Investors turn backs on biotech firms following allegations of misconduct
An image captured from Binex's webpage
By Baek Byung-yeul
Pharmaceutical and biotechnology companies here became blue chips in the stock market last year, as the unprecedented coronavirus pandemic created new business opportunities with demand increasing sharply for COVID-19 test kits and contract manufacturing of vaccines and treatments for the virus.
However, investors are turning their backs on bio stocks this year due to a series of illicit activities, including false public disclosures about clinical tests and allegations of stock manipulation and producing drugs using unapproved recipes.
On March 10, the criminal investigation division of the Ministry of Food and Drug Safety searched bio drug maker Binex as part of a widening investigation into the company on suspicion of manipulating the amount of raw materials used in its products.
This came after the drug ministry on Monday ordered a temporary suspension of the production and sale of six drugs manufactured by Binex. On the following day, the ministry issued another suspension of the production and sales of 32 products made at Binex's factory for 24 companies.
Following the news, Binex's stock price plummeted for four straight trading sessions, dropping to 14,500 won on March 11 from 27,750 won on March 5.
As the local pharmaceutical and biotech industry faces mounting calls to reflect on its practices, the Korea Pharmaceutical and Bio-Pharma Manufacturers Association said on Thursday it will launch an independent investigation into Binex.
“The Binex case is a criminal offense that can never be tolerated,” the association said in a statement, adding the company will also be referred to the organization's ethics committee.
Ildong Pharmaceutical also drew the ire of investors following news that prosecutors launched an investigation into the mid-sized pharmaceutical company recently on suspicion of market manipulation.
The prosecution suspects that the owner family of the drugmaker manipulated the company's stock price to strengthen management control. The prosecution believes that the management has been artificially raising the stock price of the company since 2016 to increase the owner family's stake while trying to split Ildong Pharmaceutical into Ildong Holdings and Ildong Pharmaceutical.
Kosdaq-listed HLB also faced setbacks last month due to accusations that the company falsified a public disclosure on Phase 3 clinical trial data of its anticancer drug Rivoceranib.
Following news that HLB is being investigated by financial regulators, the company's stock plunged to 60,600 won from 91,200 won in just three days last month. As HLB actively tried to communicate with its shareholders, explaining the ongoing process of its new drug development and announcing a capital increase without compensation, the stock price of HLB bounded back to slightly over the 80,000 won level.
COVID-19 test kit maker Seegene, one of the top stocks to profit from the spread of the virus last year, also faced a setback in February for cooking its books.
It turned out that the company, known for producing molecular diagnosis products, inflated its sales records for nine years. The state-run Securities and Futures Commission (SFC) concluded Seegene overstated its sales between 2011 and 2019 by dumping oversupplied products. On March 8, the SFC imposed a fine of 2.5 billion won on the company for falsely reporting company data.
Seegene said the issue occurred due to its weak management system and lack of professionals, and vowed to beef up transparency. The company's stock price has decreased by about 40 percent over the past three months, so it remains to be seen how the test kit maker can recover the trust of investors.
Due to worries over the growing vulnerability of bio stocks, investors are betting more on companies that are financially sound and possess ample growth potential.
Local vaccine manufacturer SK Bioscience, best known for producing COVID-19 vaccines of AstraZeneca, Novavax and other global pharmaceutical companies, drew a record 64 trillion won ($56 billion) in investor deposits during a two-day subscription period for its share sale from March 9 to 10.
Chae Su-chan, vice president at the Korea Advanced Institute of Science and Technology (KAIST) and director of the school's Center for Bio-Healthcare Innovation and Policy, pointed out the mishaps bio companies have committed are costing them the trust of investors and worsening their competitiveness.
“Bio firms have been overrated on the stock market as investors put too much expectations on the future of those new drug makers and other biotechnology companies. Due to this inflationary trend, bio companies are striving to increase their valuations by disclosing invalid information, misinterpreting clinical test results or creating news to raise their stock prices,” he said.
“To prevent further defrauding of investors, the state-run regulatory organizations are urged to strengthen their filtering efforts. Also, retail investors should be aware of the potential risks before investing in biotech stocks,” he added.