A GROWING number of health care companies in China are shelving their initial public offering (IPO) plans as the country’s stock exchanges have stepped up scrutiny of the pharmaceutical industry’s business practices amid an escalating anti-corruption drive.

Health care 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.

Vaccine maker Shanghai Rongsheng Biotech Co. terminated its IPO plan last 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 domestic brokerage.

“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.

Another banker said drugmakers are stepping on the brakes of their IPO plans due to the rising uncertainty. “Exchanges are asking granular questions about sales expenses,” he said.

In response to the stock exchanges’ queries, Rongsheng and Fujian Mindong said their sales activities are reasonable and they do not have cases of transfer of interests.

At least 12 health care companies have halted China IPO plans so far this year, data from exchanges showed, though it is not clear if the stepped-up scrutiny played a part in that, other than for Rongsheng and Fujian Mindong.

Fourteen health care-related stocks have listed so far this year, compared with 27 in the same period a year earlier.

For drugmakers that are already listed, their share prices have been hit by the anti-corruption campaign, which will potentially hurt their sales. (SD-Agencies)