Complex, time-consuming and expensive drug development by pharmaceutical companies, including OBI Pharma, is far from unfamiliar. Yet once again, the nation’s enthusiastic push for investing in the biotechnology and pharmaceutical industries, as well as some investors having fallen victim to a situation where others have more information than them — known as information asymmetry — have seen investment losses pile up.
Making information disclosure more transparent and business plans more accountable is one of the essential rules for companies wanting to raise funds from shareholders on the open market. It is also a basic requirement for anyone interested in buying biotech shares to thoroughly examine research data and other information before investing. However, that is always easier said than done.
On Friday, OBI Pharma shares rebounded from four consecutive sessions of 10 percent daily limit declines to end 3.46 percent higher at NT$463 on the local over-the-counter bourse, after investors began offloading shares in the drug developer since it released discouraging results on Monday last week on the second and third-phase clinical trials of a new breast cancer drug, OBI-822.
Controversy involving the firm’s interpretation of its clinical trial data for OBI-822, which studied the investigational immunotherapy in patients with metastatic breast cancer, made local headlines, with management stating that the results still contain “meaningful scientific and clinical information” crucial for future product development, while the market believed that “no statistical significance” in the primary outcome of the study meant that the drug did not pass clinical trials.
OBI Pharma was once the most expensive stock in Taiwan’s biotech sector, while the firm worked in close collaboration with Academia Sinica and its backers included Taiwanese conglomerate Runtex Group. Within a week, OBI Pharma share prices fell 32.01 percent from NT$681, a loss of NT$37.22 billion (US$1.11 billion).
The Taipei Stock Exchange’s biotech index also dropped 9.52 percent for the week, as “bubble” talk returned to the market amid investors’ concerns that some high-flying biotech stocks might have risen to unjustifiable heights.
For now, people are not sure whether the slump in OBI Pharma shares is a short-term phenomenon. They do not know if the rebound on Friday was supported by a company share buyback plan, or the entry of buyers who are willing to hold the stock with a long-term commitment. However, the slump was a reminder of the 20-day share plunge by daily limit in another drug company, Medigen Biotechnology Corp, in July 2014, after it revealed no positive results from an interim study of its liver cancer drug, PI-88.
Biotech companies such as OBI Pharma and Medigen always run the risk that their promising new products might end up being complete failures, or take longer than expected to win regulatory approval. Therefore, for the sake of protecting investors, such firms are required by authorities to exercise disclosure practices and raise red flags when necessary. However, investors all over the world tend to be greedy, usually harbor unrealistic expectations about their investment targets and often ignore red flags if they are making money.
The repeated shock to Taiwanese biotech shares shows that there is still much to learn for both companies and investors. While investors might not necessarily be pessimistic about the sector’s prospects, given the quality of the nation’s medical research and high level of talent in the biotech industry, they should take a more realistic approach when assessing their investment targets, instead of dreaming.
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