Vaccine Scare Has China Moving to Contain Consumer Backlash

(Bloomberg) -- China is trying to contain the backlash over faulty vaccines given to babies and toddlers, with its top governing body vowing to punish those involved in a scandal that's testing faith in the country's $122 billion drug industry.

The fraud -- which sparked protests at government offices in Beijing and spurred Chinese parents to seek out foreign-made vaccinations in Hong Kong -- was discussed at a State Council meeting chaired by Premier Li Keqiang on Monday. Those responsible for making the poor-quality vaccines face hefty fines, jail sentences and bans for life from the drug industry, according to published remarks from the meeting.

Shenzhen-listed drugmaker Changsheng Bio-Technology Co. and state-owned vaccine maker Wuhan Institute of Biological Products Co. were found by a government probe to have made hundreds of thousands of low-quality vaccines that were then administered to children in a handful of provinces. Police have already petitioned prosecutors to arrest 18 people related to the fraud, including Changsheng Bio-Technology Chairwoman Gao Junfang.

The revelations have triggered a crisis of confidence among consumers that's exploded on social media in China and wiped more than $20 billion off the value of health-care stocks.

The industry -- which has aspirations to take on the west in drug innovation -- is still recovering from a 2016 scandal over expired vaccines that were sold nationally. The public reaction also has echoes of the tainted milk scandal a decade ago in which at least six babies died and hundreds of thousands of others were sickened after consuming locally made infant formula laced with the chemical melamine.

No Protection

The Chinese government said about 650,000 child vaccines didn't meet standards, meaning the immunizations may not offer the children who received them protection from deadly diseases, namely whooping cough, tetanus and diphtheria.

The news has triggered not just a surge in demand for children's inoculations in Hong Kong parents but public pressure for more foreign-made vaccines to be made available in China.

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China currently requires all imported vaccines to go through Chinese clinical trials and a review process by the China Food and Drug Administration (CFDA) that can “almost take forever,” said Milo Liu, head of research at AJ Securities Ltd.

High Risk

Many vaccines used widely around the world are not available in China.

“This incident will likely speed up the CFDA's import process in the future,” Liu said. “On the other hand, China has restricted vaccine imports for years in order to favor its domestic producers and this single incident will not turn the table entirely on this policy stance.”

The scandal shows the high business risk facing China's drugmakers, Fitch Ratings said in a report Tuesday. The sector tends to concentrate on producing low-quality generic drugs because of a lack of investment in research and development, and weak supervision from regulators raises drug safety risks, Fitch said.

To contact Bloomberg News staff for this story: Rachel Chang in Shanghai at wchang98@bloomberg.net

To contact the editors responsible for this story: K. Oanh Ha at oha3@bloomberg.net, Emma O'Brien

©2018 Bloomberg L.P.

With assistance from Editorial Board