Zealand Pharma shares plunge: Disappointing obesity data sends investors fleeing

It was hardly a pleasant morning for shareholders in Zealand Pharma. On Wednesday, the company unveiled new data for its obesity drug project, and the reaction from investors was merciless. The Zealand Pharma share price was sent into a violent nosedive, at one point looking like it might shed a fifth of its value. It's the kind of day that makes you, as a shareholder, consider switching off the screen and going for a walk instead.

Why the heavy blow?

I've spoken with a couple of equity chiefs today, and the picture is pretty clear: the data simply wasn't strong enough to justify the hype that had built up. In the biotech sector, everything hinges on the curves pointing upwards in the right way. And here, they skewed the wrong way. The Zealand Pharma share price had been on a tremendous run beforehand, with everyone keen to jump on the obesity treatment bandwagon. But with competition, particularly from Novo Nordisk, being so intense, investors are quick to head for the exit if the data doesn't match the loftiest expectations. It's harsh, but that's the game.

One of Denmark's major investment banks has already sent out an update, slashing its price target. It's a classic case: expectations were ramped up so high that even a solid result would feel like a letdown if it wasn't groundbreaking. And here, it was more 'decent' than 'revolutionary'.

Your quick guide to Zealand Pharma shares now

So, should you sell in a panic or buy on the dip? Let's do a quick,冷静 Zealand Pharma stock review of the situation:

• What exactly did the data show? It demonstrated an effect, but not enough to threaten the established giants. There were side effects, too. It doesn't change the fact that Zealand has a strong pipeline, but it certainly delays the party.
• Is the investment case dead? No. But it's wounded. The company now needs to go out and prove they can carve out their own niche or improve the data in the next trial round. That takes time.
• Short-term or long-term play? If you're a day trader, you'll probably want to move on. But if you're putting together your own Zealand Pharma investment guide with a multi-year horizon, a dip like this could present an opportunity. However, it requires that you believe in the science and the management team.

How to use this share in your portfolio

How to use Zealand Pharma shares sensibly? My personal rule is that biotech stocks like this one should only make up a small slice of the pie. The rest should be something boring and stable. Because when a fall comes like it did yesterday, you need to be able to sleep at night without checking the price every five minutes.

My best guess right now is to let the dust settle. See what the company itself says in the coming days, and gauge whether your stomach can handle this kind of rollercoaster ride. Because Zealand Pharma shares aren't going to be a smooth journey. It's going to be one hell of a ride. But for some, that's precisely what makes it exciting.