By Brenda Goh and David Stanway

SHANGHAI (Reuters) – China’s health regulator has ordered local medical institutions to stop using a heart drug from Zhejiang Huahai Pharmaceutical Co Ltd, in a directive that comes just days after another case of a tainted medical product.

Public confidence in domestic-made drugs has been shaken since Huahai’s case came to light at the beginning of July, followed by a government investigation concluding Changsheng Bio-technology Co Ltd sold a substandard rabies vaccine. The prices of healthcare shares have since dropped.

In the Huahai case, the European Medicines Agency found the firm’s valsartan blood and heart drug tainted with an impurity linked to cancer, saying the issue likely dated to changes in the firm’s manufacturing processes in 2012.

Huahai has since halted production and recalled the product. On Monday, it said its other products did not contain the impurity – NDMA – and that there was not enough data to categorically conclude it has carcinogenic effects on humans.

China’s National Health and Family Planning Commission, also on Monday, said on its website that the drug must not be used for diagnosis or treatment. It was not clear whether medical institutions could be penalized for non-compliance.

The regulator also said six local firms used the drug in their own products, of which five have issued recalls. It said the sixth, a subsidiary of Zhuzhou Qianjin Pharmaceutical Co Ltd, had not distributed its products.

Qianjin in a statement said it returned its stock of valsartan after Huahai halted production, and that none of its products were affected by Huahai’s recall.

Alex Jiang, a Hong Kong-based analyst at UOB Kay Hian, said the Huahai incident could affect China’s roughly three-year effort to export locally made drugs, impacting not just drugmakers but also other firms involved in the push.

“Their drug products could receive stronger supervision from the (United States’) Food and Drug Administration,” he said.

An index tracking the share prices of major Chinese healthcare firms closed 2.9 percent lower on Monday, for the index’s third consecutive day of loss.

In the Changsheng case, police on Sunday said it had applied for arrest warrants for 18 people at the firm, which the government investigation found had falsified data and sold ineffective vaccines for children.

Changsheng previously apologized for the incident. Calls to the company seeking comment on Sunday went unanswered.

(Reporting by David Stanway and Brenda Goh; Editing by Muralikumar Anantharaman and Christopher Cushing)