Traditional Chinese Medicine Company Shares Soar Following Experts' Claim Could Inhibit COVID-19

Recent reports showed shares of traditional Chinese medicine or TCM firm soared after it received validation from the country's top respiratory expert on the effect of its drug against COVID-19, joining others that have been enjoying gains this year.

Specifically, Guangzhou Baiyunshan Pharmaceutical Holdings reportedly jumped "13 percent to HK$21.75 in Hong Kong, and by 10 percent to HK$34.18 in Shanghai on Friday," after the public face of China's fight against the pandemic, Zhong Nanshan, said one of its pharmaceutical products could possibly stop COVID-19.

Chinese publication Nanfang Daily reported, researchers led by Zhong found that their Banlangen granules, a Chinese herbal medicine famous for treating common cold and flu in the country, was said to be effective protection from various in a series of in-vitro research.

The said drug was also commonly used in China in 2003, during the SARS or severe acute respiratory syndrome outbreak.

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The Biggest Daily Jump Since 2018

According to the report, "Investors latched on to the hype surrounding the firm" even if the studies were still at their early phase and there was no disclosure from Zhong if or when any research or preclinical data would be released.

Based on Refinitiv data, the advance of stocks in Hong Kong marked its biggest daily jump since 2018, while revenue ballooned more than 20 times to US$240 million from Tuesday.

Many pointed to the hypothetical nature of the surge on Friday. In a post published on Xuequi stocks forum, Shanghai Leader Capital general manager, Huang Jianping, wrote, "In-vitro studies data is usually the weakest among preclinical data."

He also said that typically, pharmaceutical firms need to go through three stages of clinical tests on humans to establish the medicines' effectiveness, on top of evidence resulting from experiments on animals.

He further said that if a Nasdaq-listed firm claim that its drug was found to stop the virus in in-vitro studies, that particular company would then "be despised by the market."

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China's Strong Reliance on Traditional Medicine

Early this year, China depended strongly on traditional medicine to fight COVID-19. Despite the government's initiatives to promote the use of such herbal treatments overseas, experts have cautioned that evidence from clinical tests is insufficient to establish their efficacy.

Furthermore, this is not the first time Zhong's comments have contributed to the fortunes of a drug maker. According to reports, two other Shenzhen-listed TCM firms, Shijiazhuang Yiling Pharmaceutical and Tianjin Chase Sun Pharmaceutical gained huge successes, respectively, this year, following the inclusion of their drugs in the "national standard therapy for COVID-19 patients," and were endorsed by Zhong.

Shijiazhuang Yiling's shares have soared 94 percent since a March low. Meanwhile, shares of Tianjin Chase Sun have risen almost 50 percent since mid-March.

Contrasting the said two firms, products of Guangzhou Baiyunshan have not been officially recommended, and the firm reported lower profits for the first six months of 2020. Relatively, its net profit dropped 31 percent to US$269 million from the same period last year.

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