AstraZeneca shares fell 8.4 per cent on Tuesday as a corruption purge involving its China chief risked spiralling wider, clouding the outlook within the drugmaker’s second-largest market.
On Tuesday, Chinese language publication Yicai reported that dozens of executives have been implicated in an investigation of medical insurance coverage fraud.
The report got here after AstraZeneca disclosed final week that its China president Leon Wang, a high-profile govt who has overseen a interval of robust progress for the corporate, was co-operating with “an ongoing investigation by Chinese language authorities”.
The drugmaker has not revealed particulars of the probe involving Wang. On Tuesday, it mentioned it didn’t touch upon “speculative media experiences”, including that its operations in China have been “ongoing” and “if requested, we’ll absolutely co-operate with the Chinese language authorities”.
Three individuals conversant in the matter mentioned the investigation into Wang was associated to firm salespeople being discovered responsible of fraud and imprisoned in China after “tampering” with affected person take a look at outcomes. If Wang is discovered to be implicated, the fallout from the probe might widen to incorporate extra employees, one of many individuals added.
The share worth drop led to a greater than $14bn fall in AstraZeneca’s market capitalisation and highlights the significance of its Chinese language operations.
The probe is a part of a sweeping anti-corruption crackdown on the non-public sector by Chinese language authorities, including to mounting pressures within the nation for overseas corporations, together with rising competitors from home rivals and faltering progress.
It comes at a pivotal second for the overseas drugmaker, which counts China as its second-largest market after the US. Wang had been spearheading a technique to localise the availability chain and put money into start-ups researching breakthrough therapies within the nation.
AstraZeneca is banking on progress in China to assist attain its goal of $80bn in annual income by 2030, up from $46bn in 2023. “AstraZeneca has gone above and past different corporations to put money into China,” mentioned Helen Chen, head of LEK Consulting’s healthcare follow in Shanghai. “It hasn’t simply handled it as a spot to promote or manufacture its medicine however has dedicated critical capital.”
The probe into the corporate’s China president pertains to AstraZeneca’s gross sales of its lung most cancers remedy, Tagrisso. The drugmaker had closely promoted the oncology drug in China, which has 43 per cent of the world’s lung most cancers instances attributable to excessive smoking charges and air air pollution, based on the International Most cancers Observatory, a most cancers knowledge platform.
The most effective-selling drug was solely eligible for nationwide insurance coverage protection for sufferers with a selected genetic mutation till 2021 when protection was expanded.
Prior to now two years, at the very least eight AstraZeneca salespeople have been discovered responsible of fraud after altering the genetic take a look at outcomes of sufferers so as to qualify for protection between 2020 and 2021, based on a Monetary Occasions evaluate of Chinese language court docket paperwork.
State prosecutors alleged that the state was defrauded of a number of million yuan, based on the court docket paperwork and public filings. The salespeople got jail sentences starting from eight months to a few years.
In a single case, three salespeople of their late twenties to early thirties have been convicted of fraud in June for tampering with medical data so as to increase their gross sales efficiency in Xining in Qinghai province.
AstraZeneca mentioned: “Now we have robust compliance insurance policies in place and we anticipate our workers to function absolutely consistent with the principles and laws in China.” The corporate mentioned within the assertion final week that “if requested, AstraZeneca will absolutely co-operate with the investigation” into Wang. It had no additional touch upon the investigation.
Final month, monetary enterprise publication Jiemian reported that former AstraZeneca head of oncology Yin Min had been detained. Authorities are attempting to determine how a lot the senior management knew concerning the fraud, based on the individuals conversant in the state of affairs. AstraZeneca declined to touch upon the report.
Tagrisso has been pivotal for AstraZeneca’s latest success in China after modifications to drug pricing resulted in plummeting gross sales of a number of profitable merchandise. In 2019, Beijing launched reforms to interchange overseas off-patent drugs with cheaper home alternate options, hitting gross sales of the corporate’s coronary heart medication Crestor, most cancers remedy Iressa and bronchial asthma drug Pulmicort.
AstraZeneca has been higher positioned than some rivals to climate the reforms attributable to its “large portfolio of revolutionary merchandise to plug the hole, together with its lung most cancers remedy”, mentioned Chen. Its diabetes medication Forxiga has additionally helped offset losses.
The probe into Wang, thought-about by trade insiders as essentially the most influential Chinese language chief at a worldwide pharmaceutical firm, is a problem for AstraZeneca’s fortunes in a rustic the place it derives 13 per cent of its revenues, with $5.9bn of gross sales final 12 months.
Wang, who joined the corporate in 2013 from Swiss pharmaceutical group Roche, turned the nation president a 12 months later and drove a localisation technique to widen its gross sales channels, which included constructing services in hospitals to introduce physicians to its respiratory merchandise.
By means of booming gross sales, Wang constructed the China enterprise into an unbiased fiefdom with important management over its operations, based on individuals near the corporate.
“With the size that AstraZeneca achieved, it’s acceptable that they’ve extra autonomy. Leon turned the face of how multinational companies can have robust Chinese language management,” mentioned Chen.
The autonomy allowed Wang to spearhead a partnership with state-backed funding financial institution China Worldwide Capital Company to launch an funding fund with a goal dimension of $1bn to incubate native start-ups. AstraZeneca additionally signed a number of agreements with native governments to construct regional headquarters with innovation centres to draw expertise.
Over the previous 12 months, the corporate has additionally joined a rush of overseas pharma corporations investing in Chinese language drugmakers and merchandise. In December 2023, it purchased Chinese language group Gracell Biotechnology for $1.2bn and in October licensed a cholesterol-lowering drug from Chinese language biotech firm CSPC Pharmaceutical Group in a deal price a possible $2bn.
Because the investigations into AstraZeneca intensify, it’s unclear how they’ll have an effect on its China gross sales and progress technique. As Chen put it, the corporate “has tried to be a very good China company citizen”.
Further reporting by Clive Cookson in London
