Biostar, an indirect holding company for Aoxing Pharmaceutical - a Chinese developer and manufacturer of pharmaceuticals in China – has reported its 2012 figures with revenue down 46.4% to $49.3m compared to 2011.The majority of this loss ($51.3m) came from a drop in sales of capsule products, Aoxing’s major pharma lines, which were affected by contaminated gelatin capsules.
China’s Food and Drug Administration (then known as the SFDA) closed down ten gel capsule factories last April after excessive levels of the toxic metal chromium were found in product batches. The regulatory body also suspended sale of gelatin capsule drugs, including Aoxing’s products which representing 88% of its income.
In a conference call discussing the results, Biostar’s President and CEO Ronghua Wang said results had been "affected by the temporary industry wide PRC [People's Republic of China] government imposed sanction of gel capsule sales."
According to an SEC filing made by the company, samples from a batch of its Xin Aoxing capsules (an OTC for chronic hepatitis B) were found to contain chromium content higher than edible gelatin, following an onsite inspection by the SFDA.
On top of the suspension, Biostar was also ordered to pay an administrative penalty approximately $1.6m to the SFDA as well as customer compensation of $8m.
Following a nationwide inspection in May last year by the SFDA, 669 batches of gel capsules from 254 drug manufacturers in 28 provinces were found to have high chromium levels, according to a publication on the regulator’s website .
Sales of gel capsules nationwide were suspended temporarily and earlier this year, the official Chinese news website, Xinhuanet.com reported seven producers of the toxic gel were sentenced to up to 11 years in prison.
Following the scandal, the company underwent a series of measures required by the SFDA to ensure quality and safety including purchasing gel capsule inspection equipment in order to measure chromium, as well as undertaking a full inspection of all samples of drugs sold and current product inventory.
However, though Wang acknowledged the suspension of sales and negative publicity surrounding the incident had seriously affected sales, he remained confident that the company had addressed the issues and could bounce back.
"On July 30, 2012, we received the green-light approval from Xianyang SFDA authorities to restart sales of gel capsule products," he said. “Due to a plan that we designed, developed and have been implementing, we have seen our business starting to recover since third quarter.”
This plan included, according to Biostar’s report:
- engaging its employees to work overtime
- adding a second shift
- launching an aggressive advertising campaign to help improve consumer confidence
- establishing incentives for the sales force in all of the distribution offices nationwide
- launching an innovating B2C call center to take order and provide hands-on sales support
Whether full recovery will happen in 2013 is, however, uncertain. Responding to a question on the conference call regarding Biostar's 2013 profitability, the company was cagey, stating: "We don’t think it's the right time to answer that question through the phone. We will consider to release a news on the right time."