South Korea's financial authorities are investigating allegations of insider trading ahead of Boehringer Ingelheim's decision to hand back hot-potato rights to a Hanmi Pharmaceutical drug last week.
The Financial Service Commission (FSC) says it suspects that news of Boehringer's decision was leaked, giving an opportunity for short selling ahead of the official announcement on September 30, according to a report in the Korea Herald.
The FSC is responding to reports that certain people exchanged information about the defunct deal on September 29 via the mobile messaging app KakaoTalk. It has confiscated a smartphone from one Hanmi executive in an attempt to investigate further.
The probe is a big embarrassment for Hanmi, which is South Korea's flagship pharma company thanks to a string of high-value deals with pharma multinationals for compounds in its development pipeline.
Shares in Hanmi nose-dived after Boehringer said it would no longer be involved in the development of EGFR inhibitor olmutinib (HM61713), a lung cancer candidate it partnered in a $773 million deal last year. It also emerged that there had been several cases of severe toxicity in trials of the drug, at least one of which proved fatal. On Friday, reports surfaced that three trial patients had died.
News of Boehringer's decision came after hours on September 29, just a few hours after Hanmi announced a separate licensing deal with Roche's ($RHHBY) Genentech unit. The company did not, however, inform the Korea Exchange until the next morning, raising suspicions that it timed its announcements to benefit certain shareholders, says the Herald.
The allegation is that the Roche announcement would have prompted retail investors to buy into the stock at a higher price, ahead of the subsequent crash on the Boehringer news that could benefit short-selling institutional and offshore investors.
The Korea Exchange has pointed to a record volume of short-selling by institutional investors just ahead of the market-moving Boehringer announcement.
Hanmi insists, however, that the timing of the announcements was unintentional and it rejects any assertion that it played the market, saying that it did not want to make the announcement to "workers on night duty" at the Exchange.
The company did not respond to requests for further comment on the circumstances surrounding the investigation.
Earlier this week South Korea's Ministry of Food and Drug Safety said it had decided to uphold a conditional approval for olmutinib, which is sold in the country under the Olita Tab brand name. The drug can stay on the market provided patients are fully informed of its potential for side effects, it ruled.
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