Denmark’s first meme stock, Orphazyme A/S, was hit by a deep selloff on Monday morning as last week’s sudden spike during U.S. hours crashed into reality once local investors returned from the weekend.
Shares in the tiny Copenhagen-based biotechnology firm plunged as much as 37% when the market opened in the Danish capital.
With the meme-stock frenzy hitting Danish shores at the end of last week, one of the Nordic region’s main retail brokerages is now warning clients of the potential risks ahead as they face a new and unfamiliar trading reality.
Orphazyme, which has yet to produce a viable treatment or make money, saw its American depositary share price soar almost 1,400% at one point last week. 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 extreme trading and media focus will force the company and its management into overtime,” Per Hansen, an investment economist at brokerage Nordnet AB, said in a client note 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.
Read More: A Meme Stock Is Born: How to Spot the Next Reddit Favorite
Orphazyme had a market value of over $450 million after trading ended on Friday. Last month, it was worth around $200 million. Hansen said regular investors now need to figure out how to incorporate the risk of such extreme moves into their strategies.
Meme Strategies
“It’s 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 by phone. Though the kind of volatility to which meme stocks succumb is beyond most individual investors’ control, there’s still scope for “more traditional investors” to figure out how to “exploit the opportunities it provides,” Hansen said.
Orphazyme, which uses heat shock proteins to develop therapies for rare neurodegenerative diseases, has had a turbulent time since its 2017 initial public offering. 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.
Orphazyme said on Friday that it’s “not aware of any material change in its clinical development programs, financial condition or results of operations that would explain such price volatility or trading volume.” It also 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.
With meme stocks now making their way into Europe, Hansen said that “some institutional investors need to reconsider their long-term strategies and be ready to make a quick decision based on these sudden events.” But he also warned that their advent represents a risky shift in how markets function.
“My concern is that this changes the fundamentals of the stock market, which is that you can put a value on any company and companies can get access to venture capital,” Hansen said.
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