The police have begun investigating Ilyang Pharmaceutical on charges of exaggerating the results of a study on Covid-19 treatment candidate to inflate its stock price, local news reports said.

According to the reports, the Seoul Metropolitan Police Agency is investigating Ilyang for allegedly violating the Capital Market Act by issuing an exaggerated press release in March 2020 that said Supect (ingredient: Radotinib), Ilyang's anti-chronic myelogenous leukemia treatment, was effective to treat Covid-19.

The police believe Ilyang provided investors with incorrect information that the number of Covid-19 viruses decreased by 70 percent compared to the control group --Gilead Sciences' Remdesivir and Toyama Chemical's flu treatment Avigan -- within 48 hours of administering.

"The research results by a professor at Korea University and the Ilyang's press release are different," the police said to the Korea Economic Daily. "The company distributed misinformation by using only favorable parts from the research and inserting incorrect data."

The police also obtained a statement from the Korea University professor who conducted the research saying that the study report and the content of the press release were different.

The stock price of Ilyang, which was below 20,000 won ($13.9) before the press release, soared fivefolds to exceed 100,000 won in four months.

In March 2021, Ilyang dropped its plan to develop Supect as a Covid-19 treatment after failing to prove the efficacy of the substance in a phase 3 clinical trial conducted in Russia. 

The police have confirmed that Ilyang executives sold a large number of stocks between March 2020 and July 2020, when the stock price spiked. Ilyang Chairman Jeong Do-eon and his family members made a huge profit by selling about 60,000 shares between March 2020 and July 2020.

At the time, Ilyang only faced a moral hazard controversy and no legal issues were raised.

After the police investigation was made public, Ilyang officially announced that it did not release any reports contrary to the facts and that it tried to fulfill its duty as a drugmaker to help protect the health of Koreans.

Still, Ilyang's shares plunged. As of 12:00 p.m. Friday, the company's shares stood at 17,850 won, a 6.3 percent decrease from the previous trading day.

The Korean biopharmaceutical industry is keeping a close eye on the investigation as it may lead to investigations into other companies that jumped into developing a treatment for Covid-19 during the pandemic and saw huge gains in their stock prices.

Of the 46 companies that joined a race to work on a Covid-19 treatment, only Celltrion managed to develop a successful treatment, Regkirona (Ingredient: regdanvimab).

With the remaining companies also seeing their stock prices plummet since last year, retail investors have asked authorities to investigate such companies.

However, an industry insider stressed the Ilyang investigation will likely have only a limited impact.

"During the early stages of the Covid-19, a lot of Korean biopharmaceutical companies dived into developing a Covid-19 treatment as other businesses were suffering severely to point where they were facing financial troubles," the source told Korea Biomedical Review, asking to remain anonymous. "I believe that only a small number of companies that publicly advertised their Covid-19 candidate using false information or conducted insider trading will be subject to investigation by authorities."

If companies advertised their Covid-19 candidate material without any personal gain based on facts, they may face criticism from a moral standpoint but a police investigation would be difficult, he added.