That's unfortunate. Clearly the adhesive has given way, but not sure why. Perhaps extreme heat if no water damage? Ours also gets very hot in summer but so far no issues like that. I suspect others might have good recommendations.
If it were me, before ripping it down or trying to replace paneling, I would try regluing. It wouldn't be perfect, but you could cut slits in the bubbled areas, use a Q-tip or other such thing to spread adhesive onto the panel, then press the bubble back in place working the excess glue toward the slit. Once the slit is closed back up, wipe the excess glue off. I did something similar with the "wood" look paper when I pulled some museum tape off and the paper came with it. I think you could get it to close up pretty well and may not be too noticeable when you're done.