyundai Feed) acquired Time Investment's stake, becoming Sejong Medical's new owner. Shortly after, in October 2022, Sejong Medical used its cash reserves to purchase 50 billion won (approximately $37.1 million) worth of shares in its affiliate CanariaBio and 80 billion won (approximately $59.4 million) worth of bonds with warrants, totaling 130 billion won (approximately $96.5 million). However, when CanariaBio's ovarian cancer (搜索) treatment candidate oregovomab received a recommendation to halt Phase 3 trials, CanariaBio's stock price collapsed, and Sejong Medical's shares and bonds became worthless overnight. Sejong Medical absorbed total investment losses exceeding 100 billion won (approximately $74.2 million).
The fallout led to liquidity depletion and concerns of massive capital impairment, resulting in an audit opinion disclaimer and delisting decision for Sejong Medical (搜索). Sejong Medical recorded a closing price of 412 won (approximately $0.31) on March 29, 2024, and trading has been suspended since.
Industry Concerns and Ongoing Controversy
The pharmaceutical and biotech industry is more concerned about the prejudice this case leaves behind. It could signal that new drug development can be used as a tool to deceive capital markets. Multiple industry insiders commented: "In this field, there aren't adequate investment reviewers to validate investments, so it's difficult to raise funds outside the stock market. In that environment, some executives entering the industry think they can pull off deception because the technology is complex and the drug development process takes so long." They added: "These cases are cutting off funding for venture companies genuinely trying to develop new drugs."
One industry insider noted: "From a working-level perspective, it is virtually impossible to obtain final approval for clinical results while concealing unfavorable safety data. Packaging the results well doesn't make the underlying evidence disappear, so problems are highly likely to surface during subsequent verification."
Kim's camp maintains that the Genencell (搜索)-related request was not a solicitation for treatment approval but rather "simply relaying a public-interest grievance." They argue that he never requested priority review or relaxed review standards. However, at the time, Genencell's IND had received requests for supplementary materials on 14 items just one week after submission, and the supplementation process was ongoing. Whether a sitting lawmaker's request to the MFDS head — naming a specific company and specific departments and asking for expedited processing — fell within the scope of ordinary grievance referral remains controversial. Kim received a suspended indictment from prosecutors in December 2024 regarding this matter, a disposition where charges are acknowledged but prosecution is deferred.
With Lawmaker Han going so far as to demand a special prosecutor investigation into "new drug lobbying," whether Kim's request actually influenced the review order or processing speed is expected to be a key issue in the upcoming confirmation hearing.