China stock market

Chinese drugmaker’s stock falls by a third after impurity is found in medicine sold in Europe and US

PUBLISHED : Wednesday, 18 July, 2018, 3:32pm
UPDATED : Wednesday, 18 July, 2018, 10:34pm

Zhejiang Huahai Pharmaceutical has lost more than a third of its market value, after a potential cancer-causing substance was found in its ingredients supplied to Europe and the US to make medicine.

Shares of the company, based in Linhai city of Zhejiang province, dropped by as much as 35 per cent in two months through July 9 as the company said it detected an impurity, known as N-nitrosodimethylamine (NDMA), in ingredients used to make hypertension medicine in Europe and the US. The substance, a by-product of industrial processes, is toxic to the liver and classified as a carcinogen for its ability to cause cancer in humans.

The shares fell 2.2 per cent to 22.04 yuan at the close on Wednesday in Shanghai, down 30 per cent from the all-time high on May 10.

Huahai has already recalled the medicine containing the impurity both in the US and China, while the European Medicines Agency said authorities across the continent were also removing the toxic medicine from shelves, and is reviewing the drug.

The company said it cannot give an accurate estimate of any loss incurred by the recalls. Sales of the ingredient reached 13.96 million yuan (US$2.1 million) in China last year, with US$20.43 million of revenue in the US, according to exchange statements.

The company’s 2017 revenue rose 22 per cent to 5 billion yuan while net income rose 28 per cent to 639 million yuan.

Huahai is the second Chinese drug maker to be caught by a quality scandal. Changsheng Bio-technology, based in northeastern China’s Changchun city, was ordered this week to stop producing rabies vaccines because it had violated regulations by falsifying records. The stock plunged by the 10 per cent daily limit for three straight days to 17.90 yuan, losing nearly 27 per cent of its market value.

The scams in China’s pharmaceutical industry may undermine the confidence among traders to invest in the sector, the only industry group that has posted gains this year amid a bear market.

A subindex of pharmaceutical stocks has risen 19 per cent in 2018, as earnings growth accelerates and the government encourages the development of innovative drugs.