- The Danish biotech, whose stock surged last week, tumbled 37% on Monday.
- Retail broker Nordnet warned investors of the risks posed by the emergence of "extreme trading."
- Orphazyme's market value grew from $200 million in May to over $450 million last Friday.
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Shares in Danish biotech Orphazyme tumbled in regular European market hours on Monday as last week's massive surge during US trading reversed after the weekend.
When trading opened in Copenhagen, its stock plunged as much as 37%. Shares had already fallen 50% on Friday after the company said it wasn't aware of any reason for the extreme volatility behind the stock move.
Orphazyme, which focuses on the treatment of rare diseases, saw its US-listed shares surge almost 1,400% last week after Reddit chatter around the company grew. With about 450 mentions on Reddit's WallStreetBets, it was the eighth most-mentioned company on the subreddit last Thursday, according to data from Quiver Quantitative.
The stock's decline on Monday followed a warning from one of Denmark's main brokerages to clients of the potential risks investors face from the unpredictable nature of meme-stock trading that has generally been limited to the US market, until recently.
"The extreme trading and media focus will force the company and its management into overtime," Per Hansen, an investment economist at retail broker Nordnet, said in a client note on Monday seen by Bloomberg.
That will pile on extra work for company's management and turn their focus away from running the business, he said. Further, an overvaluation won't be financially viable in the long-term and the company will be unable to alter a negative development in its underlying business, he said.
Orphazyme's market value more than doubled from $200 million in May to over $450 million by the end of Friday's trading, Bloomberg reported. Regular investors need to work out how to integrate such extreme risks into their trading strategies, Hansen said.
"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 told Bloomberg in a phone interview. Individual investors cannot control the kind of volatility to which meme stocks give in to, but "more traditional investors" can figure out how to make the most of the opportunities this sort of incident provides, he said.
With the emergence of meme stocks in Europe, Hansen said institutional investors need to rethink their long-term strategies based on these unanticipated events.
"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," he said.