Through Tuesday, the Mothers market <.MTHR> had far outperformed the broader market this month - up 18 percent compared with the Nikkei's 3 percent - in heavy volumes as retail buyers and day traders bought biopharmaceutical companies such as SanBio Co, PeptiDream Inc, Sosei Group Corp, NanoCareer Inc and AnGes Inc.

But on Wednesday, the market tumbled 8.1 percent, its biggest drop in a year.

The spark was SanBio, seen as a market leader. Its shares dived 26 percent after investors were disappointed with news that it and Dainippon Sumitomo Phama Co saw their joint drug's clinical trial in the United States did not succeed.

The news caused Mothers index futures to trigger a circuit breaker and halt trade temporarily.

"When retail investors had to sell the stock on margin calls which sent the stock plunging, it gave a domino effect throughout the Mothers market and dragged down other biopharma shares," said Takashi Hiroki, chief strategist at Monex Securities.

Shares of DaiNippon plunged 19 percent.

"Investing in biopharmaceutical company is like investing in a dream," Hiroki said, adding that compared to other themes such as 5G and the internet of things, biopharma investment can generate "explosive" returns if clinical trials are successful.

>(GRAPHIC: Bipharma shaes on the Mothers market - https://tmsnrt.rs/2Tlp8lr

Tomoichiro Kubota, a market analyst at Matsui Securities, said short-term themes, like with biopharma companies, "draw buying opportunities for day-traders who wanted to make a quick buck using volatility".

He said clinical trials are major catalysts for biotech and pharmaceutical companies and positive study can boost their share prices.

"But on the other hand, chances are small that clinical trials proceed to the next phase. When it fails, there is a turnaround in their stock price and can fall sharply, which is seen in the SanBio case," Kubota said.

Hiroki of Monex Securities said that while the index's "biopharma rally" seems to be over for now, it will likely resume when the "SanBio shock" is priced into the market.

The theme "will make a comeback, for sure," he said. "It's similar to investing in private equity deals or venture capital."

(Reporting by Ayai Tomisawa; Editing by Richard Borsuk)

By Ayai Tomisawa