Circumstantial evidence further strengthens suspicion of fishy insider trading at South Korea’s star pharmaceutical company Hanmi for withholding its information about breakdown in multibillion-dollar out-licensing deal as institutional and foreign investors have profited big from shorting selling ahead of the upsetting announcement.

According to the Korea Exchange (KRX) on Tuesday, institutions net sold shares in the drug maker worth as much as 203.7 billion won ($183 million) and foreign investors dumped stocks worth 6.2 billion won upon the company’s announcement of the termination in an exclusive partnership agreement on a novel drug with Boehringer Ingelheim on Friday. But retail investors rushed to pick up the company’s stocks as soon as the market opened and net purchased 210.1 billion won worth shares upon the company’s announcement of an exclusive license-out agreement with Genentech on its anti-cancer treatment just on the previous day.

Financial authorities have already embarked on an investigation over any illegalities including insider trading throughout the process of the company’s delayed announcement of the Boehringer fallout.

Massive short selling by institutional investors resulted in huge losses in retail investor’s holdings. Hanmi Pharmaceutical share price plunged 18.1 percent on the main Korea Composite Stock Price Index Kospi) bourse on Friday from the previous day and 7.3 percent on Tuesday after the market reopened after a holiday.

Institutional and offshore investors who shorted on the company’s shares made huge money at the expense of oblivious retail investors. With the company’s share price crashing, those short sellers made gains worth 12.5 billion won over the last two days. Investors who shorted shares of Hanmi Science Co., the holding company of Hanmi Pharmaceutical, during those two sessions are also estimated to have profits of 4.9 billion won.

Short selling is not illegal, but their bet on the fall in shares of Hanmi Pharmaceutical raised suspicions about possible illegalities in their trading after the KRX found out that their short sales amounted to 104,327 in Hanmi shares on Friday, about 20 times larger than usual short-sale position of about 5,000 shares a day on the company. Worse yet, 50,471 shares, half of total short selling offers, were traded right before the company’s disclosure of the termination in the exclusive right with Boehringer Ingelheim. The pharmaceutical company has been also under scrutiny after it announced the Boehringer fallout about 30 minutes after the market opened on the day.

Given the announcement that it signed an exclusive development and license agreement worth 1 trillion won with Genentech in the previous day, such large volume of short selling offers on Friday has raised suspicions over possible illegalities in the process of disclosing Boehringer fallout including insider trading. “Some investors might have had access to information in advance,” said an official at a brokerage house.

According to the financial investment industry, the average short-selling price of Hanmi Pharmaceutical shares was 590,621 won per share on Friday. The termination of the deal with Boehringer was announced at 9:29 a.m. on the day and the company’s share price dove from 626,000 won to 571,000 won five minutes later, triggering the stock market authority to look into possible insider trading among employees of the drug company.

By Choi Jae-won and Yong Hwan-jin

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