China’s probe into AstraZeneca Plc has reached its uppermost echelons, ensnaring local president Leon Wang and throwing into question the future of the most successful Western pharmaceutical company in the country.
The investigation is focused on aggressive sales tactics used in at least two of its oncology drugs, the lung cancer treatment Tagrisso and the immunotherapy Imjudo, people familiar with the matter said.
In the Tagrisso case, some employees involved have already been given lengthy prison sentences, the people said, asking not to be identified as they’re not authorized to speak publicly. Wang’s detention signals that authorities suspect that top management were aware of, or sanctioned, breaches that include doctoring patient results for insurance reimbursement.
The crackdown comes after years of efforts to boost China sales by AstraZeneca, which is widely seen in the pharmaceutical industry as the most successful at navigating Beijing’s abrupt regulatory shifts. The British drugmaker has also been the most willing among Big Pharma to slash the prices of its innovative therapies to be included in the country’s national insurance, and in recent years has embarked on an expansion of local manufacturing.
That China is now disciplining one of its staunchest foreign corporate allies has sent shockwaves through the industry, with AstraZeneca’s stock down as much as 5.5% on Wednesday. It also signals to drugmakers that bold sales tactics are being closely watched by Beijing despite the country’s need for innovative and life-saving medicines in everything from cancer to rare disease.
“This may have a chilling impact on the industry and shows that the anti-corruption campaign is lingering,” Bloomberg Intelligence analyst Leslie Yang said.
A representative for AstraZeneca did not immediately respond to requests for comment.
Patriotic leadership
Wang’s involvement is a dramatic twist of fortune for one of the most widely-revered figures in the local pharmaceutical industry. The announcement comes after Eva Yin, the company’s former head of oncology who reported to Wang, was detained.
Often donning traditional Chinese garments in public appearances, Wang caused a stir last May when he reportedly vowed to “build a local, transnational company that loves the Communist Party and loves the country” at a company event. Under his leadership, AstraZeneca’s China sales grew from just 7% of total revenue in 2013 to 20% at its peak in 2019, giving it the highest exposure to China among its peers.
But it also got hit hard when China radically reformed its generic drug market in 2019. Beijing’s push to replace expensive foreign brands of off-patent medications with cheap domestic generics saw AstraZeneca lose substantial revenue in treatments like cancer drug Iressa and heart medicine Crestor.
The biggest blow came with its asthma treatment Pulmicort, whose sales plummeted from $1.46 billion in 2019 to $645 million in 2022.
Sales growth in China slowed from more than 30% in the 2010s to single digits in recent years. Revenue, which peaked in 2021 at $6 billion, fell to $5.8 billion the following year and hasn’t fully recovered.
Wang pivoted, doubling down on innovative medications for which China was still willing to pay top dollar, and deploying a massive sales force to win doctors and patients over.
AstraZeneca managed to get its groundbreaking therapies—Tagrisso among them—approved by China’s drug regulator in as quickly as six months, followed by entry into its state medical insurance list that would allow the massive patient population to access the treatment at a much lower price.
Signaling its commitment to Chinese sales, AstraZeneca agreed to deep cuts to prices—Tagrisso’s price was cut by nearly 60%—in order to get onto China’s national insurance reimbursement list when peers like Merck & Co balked.
The drive for success created immense pressure within the company to perform, particularly in the burgeoning oncology unit. In the wake of detentions, letters allegedly from the detained employees’ families spread online, accusing the company of enriching itself at the expense of workers.
Local Chinese biotech companies managing to develop similar ground-breaking cancer treatments at a cheaper price were another source of competitive pressure.
Media reports paint a picture of sales people taking unorthodox methods to chalk up orders. In the Tagrisso case, which started in 2022, AstraZeneca employees allegedly helped alter genetic test results so that patients who wouldn’t have qualified for reimbursement of the drug—which was granted only to people with a certain genetic mutation—could get insurance coverage.
In the Imjudo case, AstraZeneca employees may have been linked to efforts to smuggle the immunotherapy, which is approved in other parts of the world but not China, into the country. The drug is widely used along with the company’s other key cancer drug, called Imfinzi, as a combo therapy, incentivizing the company to offer it locally.
Greater scrutiny
Multinational pharma companies have come under regulatory scrutiny in China in the past. In 2013, GSK Plc admitted that its sales organization bribed doctors and hospital officials into prescribing its drugs, issuing a public apology and paying a $490 million fine.
Despite the country’s hunger for innovative medication, the probe shows that cost control remains a priority for policymakers, analysts said, especially as the population rapidly ages.
“Considering long-term population trends, we believe increased oversight on state medical insurance is a long-term trend,” said Zhang Jialin, an healthcare analyst at Nomura International HK.
“Increase in revenue will no longer be the top priority; promoting medicines in line with regulations and laws will become the standard for all companies,” he said. “Foreign corporations will also expand their review on compliance in assessing their Chinese businesses.”
When asked about the company’s troubles in a September interview with Bloomberg, AstraZeneca chief executive officer Pascal Soriot said the company has strong compliance policies but it is “impossible” to have a compliance officer for every field representative. It is also investigating and working with authorities, he said.
“Actually what the government is doing is not affecting us only, it’s affecting other companies, and it’s a good thing because we need to really make sure that we can operate in a very compliant environment in China like in the rest of the world,” he said.
