Getting the silent treatment

Fosun Pharma calls for calm after more allegations about malpractice


Trouble in Chongqing

Better short-lived pain than a long one, is the “tough love” that The Economist magazine said China’s drugs regulator sees as the necessary path to upgrading the local pharmaceutical industry. That remark was heard by the China head of Roche, and refers to new government policies designed to improve manufacturing standards at domestic drugs firms.

Lu Xianping, the co-founder of biotech firm Chipscreen Biosciences, told the UK magazine that the impact of the changes would be dramatic. The key policy shift involves manufacturers proving their generic drugs are biologically equivalent to the originals – a move that should weed out the weaker players. Lu forecasts that half of China’s 4,000 pharma companies could die in the next five to 10 years.

Companies like Fosun Pharmaceutical Group, or Fosun Pharma, will likely lead the consolidation charge, with a strategy to sell more of the widely demanded, cheaper generic drugs that made up about two-thirds of the total market last year. (China is already the second biggest pharmaceutical market in the world. According to a 2016 report by the US International Trade Administration, the market is likely to grow to $167 billion by 2020 from $108 billion in 2015, or an annual growth rate close to 10%.)

Not surprisingly this has excited investors, who have been trying to identify who the local winners may be and have driven up valuations. Take again Fosun Pharma: its Hong Kong and Shanghai-listed shares were valued at more than Rmb120 billion ($17.5 billion) in early July, up nearly five times in as many years.

The ultimate objective for policymakers is to make treatments more affordable (see WiC418). But as we have discussed in previous issues, the way that some local governments are promoting their own pharmaceutical champions can bring malign consequences too (see WiC421).

A lack of proper oversight is being blamed for the vaccine scandal that roiled the wider industry last month, for instance. The problems were only uncovered through an unexpected check of vaccine samples, following a warning from a whistleblower who worked for Changsheng Biotech, the firm at the heart of the scandal (see WiC419).

Perhaps more unexpectedly Fosun Pharma has been faced with damaging allegations of its own in recent days.

Investors were put on full alert last week when the company’s shares plunged in Shanghai and Hong Kong in a sell-off triggered by a statement from the Chongqing Food and Drug Administration (FDA). It noted allegations that Fosun had produced sub-standard drugs at the Chongqing Research Institute, one of its subsidiary units.

The accusations, made by another whistleblower, have focused on how the unit tried to hide failures to meet standards for producing pharmaceutical ingredients. Employees allegedly had a history of fabricating inspection records, and paying bribes to FDA personnel, the former staffer also claimed.

Officials at the Chongqing FDA said they were looking into the case, with no hard evidence of improper behaviour so far. Fosun Pharma was quick to defend itself, denying the allegations but saying it would not respond in detail until the Chongqing officials had finished their investigation.

It confirmed in a stock exchange circular that regulators had made an unannounced inspection but said that the officials were yet to reach a “conclusive opinion”.

There was also an assurance to shareholders that the results of Fosun’s internal investigation had shown that “all existing products are manufactured in accordance with approved production processes”.

The vaccine scandal at Changsheng has turned the spotlight on the country’s drugmakers in an unprecedented way, after widespread anger among the general public. Policymakers have responded by demanding nationwide inspections and one possibility is that Fosun Pharma may have fallen victim to an overzealous response from the Chongqing FDA.

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