Special Report

Good medicine: Stricter regulations restore faith in scandal-tainted industry

by David Li & Sandra Sun & Ethan Cui & Lily Qi / May 10, 2019

SHARE

China’s fast-growing vaccine industry, made up of seven state-owned enterprises (SOEs) and over 30 domestic and multinational private sector corporations, owes its swift recovery to a regulatory crackdown to address two recent scandals that erupted in relatively quick succession.

In 2016, the industry was rocked by reports that vaccines were stored improperly, rendering them ineffective, and later illegally sold and administered to citizens. The scandal triggered public panic, shrinking the industry’s size from RMB19.1bn (USD2.78bn) in 2015 to RMB17.1bn the following year. In 2018, one of China’s largest vaccine producers was found to have forged inspection and production data to cover up the fact that it had used expired materials and failed to properly test its products.

Laying down the law
The government quickly responded to the first scandal with the Regulation on the Administration of Vaccine Circulation, which requires manufacturers to sell their vaccines directly to the Chinese Center for Disease Control and Prevention (China CDC) at the county level. The law helped reform the vaccine distribution process and restored public faith in the industry.

The second scandal triggered a range of policy measures. China’s National Medical Products Administration (NMPA) announced it would begin carrying out surprise inspections on vaccine manufacturers around the country to ensure production remains compliant with the Good Manufacturing Practices (GMP) standard.

The company involved was barred from producing vaccines and slapped with a fine of RMB9.1bn and several of its senior executives were arrested. The Shanghai and Shenzhen stock exchanges incorporated revised rules that trigger a mandatory delisting for breaches that endanger public health and safety, and assign a prefix to the stock codes of erring companies to warn investors.

On 11 November 2018, the country’s first law for a single sub-category in the healthcare industry came into effect in the form of the Vaccine Administration Law of the People’s Republic of China.

A stitch in time
The government’s actions have ensured that China’s vaccine industry is now subject to a set of stringent regulations that govern the research, production, distribution, sales, storage and transport of vaccines, as well as the process of vaccination itself.

While these measures may mean increased compliance costs for manufacturers and temporarily narrower margins, it will eventually bolster public confidence and lead to an increase in the use of private-market vaccines. This, in turn, will create fresh opportunities and pave the way for future growth.

For more insights, follow us on LinkedIn and click to subscribe to CLSA’s monthly newsletter.

Notices And Policies