SHANGHAI, Aug 11 (Reuters) – A growing number of healthcare companies in China are putting their initial public offering (IPO) plans on hold as stock exchanges scrutinize the pharmaceutical industry’s business practices amid mounting anti-corruption efforts.
Healthcare stocks in China have already plummeted since the government launched a year-long anti-corruption campaign in late July targeting the allegedly widespread practice of bribing doctors to sell medicines and medical equipment.
The pharmaceutical industry is the latest sector to be in the crosshairs of Chinese regulators, and the tighter scrutiny of the sector’s IPO candidates shows the influence regulators have on companies’ fundraising. That’s despite China revamping its IPO system to make it more market-oriented, meaning IPOs no longer require securities regulator approval.
Vaccine maker Shanghai Rongsheng Biotech Co. ended its IPO plan this week after the company’s high share of selling expenses drew attention from regulators.
The Shanghai Stock Exchange asked Rongsheng – whose selling expenses accounted for a third of sales over the past three years – if there had been an “unknown transfer of shares to clients,” according to securities filings.
“Drug makers’ distribution cost issues are in the spotlight due to the anti-corruption campaign,” said a Shanghai-based IPO banker at a state-owned brokerage firm, who declined to be identified due to the sensitivity of the issue.
“Review of drug makers’ IPO applications has become extremely rigorous as of late.”
Another drugmaker, Fujian Mindong Rejuenation Pharmaceutical Co., also withdrew its regulatory application after the Shenzhen Stock Exchange sought details and rationale for its promotional activities, including academic seminars. The company’s selling expenses have accounted for almost half of its sales over the past three years.
Another banker said drugmakers are putting the brakes on their IPO plans due to rising uncertainty. “Exchanges ask detailed questions about distribution costs,” he said.
Rongsheng and Fujian Mindong did not immediately respond to Reuters emails seeking comment, and calls to the numbers listed in their prospectuses went unanswered.
Responding to inquiries from exchanges, Rongsheng and Fujian Mindong said their selling activities were reasonable and there were no cases of transfer of interest.
The Shanghai and Shenzhen stock exchanges did not respond to Reuters emails seeking comment.
ACADEMIC CONFERENCES SUCCESS
Data from stock exchanges showed that at least 12 healthcare companies have halted their plans to go public in China so far this year. However, it’s not clear if the tightened controls played a role, with the exception of Rongsheng and Fujian Mindong.
There have been fourteen healthcare stocks listed so far this year, compared to 27 for the same period last year.
China has cracked down on other sectors in the past, including tutoring, fintech and real estate, wiping out trillions of dollars in market value in the process.
The share prices of the already listed drug manufacturers have been affected by the anti-corruption campaign, which may have a negative impact on their sales.
Underscoring the harshness of the recent crackdown, at least 168 hospital directors have been investigated on suspicion of violating laws and regulations, twice the number in 2022, health information provider Saibailan reported.
In addition, at least ten academic conferences on medicine were postponed in August. China’s National Health Commission has raised suspicions that some academic events are being used as a channel to bribe doctors.
“This anti-graft round is much stronger than before and the impact is huge,” said an executive at a medical device manufacturer who asked not to be named.
“The sales of many companies would be affected.”
Reporting by Jason Xue in Shanghai and Tom Westbrook in Singapore; Edited by Muralikumar Anantharaman
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