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(EDITORIAL from Korea JoongAng Daily on Oct. 4)

All Headlines 07:17 October 04, 2016

Hanmi's moral hazard

Hanmi Pharm demonstrated moral hazard and defied its obligation to respect investors after belatedly notifying them of the cancellation on Sept. 30 of a deal with Boehringer Ingelheim, Germany’s leading research-driven pharmaceutical company. A day earlier, Hanmi made a public announcement that it had signed an over 1 trillion won ($905.8 million) contract with Genentech, a U.S. biotechnology company, to export its technology to produce targeted anti-cancer drugs. The good news helped boost Hanmi’s stock price on the Korea Exchange.

But the company made public the cancellation of the deal with Boehringer Ingelheim a day after it was notified of the decision from the company. Hanmi had made a contract with the German company to export its technology to produce targeted agents for the treatment of lung cancer. After delivering the good news and bad news at different times, Hanmi Pharm’s stock price fell more than 20 percent.

As Hanmi admitted the deal’s cancellation within 24 hours, as required by the securities exchange act, it did not violate the law at all. However, given the massive impact of the company on overall stock prices of pharmaceutical companies listed on the local bourse, Hanmi must take responsibility for its belated notification of the deal cancellation.

Hanmi provided a reason that only boosted suspicions about the company. The company explained that it took a longer time to consult with Korea Exchange over the cancelled deal to export its technology to Boehringer Ingelheim. However, because listed companies are obliged to notify the public about significant changes in their businesses, that explanation does not make sense.

Due to the company’s 30-munite delay in its public notification of the bad news to the stock market, investors who bought Hanmi’s shares earlier suffered a big loss.

Korean people had high expectations for the pharmaceutical company thanks to its amazing 8 trillion won export of top-caliber technologies for the production of new drugs. Considering all the risks involved in the development of a new drug, cancellations of contracts or terminations of research can occur at any time. Hanmi’s fumbles with the notification does not give confidence about how it faces other challenges, either.

Any listed company should make their bad news public as soon as possible because it has huge impact on investors and their affiliated companies. Hanmi Pharm must remember that a crisis can come from a lack of morality, not just the cancellation of a deal.
(END)

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