Contaminated capsules dissolve Biostar earnings

China's Biostar ($BSPM) had to stop production and destroy about 5 million capsules after it learned last year that the supply had been contaminated with chromium. The capsule scandal also turned out to be toxic to its earnings. 

The Chinese drugmaker Thursday reported a $20 million loss for 2012, saying the mess cost it nearly half its sales compared to the previous year. It said revenues fell to $49.3 million from $92 million, blaming the shortfall on lost sales from the suspension and the bad publicity. In addition to the sales hit, the company said in a filing with the Securities and Exchange Commission (SEC) that it was ordered to pay a $1.6 million penalty to China's State Food and Drug Administration (SFDA) and $8 million in compensation to its customers. 

Chinese authorities in April 2012 closed plants and made arrests after determining that illegal operations were pumping out capsules using industrial-grade gelatin derived from scrap leather. The leather had come from tanneries which used chromium in their processes. Seven people were sentenced to prison earlier this year following the the crackdown. 

Biostar was notified by the SFDA that it was among the companies that had bought the toxic products and had to suspend production and recall products. SFDA tests found high levels of chromium in 1.2 million units of the company's most popular product, Xin Aoxing Oleanolic Acid Capsule, an over-the-counter medicine for chronic hepatitis B. Biostar's own tests uncovered problems in another 3.9 million Xin Aoxing capsules. After buying new testing equipment and agreeing to procedures to test ingredients and supplies, the company was allowed to crank production back up in early July. 

Biostar said in the SEC filing that it has launched "an aggressive advertising campaign" creating new incentives for its sales force and taken other steps to woo back customers. CEO Ronghua Wang said he expected the fallout to be temporary, and that Biostar was seeing "the gradual recovery of sales of our capsule products in the fourth quarter of 2012." 

- get the release
- here's the SEC filing