Taiwanese biotechnology stocks have declined by up to 22 percent over the past month, with companies that have new drugs waiting to receive regulatory approval showing the greatest market correction, as investors lose confidence in new drugs winning approval and worry about the potential earnings downside facing those firms with unapproved products.
The selling spree in the shares of companies with unapproved drugs has also led investors to offload shares in other small and medium non-biotech stocks, causing an overall correction in the market during the past month, including a 1.3 percent decline on the main bourse and a more than 8 percent contraction on the over-the-counter market.
The sell-off was sparked when drugmaker Medigen Biotechnology Co announced that an interim analysis conducted on July 27 during the phase-three clinical trial of its liver cancer drug PI-88 did not yield the positive results that had been expected. Of course, that outcome was disappointing to investors and many dumped Medigen shares because the results meant that the timeline for securing regulatory approval to roll out the product would be pushed back, casting a cloud over the firm’s profitability outlook for the year.
In a bid to counter Chinese-language magazine Wealth’s accusations that the PI-88 project was a fraud, Medigen invited several biotech experts — including two from Academia Sinica and one from the Taiwan Research-based Biopharmaceutical Manufacturers Association — to endorse its efforts in new drug development. Even so, since July 28, Medigen shares have declined by the daily maximum limit for 19 consecutive sessions before closing limit-up on Friday.
Investors’ continued selling of Medigen shares and the controversy involving the firm’s interim analysis of its liver cancer drug have raised questions about the future of such drugmakers, with some even warning that a bubble could be forming in Taiwan’s biotech sector.
However, it is not sensible to be so pessimistic about the sector’s outlook because the granting of regulatory approval is an independent process for each drug and Medigen’s case should not affect other firms’ chances of having their drugs approved, nor should it impact the sector’s prospects as a whole, given the quality of the nation’s medical research and high level of talent in the biotech industry.
Through years of hard work and strategic fine-tuning, Taiwan’s pharmaceutical companies have focused on developing proprietary technology platforms. Moreover, an increasing number of drugmakers have been striking deals with distribution partners to break into markets in the US, the EU and China.
While the sector has learned lessons through trial-and-error that have made it more promising, some key questions remain for investors: One is whether biotech firms have realized that developing new drugs is complex, time-consuming and expensive; and whether they recognize that this endeavor carries a high risk of failure in view of failed clinical trials, delayed product launches, government regulation changes, patent litigation and rising market competition.
One could argue that for investors to entertain less unrealistic expectations about the development of new drugs, pharmaceutical companies must be prudent in announcing any business guidance or future plans. It would be ideal if a mechanism were available to demand information transparency and fair disclosure from drugmakers, so that investors have a more accurate and timely understanding of the progress their investment targets are making. The government should also consider putting in place written standards that make sure the integrity of companies’ drug development plans will not be compromised.
This is not just about the validity of one drug’s clinical trials — it is about the pharmaceutical sector and even the whole biotech sector’s future, and the ability of both to regain investors’ trust.
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