The Financial Services Commission (FSC) issued a warning on retail investors, saying they should be aware of investment risks in local biotech and pharmaceutical stocks.

The FSC announced the “Notes on investing into biotech and pharmaceutical shares” on Thursday.

“Biotech and pharmaceutical shares have uncertainties about success in the development and approval of medicines that require much time, cost and advanced technology,” the FSC said in the statement.

Retail investors could suffer losses due to safety concerns over new drugs, termination of licensing-out deals, and rapid changes in stock prices following clinical trial failures, the financial regulator said. The FSC emphasized that investors should make prudent investment decisions based on a company’s essential value.

The top financial regulator unveiled a case where an employee of a drugmaker told insider information about the termination of a deal between the company and a foreign pharmaceutical firm to coworkers and close acquaintances, who sold the company’s shares before the prices fell with the public disclosure of the information.

In another example, a drug company CEO planned a clinical trial on an agent that had low potential to be commercialized. The company's head applied to the Ministry of Food and Drug Safety for the approval of the trial. It promoted the study application aggressively to encourage investors to buy the company’s shares, which went up later.

In the notes, the FSC said investors should refrain from investing in risky shares without much knowledge of the company. Investors should be careful about exaggerations of clinical studies or false rumors, and those who spread groundless or unverified rumors will face punishment, the FSC said.

“The financial authorities will actively monitor abnormal transactions of biotech and pharmaceutical shares and dissemination of false rumors,” it added.

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