Biotech Stocks Rally on New COVID Variant Fears[K-Bio Pulse]

[Seungkwon Kim, Edaily Reporter] On April 17 the pharmaceutical, biotech and healthcare sectors in the domestic stock market staged a collective rally, driven by mounting concerns over the spread of a new COVID-19 variant.

Investor sentiment has fluctuated significantly following recent reports of a new variant spreading rapidly across North America and Europe, which is known to have a high potential to evade existing immune systems.

Consequently, aggressive buying sprees poured into so-called "infectious disease theme" stocks, encompassing vaccines, diagnostic kits, and treatments. The three companies that captured the most investor attention with the most striking gains on this day were undeniably Sugentech, GeneOneLifeScience and ShinpoongPharm Pfd. Notably Sugentech and GeneOne Life Science soared to their daily permissible limits, settling at the upper ceiling price.

Sugentec stock trend. (Image=Naver Finance)

◇Sugentech Hits the Upper Limit on Diagnostic Kit Hopes

According to KG Zeroin FnGuide (formerly MarketPoint) on the 17th, Sugentech closed at 6,760 won surging 30.00% from the previous trading day to hit the daily upper limit. The direct driving force behind this stock surge was the expectation that demand for in vitro diagnostic devices would skyrocket once again as the emergence of the new COVID-19 variant triggered global emergencies for securing quarantine supplies.

Sugentech is an in vitro diagnostic device specialist utilizing Multiplex Immunoblot and advanced biosensor technologies. Its core competitiveness lies in its unrivaled multiplex diagnostic technology which can simultaneously diagnose dozens of allergies with a small amount of blood.

During the past COVID-19 pandemic, the company achieved remarkable earnings growth by preemptively supplying rapid antigen diagnostic kits to the global market.

However, industry insiders agree that the company's mid to long term growth engine lies in "business diversification." To defend its earnings in the endemic era, Sugentech quickly shifted its weight to non-COVID sectors such as allergy and female hormone diagnostic devices like 'Surearly.'

Furthermore through the miniaturization and automation of Point of Care Testing (POCT) devices, it aims to leap forward as a global 'digital healthcare platform' company encompassing chronic disease monitoring, drawing attention to whether its fundamentals will improve.

A Sugentech official stated, "We are conducting preliminary reviews on the possibility of developing related technologies and products in line with policy directions. We plan to respond swiftly based on our technological capabilities once the institutional implementation and approval standards are finalized and we will step-by-step promote product development that meets changes in the market and regulatory environment."

GeneOne Life Science stock trend. (Image=Naver Finance)

◇GeneOne Life Science Shines with Plasmid DNA CMO Capabilities for Vaccine Raw Materials

GeneOne Life Science also showed overwhelming strength, closing at 1,017 won, up 29.8% from the previous session. This resulted from being heavily linked as the biggest beneficiary of the infectious disease spread as forecasts of increased vaccine development demand to counter the new variant were coupled with highlights on its capabilities to produce raw materials for gene therapies.

The company is a first generation biotech firm that primarily develops nucleic acid (DNA/RNA)-based biopharmaceuticals and small molecule treatments. The core competitiveness that the market is currently focusing on is its Plasmid DNA Contract Manufacturing Organization (CMO) business through its U.S. subsidiary, VGXI, located in Texas.

Plasmid DNA is an essential raw material for manufacturing mRNA vaccines and Cell and Gene Therapies (CGT), which are recently in the spotlight as next generation medical technologies. VGXI possesses the technology to produce this on a large scale in cutting-edge cGMP (current Good Manufacturing Practice) facilities.

Experts predict that since the recent expansion of VGXI's new plant in Conroe, Texas, has been completed significantly expanding its production capacity massive CMO order achievements driven by the explosive expansion of the global CGT market will become the true core engine determining the company's future value moving beyond short term thematic rallies.

Shinpoong Pharm Pfd stock trend. (Image=Naver Finance)

◇Shinpoong Pharm Pfd Surges 27.2% on 'Pyramax' Nostalgia

Shinpoong Pharmaceutical's preferred stock (Shinpoong Pharm Pfd) settled at 24,450 won, jumping 27.2% from the previous trading day, creating a rollercoaster market.

Despite the absence of any clear individual favorable disclosures or business progress at the company level on this day, the surge is analyzed to be a result of the market shedding new light on the reputation of the company's past infectious disease treatment pipeline such as the anti malarial drug 'Pyramax.'

Shinpoong Pharmaceutical is a traditional pharmaceutical company with flagship products including the arthritis treatment 'Hyal Injection' and 'Pyramax,' an anti-malarial drug recognized globally and listed as a World Health Organization (WHO) essential medicine.

During the past COVID-19 pandemic, news of clinical trials for drug repositioning of 'Pyramax' as a COVID-19 treatment caused explosive supply and demand concentration. Because of this history, a 'learning effect' among investors is triggered whenever an infectious disease theme market unfolds, repeatedly causing high stock price volatility.

However, securities industry experts are voicing strong concerns over such blind surges in preferred stocks. Due to the nature of preferred stocks, the number of listed circulating shares is significantly smaller than that of common stocks, resulting in a vulnerable structure where the stock price can fluctuate abnormally with very little trading volume and capital inflow.

An anonymous senior analyst covering the pharma/biotech sector at a securities firm criticized, "The recent surge in Shinpoong Pharm Pfd is not due to fundamental improvements in the company or the announcement of new clinical results.

It is a speculative outcome combining vague market expectations for increased demand for infectious disease treatments with a short term supply and demand imbalance targeting the thin order book unique to preferred stocks."

He further urged, "Investors should avoid approaching this with simple, thematic impulse buying. Rational investment is required, strictly examining factors that can substantially increase corporate value from a mid to long term perspective such as securing visible clinical data and the commercialization timeline for the innovative stroke treatment candidate (SP-8203), which the company currently considers its future growth engine and is smoothly undergoing Phase 3 clinical trials."