HONG KONG – China's pharmaceutical industry is undergoing a painful reform as regulations tighten, in particular a recent push by the CFDA to clamp down on untrustworthy clinical trial data.

Early this month, the CFDA published a list of 82 drug applications, including new applications and resubmissions, which the watchdog will examine for suspicious data. Industry watchers see that push as necessary short-term pain to ensure some long-term industrywide gain.

The CFDA started cracking down on weak clinical trials and focusing on the quality of the trials in the past year. In July 2015, it ordered applicants of 1,622 drug registration applications to conduct self-inspections and verifications of their clinical trial data to ensure authenticity and reliability. By the end of June this year, the deadline set by the authority for self-investigation, only 17 out of those 1,622 applications had been approved, while 1,171 – more than 70 percent – were withdrawn by the applicant companies.

"This policy has caught newspaper headlines and has drawn a lot of attention in the industry," said Serena Shao, a director and head of China Healthcare at brokerage and investment group CLSA, during the company's annual investor summit in Hong Kong.

"The CFDA started with clinical trials because it believes that a lot of the data are either incomplete or have some possible fraud issues because the CFDA used to have a very loose standard," she said. "The penalty for companies with failed applications is quite high. If you get declined, you cannot be approved for new drugs in the next three years."

The CFDA has emphasized its aim to crack down on subpar clinical trials in the past 12 months. Bi Jingquan, director of the CFDA, said during a meeting with industry representatives earlier this year that "currently, there is still a big gap between the pharmaceutical industry in China and other markets. We mainly face weaknesses in research and development, inspection over clinical trials and product evaluation. The CFDA will enforce efforts in clinical research training."

"The CFDA is really trying to put down stricter regulations that are close to U.S. standards," said Shao.

In its first random investigation on clinical trials last October, the authority canceled 11 drug applications from eight companies. To emphasize the importance of such investigations, it has also started to disclose newly submitted clinical data to the public on a daily basis.

The national authority also published a seven-point plan calling for its regional counterparts to step up efforts to verify clinical trial data. It asked provincial regulators to submit internally audited data for applications submitted after last July.

"The inspection work in some regions is not being taken seriously enough and the quality of inspection is too low," said the regulator in the announcement of the seven-point plan.

Regional drug administration inspectors who fail to screen subpar applications could be held equally accountable with the companies. "Small players who have a lower standard definitely have the risk of being forced out of the industry and have a lower chance to survive because they cannot meet the new standard," said Shao. "But that is good for big companies, like Sinopharm, which has invested in R&D, aiming to maintain a high quality for a very long time. They still need time to adjust to the new standard, but it's shorter [compared to small players] as they are better prepared for this new regulatory standard." Sinopharm Group Co. Ltd. is considered the largest pharmaceutical firm in China.

The clinical trial investigations could also mean faster drug approval for big pharma companies.

"They [big pharma companies] often have very strong product pipelines, ranging from oncology drugs to cardiovascular drugs. After all these unnecessary applications are taken out, the average approval speed will be accelerated in the future. It means it is going to be faster for them to push their new products to the market, which is good news," said Shao.

"There will be long-term gain for leading companies and the whole industry as now there is more transparency," she added. "We can expect more new drug approvals in the next year, and faster than before."

Along with the good news, though, the analyst mentioned that a further price cut initiated by the government, the main payer under the country's reimbursement system, cast a shadow for pharmaceutical companies in China, particularly foreign drugmakers.