AstraZeneca shares experienced a significant decline of 8.4 per cent on Tuesday as a corruption investigation involving its Chinese leader has the potential to expand, creating uncertainty in the UK drugmaker’s second-largest market, where its operations are crucial to its overall success.
On Tuesday, the Chinese financial publication Yicai revealed that numerous executives have been entangled in an investigation concerning medical insurance fraud that could further complicate AstraZeneca’s position in the region.
This unsettling news surfaced shortly after AstraZeneca announced that its China president, Leon Wang, a prominent figure credited with overseeing a remarkable growth trajectory, was collaborating with “an ongoing investigation by Chinese authorities” following allegations of misconduct.
While the specifics of the probe involving Wang remain undisclosed, the drugmaker confirmed on Tuesday that it would refrain from commenting on “speculative media reports,” reiterating that its business operations in China are “ongoing” and that it would comply fully with any requests from Chinese authorities.
The sharp decline in share prices translated into a staggering loss of over $14 billion in AstraZeneca’s market capitalisation and underscores the critical importance of its Chinese operations for the company’s financial health.
This investigation forms part of a broader anti-corruption campaign launched by Chinese authorities to scrutinize the private sector, placing added stress on foreign enterprises grappling with intensifying competition from local firms and slowing economic growth.
The timing of the investigation is particularly crucial for AstraZeneca, which regards China as its second-largest market, following the United States. Under Wang’s leadership, AstraZeneca had been implementing a strategic plan aimed at localizing its supply chain while investing in Chinese start-ups focused on pioneering therapies.
With an ambitious target of reaching $80 billion in annual revenue by 2030—up from $46 billion in 2023—AstraZeneca is counting on growth in China to achieve this goal. The head of LEK Consulting’s healthcare practice in Shanghai, Helen Chen, emphasized, “AstraZeneca has gone above and beyond other companies to invest in China,” pointing out that it has not simply viewed the country as a market for selling or manufacturing drugs but has made substantial commitments of capital toward its growth and development.
The investigation into Wang is closely linked to AstraZeneca’s sales of its lung cancer treatment, Tagrisso. The drugmaker heavily marketed this oncology drug in China, a country that accounts for nearly 43 per cent of the world’s lung cancer cases, primarily due to elevated smoking rates and significant air pollution, as noted by the Global Cancer Observatory.
Until 2021, this best-selling medication was only eligible for national insurance coverage for patients presenting with a specific genetic mutation, a restriction that was lifted, allowing for broader access.
In a concerning trend, at least eight AstraZeneca sales representatives were convicted of fraudulent activities in the past two years for manipulating patients’ genetic test results to secure insurance coverage during a tumultuous period between 2020 and 2021, as revealed by a Financial Times review of Chinese court documents.
According to court records and public filings, state prosecutors alleged that fraudulent actions defrauded the government of several million yuan, leading to prison sentences for the salespeople that ranged from eight months to three years.
In a particularly striking case, three salespeople in their late twenties to early thirties were convicted of fraud in June for modifying medical records to inflate sales performance in Xining, located in Qinghai province.
AstraZeneca stated, “We have strong compliance policies in place and we expect our employees to operate fully in line with the rules and regulations in China.” The company has also reiterated its commitment to fully cooperating with the investigation into Wang, although it has withheld further comments.
Recent reports from financial news source Jiemian indicated that the former AstraZeneca head of oncology, Yin Min, had been detained, prompting inquiries into the extent of senior leadership’s awareness of the fraudulent activities, according to sources familiar with the matter. AstraZeneca has not commented on this assertion.
Tagrisso has been instrumental in driving AstraZeneca’s success in China, especially following the introduction of drug pricing reforms that adversely affected sales of several high-profit products. In 2019, Beijing implemented policies aimed at replacing foreign off-patent medications with more affordable domestic alternatives, negatively impacting sales of AstraZeneca’s heart medication Crestor, cancer treatment Iressa, and asthma drug Pulmicort.
Despite these challenges, AstraZeneca has been better positioned than some competitors to navigate these reforms, buoyed by its “big portfolio of innovative products,” including its lung cancer therapy, as highlighted by Chen. Additionally, the company’s diabetes medication, Forxiga, has helped cushion the impact of these lost sales.
The investigation into Wang, considered one of the most influential Chinese leaders within a global pharmaceutical entity, poses a significant challenge for AstraZeneca, where approximately 13 percent of revenues were generated from the country, amounting to $5.9 billion in sales last year.
Having joined AstraZeneca in 2013 from Roche, a Swiss pharmaceutical group, Wang was appointed as the country president the following year and was a key player in implementing localization strategies and expanding sales channels, including the establishment of facilities in hospitals to showcase its respiratory products to physicians.
Through robust sales performance, Wang effectively transformed AstraZeneca’s China business into a potent entity with considerable operational autonomy, as reported by individuals close to the company.
“With the scale that AstraZeneca achieved, it is appropriate that they have more autonomy. Leon became the face of how multinational corporations can have strong Chinese leadership,” observed Chen.
This autonomy facilitated Wang’s initiative to collaborate with the China International Capital Corporation, a state-backed investment bank, in launching a $1 billion investment fund aimed at nurturing local start-ups. AstraZeneca has also entered several partnerships with local governments to establish regional headquarters equipped with innovation centers designed to attract top talent.
Over the past year, the company has aggressively pursued investment opportunities with Chinese drugmakers and products. In December 2023, AstraZeneca made headlines by acquiring Chinese group Gracell Biotechnology for a substantial $1.2 billion, and in October, it licensed a cholesterol-lowering drug from CSPC Pharmaceutical Group in a deal that could be worth up to $2 billion.
As investigations surrounding AstraZeneca intensify, the eventual impact on its sales and growth strategy in China remains uncertain. Chen remarked that the company “has tried to be a good China corporate citizen.”
Additional reporting by Clive Cookson in London
**Interview with Helen Chen, Head of Healthcare Practice at LEK Consulting, Shanghai**
**Interviewer:** Thank you for joining us, Helen. AstraZeneca’s shares have dropped significantly on news of a potential corruption investigation involving its China president, Leon Wang. How do you see this affecting AstraZeneca’s operations and reputation in China?
**Helen Chen:** Thank you for having me. The decline in AstraZeneca’s shares certainly reflects the uncertainty surrounding the investigation. With China being AstraZeneca’s second-largest market, any potential ramifications can greatly affect their credibility and operational stability in the region. Leon Wang has been pivotal in driving the company’s growth, and an investigation into his leadership could pose a challenge not just to their sales but also to investor confidence.
**Interviewer:** You mentioned Wang’s leadership. Can you elaborate on his contributions to AstraZeneca’s growth in China?
**Helen Chen:** Absolutely. Under Wang’s leadership, AstraZeneca invested heavily in localization efforts and sought to build partnerships with Chinese start-ups. Their strategic move to adapt to local markets has positioned them favorably, especially in oncology with their lung cancer drug Tagrisso. Wang’s experience and insights into the Chinese healthcare landscape have been invaluable, which makes this investigation even more concerning for the firm.
**Interviewer:** The investigation appears to be part of a wider anti-corruption campaign in China. How should foreign firms approach this environment?
**Helen Chen:** The current landscape is quite challenging for foreign enterprises. Companies like AstraZeneca need to be very proactive about compliance and transparent in their operations. It’s critical for them to have robust compliance programs in place and to cultivate relationships with local stakeholders to mitigate risks. The scrutiny from authorities is only likely to intensify, so adaptability and vigilance are key.
**Interviewer:** AstraZeneca’s Tagrisso has been a considerable success in China, particularly due to high lung cancer rates. How might this investigation affect access to such critical treatments?
**Helen Chen:** That’s a very important question. Tagrisso’s success is rooted not just in demand but also in its accessibility through state insurance policies. If this investigation leads to reputational damage or operational changes, it could disrupt supply chains or pricing strategies, ultimately affecting patient access. We have to keep in mind that the Chinese healthcare market is very competitive and dynamic, and AstraZeneca must tread carefully to maintain its market position.
**Interviewer:** Given the financial implications, with a significant market capitalization loss, what steps should AstraZeneca take moving forward?
**Helen Chen:** They need to prioritize transparency and communication with both investors and regulators to navigate this crisis effectively. Reassuring stakeholders about their commitment to compliance and ethical practices will be crucial. Additionally, maintaining a strong focus on innovation and continuing to invest in the growth of their portfolio will help stabilize their presence in China amidst this challenge.
**Interviewer:** Thank you, Helen, for sharing your insights. It will be interesting to see how AstraZeneca manages this complex situation moving forward.
**Helen Chen:** Thank you for having me! It will indeed be crucial to watch how they respond in the coming weeks.
