New Meme Stock in Denmark Triggers Warning From Retail Broker
Meme-Stock Holders in Denmark Warned by Broker of Risks Ahead
(Bloomberg) -- Denmark’s first meme stock has prompted one of the Nordic region’s main retail brokers to warn clients to start adapting their investment strategies if they’re to navigate the new market reality.
The American depositary shares in Orphazyme A/S, a tiny Danish biotechnology firm, soared nearly 1,400% at one point on Thursday before adding 137% in Denmark on Friday. When trading started in Copenhagen on Monday, the stock plunged as much as 37%, though the depositary shares jumped 37% as U.S. trading got under way.
Per Hansen, an investment economist at retail broker Nordnet AB, says regular shareholders need to pay attention. “My concern is that this changes the fundamentals of the stock market,” he said by phone.
It’s now “relevant for all investors, private or professional, to scan your portfolios for shares which potentially can be affected by this in the future,” he said. And “more traditional investors” should even try to figure out how to “exploit the opportunities it provides,” Hansen said.
Orphazyme, which has yet to produce a viable treatment or make money, says it has no idea what’s behind the moves. On Reddit, users posted updates such as, “I’m an idiot, long 4,000 shares of Orph!” Another posted, “I’m in that boat with you.”
The company’s chief financial officer, Anders Vadsholt, says it would “normally never comment on positive or negative price developments.” But due to the “highly extraordinary situation,” he says Orphazyme has had to make clear to market participants that the moves aren’t based on any corporate events.
Distractions
For Orphazyme shareholders, the concern is that management will be distracted by the frenzy. “The extreme trading and media focus will force the company and its management into overtime,” Hansen told clients on Monday.
“That will create extra work and take the focus away” from running the business, he said. What’s more, “a corporate valuation that’s not financially viable or sustainable won’t, in the long run, be able to alter a negative development” in the underlying business.
Orphazyme had a market value of over $450 million after trading ended on Friday. Last month, it was worth around $200 million.
The company uses heat shock proteins to develop therapies for rare neurodegenerative diseases. Since its 2017 initial public offering, Orphazyme has had a turbulent time. Shares in the company peaked in February 2020, trading 69% above the IPO price, but are still below the listing price.
“For some institutional investors who bought Orphazyme shares at the IPO, this is the best chance they have had so far to sell,” Hansen said.
‘Crucial’ Update
The company has yet to turn a profit and so far, none of its products has made the necessary breakthrough that would allow Orphazyme to market them. Long-term investors in the company have been eagerly awaiting an update from U.S. authorities on its latest application to get a treatment approved. That announcement, due on June 17, will be “completely crucial for their future,” Hansen said.
Meanwhile, Orphazyme has warned investors against being sucked into the irrational price swings.
“Investors who purchase the company’s ADS or shares may lose a significant portion of their investments if the price of such securities subsequently declines,” the company said on Friday.
©2021 Bloomberg L.P.