As concerns grow worldwide over the spread of the BA.3.2 coronavirus variant, known as the cicada variant, related theme stocks are surging across the board. Still, some issues are spiking without earnings support or despite past clinical failures, prompting warnings that investors should be cautious.
◇ Clinical phase 3 failures and even corporations with no core-business revenue soar in a heap
On the 20th, according to the Korea Exchange (KRX), GeneOne Life Science, a coronavirus vaccine developer, hit the daily limit up for two straight sessions on the main bourse. Cellid, also a vaccine developer, hit the limit up on the 17th and extended gains on KOSDAQ on the day, adding 295 won (7.73%).
This is seen as short-term buying flocking to diagnostics kit and vaccine development corporations as worries mount over the spread of the coronavirus variant "BA3.2." The problem is that share prices are jumping across the board simply because they are lumped as coronavirus plays, regardless of whether there will be any tangible benefit.
In particular, some corporations are still classified as theme stocks and drawing investment funds even after being deemed to have failed in developing coronavirus treatments. Shin Poong Pharm, which jumped more than 20% on the 17th, is a prime example. In 2023, the company's malaria treatment Pyramax, which it was developing as a coronavirus treatment, failed to prove efficacy in phase 3 trials. As soon as the news of the clinical failure broke, the company's shares plunged more than 28% early the next day, shocking the market.
Cellid acquired bakery corporation For Bakery in 2024 to meet the listing maintenance condition of annual sales of 3 billion won. According to the quarterly report filed last month, 8.83882 billion won, or 99.97% of Cellid's cumulative sales of 8.84183 billion won this year, came from the "e-commerce division," which sells bread. There was virtually no revenue from its core businesses of new drug development or contract manufacturing (CMO).
◇ Corporations issuing convertible and exchangeable bonds as well…concerns about heightened volatility if supply hits the market
For some issues, supplies of convertible bonds (CB) or exchangeable bonds (EB) are waiting in the wings, raising the possibility that profit-taking could hit the market after sharp share-price gains. The industry notes that if related supplies are released after short-term spikes, share-price volatility could increase.
Sugentech decided in Aug. last year to issue 12.5 billion won in exchangeable bonds (EB). The exchange target is 1,453,532 treasury shares held by Sugentech, and the exchange price is 8,604 won per share. The share price, which was around 4,600 won a week ago, surged to the 7,200-won range on the day. If the theme-stock frenzy pushes the price above the exchange price, investors could exchange into shares to take profits and sell. Analysts say this would act as an overhang factor, adding supply pressure.
The financial condition of GeneOne Life Science, a coronavirus vaccine development corporation, is even more dire. Operating losses have continued for more than 20 years since 2004, and as of last year, accumulated deficits amounted to about 300 billion won. Last month it completed an 8.1 billion won paid-in capital increase, and it is currently pushing to issue 5.1 billion won in convertible bonds (CB). Despite successive fundraisings, financial burdens persist, and recently the company launched a free capital reduction to improve its financial structure and cover deficits by consolidating five common shares into one.
Experts advise that because coronavirus-related theme stocks are repeating the classic pattern of spiking on short-term catalysts, investors should be selective, examining whether each corporation will see real benefits.
Lee Hyo-seop, a senior research fellow at the Korea Capital Market Institute, said, "Based on past experience, most theme stocks fell far more than before within six months to a year, causing large losses for investors," and noted, "It is not too late to judge after confirming whether the related issue is likely to directly translate into sales or after clear earnings are announced."