Hanmi Pharmaceutical Responds to Shareholder Letter with 'Reform,' Tightens Controls at Beijing Hanmi [fnMarketWatch]

[Financial News] Hanmi Pharmaceutical is comprehensively strengthening its internal control system following an issue involving the management of Beijing Hanmi Pharmaceutical's accounts receivable. Rather than simply responding to concerns raised by some institutional investors, the company plans to link the move to governance improvements, including the establishment of a Chief Risk Officer (CRO) organization and tighter transaction management.
Hanmi Pharmaceutical said on the 18th that it is addressing past management deficiencies at Beijing Hanmi Pharmaceutical and strengthening its internal control system in response to a shareholder letter recently sent by some institutional investors to the board of directors and audit committee.
The investment banking industry views the core of this response as Hanmi Pharmaceutical's shift in risk management, rather than the Beijing Hanmi accounts receivable issue itself. Hanmi Pharmaceutical has formed the first CRO organization in the pharmaceutical industry and strengthened its risk management and internal control functions.
In particular, the company decided to suspend related new transactions until the accounts receivable at Beijing Hanmi that prompted the concerns are recovered. The aim is not merely to collect the receivables, but also to overhaul transaction and management processes to prevent a recurrence. The collection plan and measures to prevent recurrence have been underway since July.
The institutional investors' shareholder letter also provided momentum for strengthening internal controls. Since many of the proposals made by shareholders align with improvements the company is already pursuing, Hanmi Pharmaceutical plans to actively accept them and raise its management system to the next level.
In the capital markets, governance factors such as the management of overseas subsidiaries, internal controls and board functions are becoming increasingly important when evaluating pharmaceutical and biotech companies, alongside drug pipelines and earnings. If Hanmi Pharmaceutical succeeds in establishing a CRO-centered, ongoing risk management system following the Beijing Hanmi issue, it could also help restore market confidence.
An IB industry official said, "For management issues at overseas subsidiaries, it is important to build control systems that can prevent recurrence rather than merely deal with them after the fact," and added, "The process itself of management linking institutional investors' demands to stronger internal controls could become an important factor in future corporate value assessments."
A Hanmi Pharmaceutical official explained, "The matters proposed in the shareholder letter are already being pursued internally with considerable rigor," adding, "We will actively accept shareholders' proposals, improve areas that fall short, and establish a more transparent and advanced internal control and management system." 
The official added, "We will further advance both Beijing Hanmi's business competitiveness and management system while working to achieve sustainable growth and enhance shareholder value."


[email protected] Kim Kyung-a Reporter