China's SFDA finds certain batches of Jiangsu Yanshen's human use rabies vaccine substandard

Simcere Pharmaceutical Group ("Simcere") (NYSE: SCR), a leading pharmaceutical company specializing in the development, manufacturing, and marketing of branded generic and proprietary pharmaceuticals in China, today reported that China's State Food and Drug Administration ("SFDA") issued a statement on its investigation into the human use rabies vaccine manufactured by Jiangsu Yanshen Biological Technology Stock Co., Ltd. ("Jiangsu Yanshen" or the "Company").  Simcere obtained a controlling stake in Jiangsu Yanshen on October 24, 2009.

As a result of the investigation conducted by the local food and drug regulatory authority and local police department the SFDA found that the four batches of human use rabies vaccine, which were manufactured by Jiangsu Yanshen and released into the market between July and October 2008, had an insufficient amount of active compound.  

It was found that illegal activities were conducted at Jiangsu Yanshen, whereby inadequate quality control processes were in place, and there was misrepresentation and avoidance of regulatory inspection, which caused substandard vaccine to be released into the market.  The responsible employees of Jiangsu Yanshen are under criminal investigation. This situation arose before Simcere took an equity position in Jiangsu Yanshen.  However, as an ongoing business entity, Jiangsu Yanshen may be subject to administrative penalties and criminal prosecution. Such penalties could lead to a material economic loss to Jiangsu Yanshen.  While the loss amount is difficult to estimate at this stage, it may have a material negative impact on Simcere's consolidated financial position and results of operations.

Simcere obtained a controlling stake in Jiangsu Yanshen on October 24, 2009, and subsequently discovered quality control problems relating to the production of Jiangsu Yanshen's human use rabies vaccine. On November 23, 2009, Simcere urged the board of Jiangsu Yanshen to replace its general manager and head of quality assurance and demanded that Jiangsu Yanshen implement a total suspension of production effective on November 30, 2009 to facilitate internal inspection and rectification of its quality control systems. Jiangsu Yanshen subsequently reported the suspension to the relevant regulatory authorities and has been actively cooperating with them on their investigation.  To date there have been no reported adverse events as a result of the vaccine batches in question.  The authorities and Simcere are monitoring the situation closely.

Jiangsu Yanshen operations remain suspended and it is uncertain whether or when it will resume vaccine production. Simcere will closely watch the outcome of the investigation and intends to pursue all available legal options against the selling shareholders of Jiangsu Yanshen.