Celltrion Inc, the little-known South Korean biotech company that surged into the ranks of the world’s most-traded stocks earlier this month, might finally be coming down to earth.
After climbing 188 percent over the past year on volume that topped that of Tesla Inc and Citigroup Inc at one point this month, Celltrion last week abruptly reversed course.
By the close on Friday, its five-day drop had reached 16 percent, fueled by disappointing fourth-quarter earnings and a research report from Deutsche Bank AG that criticized the company’s accounting. Shares of Celltrion yesterday fell as much as 6.1 percent in Seoul.
If skeptics are right, the stock could have a lot further to drop. Several institutional money managers in Seoul have called the past year’s rally unjustified, a product of excessive speculation among South Korea’s mom-and-pop investors.
Even after last week’s slump, the shares are valued at more than 100 times earnings, versus 13 for the benchmark KOSPI index.
Deutsche Bank, which took issue with the way Celltrion capitalized its research spending in a note published on Thursday, said the stock could fall 70 percent.
“I see housewives are talking about Celltrion — which is a clear signal of bubble in a stock,” said Jung Sung-han, senior fund manager at Shinhan BNP Paribas Asset Management Co in Seoul.
A Celltrion representative declined to comment on the stock moves, but the company refuted the Deustche Bank note, saying it was “distorted analysis” to compare a biosimilar makers’ accounting with that of global pharmaceutical companies.
Incheon-based Celltrion had benefited from a number of factors that created a perfect storm of interest.
The expected approval next month by the US Food and Drug Administration of its Truxima drug, similar to Roche’s lymphoma drug Rituxan, would give it access to a US$3.9 billion market, according to an analysis by Bloomberg Intelligence.
The company earlier this month also said that it would triple the capacity of a new plant, due to begin construction in the second half of the year.
Broader market changes also helped. Celltrion will probably in the next few months be joining South Korea’s large-cap index, a step that often fuels buying. Adding to the bullish case was a push by the South Korean government to increase buying of the nation’s small-caps, especially by the nation’s pension funds.
The gains were also propelled by a short squeeze, DB Asset Management Co head of equities Lee Seung-hoon said.
Wagers against the company have shrunk to an estimated 4.8 percent of shares outstanding from more than 9 percent in November, IHS Markit Ltd data showed.
Celltrion on Friday fell 9.9 percent after its fourth-quarter revenue and earnings missed estimates, Korea Investment & Securities analyst Kevin Jin said.
Volume remained high, with about US$1 billion worth of shares changing hands, about the same as the value of trading in companies such as AT&T Inc and Wells Fargo & Co, data compiled by Bloomberg showed.
The stock might face further selling pressure around its expected move to the KOSPI, Midas International Asset Management Ltd chief executive officer Heo Pil-seok said.
Meanwhile, Nomura Securities Co analyst Cara Song said in a note from Tuesday last week that investors should sell, highlighting its expensive valuation.
“Everyone agrees it has rallied too much,” Lee said.
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