Medipost, a company specializing in stem cell research, is drawing the industry’s attention for not so desirable reasons these days.

The company has been posting operating losses for three consecutive years since the financial regulator changed rules for recording a balance sheet in the pharmaceutical sector. Now, the industry is watching over whether Medipost can successfully obtain a regulatory exemption to avoid being designated as administrative issues.

The Korea Exchange (KRX) recently established an exception policy for companies to be exempt from administrative issue designation after pharmaceutical and biotech firms complained that the revised accounting rules for research and development expenses could make them more likely to be designated as administrative issues.

Medipost’s balance sheets have also been revised from the year of 2016 under the new accounting rules. According to the company’s public filings, Medipost recorded operating loss of 14 billion won ($12.35 million) in 2016, 2.1 billion won in 2017, and 6 billion won in 2018. The 2015 balance sheet, unaffected by the new change, recorded an operating profit of 1.15 billion won.

If Medipost does not turn around this year, it will be subject to a review of the KRX whether it should be named as administrative issues.

Most biotech companies went public on the KOSDAQ market using the “technology exception policy,” which makes them free of regulation regarding administrative issues.

However, others that did not use the exception policy, including Medipost, can be named as administrative issues if they post operating losses for four consecutive years.

If a company fails to make a profit even after being designated as administrative issues, it will be reviewed by the regulator for delisting.

If a company gets exempted from administrative issue designation, it can be free of related regulations for five years starting from the business year of 2018.

The exemption policy aims to support pharmaceutical and biotech firms armed with excellent technologies and significant investments in R&D. For a company like Medipost which had to face operating losses abruptly because of the revised accounting rules, the policy becomes vital.

“We’re preparing to apply for the exception policy, which will be available only until this year. There is no reason not to do so because it would exempt us from administrative issues for five years,” an official at Medipost said.

Those eligible for the exception must be: A KOSDAQ-listed pharmaceutical or biotech firm that revised business reports due to changes in R&D accounting; a company with R&D spending accounting for more than 5 percent of annual sales or R&D spending exceeding 3 billion won; a company with technological excellence grade BBB or higher, a company with market capitalization at 100 billion won or more, with owned capital at 25 billion won or more, and a company which has been listed over a year.

According to the KRX, whether Medipost will succeed to be exempt from the designation of administrative issues hinges on the evaluation of the company’s technological power.

As the company has no record of such evaluation, it has to earn BBB grade or higher from a professional assessment institution.

Medipost expressed confidence. “We’re preparing for the evaluation of technologies. We will meet requirements for the exception without any difficulty,” the Medipost official said.

As it takes about a month for the KRX to decide on the exception of administrative issues, the decision over Medipost is likely to come out in mid-April, observers said.

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