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Home » Opinion » Biz Commentary

Chinese investors cry in their beer as vaccine flops

PHARMACEUTICAL companies promising big payoffs with wonder drug discoveries always pose high risks for investors. Shareholders of Shanghai-listed Chongqing Brewery Co recently found out how breakthroughs can turn into breakdowns.

The brewer's market value collapsed nearly 70 percent, or 27.7 billion yuan (US$ 4.38 billion), in the five weeks beginning December 8, after the company's pharmaceutical unit announced the failure of clinical tests on a Hepatitis B vaccine it has been developing for years.

Chongqing Brewery acquired Chongqing Jiachen Bioengineering in 1998, touting work on a world-class medical breakthrough that would benefit the up to 10 percent of China's population reportedly carrying the Hepatitis B virus. About 100 million yuan was invested in the vaccine research.

On November 23, the company announced that its shares would be suspended from trading on November 28 till the release of the latest clinical trials. The shares rocketed to a record in expectation of good news about to break. On December 8, when Chongqing Brewery announced that its new drug had failed to pass placebo trials, the shares sank like a rock.

The episode raised questions. Was there ever a viable vaccine under development or was it all a sham from the start? Did insiders dump their shares in those two days when buying hit a frenzy?

No answers have been forthcoming, but suspicions are running high among angry investors who lost a bundle and now think the whole deal stinks like stale ale.

It's not hard to trigger outrage about suspected insider trading in a country where the practice is considered rife.

Take the case last March of Shenzhen-listed Hanwang Technology, where eight top executives reduced their holdings by the 25 percent annual limit just before the company announced an unexpected huge loss for the first quarter. The shares plunged on the news.

The company explained that the executives were just cashing in some shares to get some money to "provide for family needs." That caused a snigger or two among investors who didn't get their money out in time.

Beat the devil

Ethics is about perceptions as much as reality. Companies squander public trust at their peril. Disillusioned investor sentiment can spill over to other big-gamble high-tech stocks, even if their research rests on reputable foundations. It would be a shame to see China's technological development starved for capital because of a few companies who don't want to play by the rules.

As for Chongqing Brewery, one of its major shareholders is up at arms about the vaccine incident.

Dacheng Fund Management Co, which held nearly a 10 percent stake and suffered heavily from the price crash, is demanding the ouster of company Chairman Huang Minggui.

The board will discuss the motion at a meeting next month. Investors won't get a more complete accounting of what happened with the vaccine research until a report is released on April 6.

According to a vaccine expert working at Shanghai Fengxian Pharmaceutical Technology Transfer Center, the report may disclose the research methodology and shed some light on interpreting the data.

Danish brewer Carlsberg, which holds a 30 percent stake in Chongqing Brewery, said last June in a statement that it hopes to give the vaccine project necessary support in basic research. One can't help but wonder how the scrupulous Danes are thinking about their investment now.

All these sorts of stories end up back at the same point. The China Securities Regulatory Commission needs to strengthen its crackdown on insider trading and enhance disclosure rules so that investors know what company executives and board members are up to with shares they hold.

If that doesn't happen, the only way to beat the devil at his own game is not to play.



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