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Changsheng Bio-Technology fabricates vaccine data
Changsheng Bio-Technology, based in Changchun, Jilin Province, used to be one of the largest vaccine-makers in China. By the end of 2017, the firm had six vaccine products, produced by its main subsidiary, Changchun Changsheng. From 2015 to 2017, the company’s lyophilized rabies vaccine (RabV) was administered to 2.54m, 1.76m, and 3.55m patients, respectively. The company’s market share in 2017 reached 24.94%, ranking second in the domestic RabV market.
However, on July 15, 2018, the National Medical Products Administration (NMPA), after an unannounced inspection, announced that Changsheng Bio-Technology fabricated manufacturing and testing records for its RabV for human use, severely violating Good Manufacturing Practice (GMP). In the meantime, NMPA ordered the company to stop production and Jilin Provincial Medical Products Administration to take back the company’s GMP license. Later, State Council sent an inspection team to the company on July 25 for a further investigation, which revealed that the firm blended different batches of vaccine stock, changed production batch numbers or dates, used expired vaccine stocks, etc.
In comparison with other kinds of vaccines, RabV experienced the most accidents in China. Before Changchun Bio-Technology, from 2008 to 2010, three Chinese companies were found performing illegal practices during RabV manufacturing. Since then, the country has implemented stricter production standards, regulatory supervision, and market entry requirements regarding RabV. Such changes have resulted in the exit of companies such as Sanofi [SNY:US] from China’s RabV market in 2010.
Changsheng Bio-Technology receives punishments and is delisted
Finally, Changsheng Bio-Technology announced bankruptcy on November 8, 2019, and was officially delisted from the SZSE on November 27, 2019, with its market cap shrinking from its peak of RMB29.22bn down to RMB750m.
Scandal shows a need for a Vaccine Administration Law with harsher punishments and better regulation
In light of the severity of Changchun Bio-Technology’s illegal practice, the State Administration for Market Regulation (SAMR) drafted a Vaccine Administration Law to increase supervision over vaccines and establish better accountability for those involved with vaccine management. The NPC passed the Vaccine Administration Law on June 29, 2019, and the law was to go in effect on December 1, 2019.
Changsheng Bio-Technology’s punishments were mainly based on its Drug Administration Law. This particular policy was less specific, and penalties for vaccine fraud in China were relatively light in the past. In contrast, the Vaccine Administration Law enhanced sanctions on illegal practices of vaccine-makers and related parties, a much heavier punishment than drugs-related illegal practices, to create harsher punishments and force companies to strengthen their quality control. For example, companies producing and selling fake vaccines would be fined 15 to 50 times of the product value with the bottom line set at RMB500,000, compared to just the threefold fine Changchun Bio-Technology received.
Moreover, the new law creates additional measures, such as building electronic vaccine information tracking systems under local governments to cover production, circulation, and injection of each dose of vaccines.
Newest measures requires vaccine-makers to have insurance
Most recently, NMPA finished draft measures for compulsory vaccine liability insurance in October 2020 to avoid safety risks from defects rooted in vaccines and protect recipients receiving injections. The new rules require all vaccine makers operating in the country to take out such insurance and renew their insurance contracts in a timely manner, otherwise they would not be able to launch products to the market and would be fined up to RMB2m. Insurance companies, in this aspect, will take on a role of third-party auditors in the vaccine market, as they will do risk and credit evaluation on vaccine-makers before signing contracts with the latter. In return, vaccine firms will need to improve their quality control and risk management to qualify for insurance.
Impact on the Chinese vaccine industry is limited, but includes the tightening of short-term vaccine issuances and declined stock prices
Vaccine producers operating in China must send their products to the National Institutes for Food and Drug Control (NIFDC) under the NMPA for pre-marketing inspection and sample reserves. Specifically, NIFDC will examine the safety of every batch and randomly select 5% of vaccine batches for effectiveness testing. In general, all vaccine products have been at least certified for safety by NIFDC when put into the market.
The impact of Changchun Bio-Technology’s scandal on the market has been limited from the industry level, with a relatively unchanged vaccine demand. Although there was a dip in approvals for RabV and decreased domestic funding in 4Q18, according to Guoyuan Securities, the total number of RabV products approved for sale overall remained the same from 2017 to 2019, at about 58m doses. Notably, Liaoning Chengda [600739:CH] quickly absorbed Changchun Bio-Technology’s market share and increased its proportion from 31.11% in 2018 to 63.23% in 2019 in the Chinese RabV market.
In addition, aside from some fluctuation, vaccine-related stock prices began to recover beginning from October 2018, as central authorities issued punishments for Changchun Bio-Technology and news of the Vaccine Administration Law came out. Stock prices returned to previous levels before the Changchun scandal in July 2018 by September 2019 when the National People’s Congress (NPC) approved the new law. After the outbreak of COVID-19 in January 2020, the market value of Chinese vaccine enterprises has continued to rise, almost quadrupling by August 2020 compared to July 2018 and September 2019 levels.
Business ethics and product quality assurance are major ESG factors that should be used to evaluate a vaccine-maker’s overall performance and longevity
Market demand for vaccines will always remain high, given the fact that vaccines are a “need to have” as opposed to “nice to have” product. This is further backed up by market performance before, during and after events such as Changchun’s high-profile case, and the subsequent passing of the Vaccine Administration law. Companies should be able to show investors their sensitivity and compliance to changing industry norms, such as compulsory vaccine liability insurance that the NMPA is requiring. In order to qualify for such compulsory insurance, vaccine-makers must also assure their products are safe and meet a quality standard. Due diligence on understanding the insurers that the companies select can also be reflective on how serious companies are about their product quality and business ethics.
Reference:
https://www.thepaper.cn/newsDetail_forward_2277774
http://www.nbd.com.cn/articles/2018-07-19/1236486.html
https://www.huxiu.com/article/253744.html
http://special.caixin.com/event_0715_2/
https://finance.ifeng.com/c/7eozCbdyunw
http://pdf.dfcfw.com/pdf/H3_AP202001101373822374_1.pdf
http://china.caixin.com/2018-11-24/101351509.html
http://www.nbd.com.cn/articles/2018-07-17/1235691.html
http://news.sina.com.cn/sf/news/flfg/2020-01-13/doc-iihnzhha2105583.shtml
