A growing number of healthcare companies in China are shelving their initial public offering (IPO) plans as its stock exchanges have stepped up scrutiny of the pharmaceutical industry's business practices amid an escalating anti-corruption drive.
Healthcare stocks have already slumped in China since the government in late July launched a year-long anti-graft campaign, targeting what it said was the rampant practice of bribing of doctors in drug and medical equipment sales.
Pharmaceuticals is the latest industry in the cross-hairs of Chinese regulators, and the tighter vetting of the sector's IPO candidates shows the sway regulators have over companies' fundraisings. That is even though China has revamped its IPO system to make it market-oriented, with listings no longer needing the securities watchdog's approval.
Vaccine maker Shanghai Rongsheng Biotech Co terminated its IPO plan this week, after the company's high proportion of sales expenses drew attention from regulators.
The Shanghai Stock Exchange asked Rongsheng - whose sales expenses over the past three years were equivalent to a third of revenue - if it had "undisclosed transfer of interests to customers", according to securities filings.
"Drugmakers' sales expense problems are in the limelight" due to the anti-corruption campaign, said a Shanghai-based IPO banker at a state-owned brokerage who did not wish to be identified due to the sensitivity of the topic.
"Vetting of drugmakers' IPO applications has become extremely strict recently."
Another drugmaker, Fujian Mindong Rejuenation Pharmaceutical Co, also withdrew its listing application, after the Shenzhen Stock Exchange sought details and the rationale of its sales promotion activities including academic seminars. The company's sales expenses over the past three years amounted to nearly half of its revenue.
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