AstraZeneca’s stock price dropped by 8.4% during Tuesday’s trading in London after a report fueled fears of a potentially escalating insurance fraud investigation in China.
The decrease marked the steepest drop for the company’s stock in a single day since March 2020, according to Bloomberg. The size of AZ’s market cap shrinkage on Tuesday, around 15 billion pound sterlings, was equal to roughly three yeas of the group’s total sales in China, ODDO BHF analysts pointed out in a note Wednesday.
The trigger of the sell-off, according to Bloomberg, was a scathing—but in many parts speculative—report by Chinese business news outlet Yicai. The Yicai report (Chinese), citing one person familiar with the matter, says an investigation into AZ’s China president and executive vice president of international markets, Leon Wang, is related to an insurance fraud case that first emerged about three years ago.
But AstraZeneca said on Wednesday that to its knowledge the investigation into Wang is separate from the health insurance fraud case, The Wall Street Journal reports. AZ said it believes Chinese authorities are looking into whether the company's employees had illegally imported the HER2-targeted antibody-drug conjugate Enhertu and the cancer immunotherapy Imjudo from Hong Kong to the mainland, as well as allegations that they had improperly collected patient data, according to WSJ.
Last week, AZ announced that Wang was cooperating with an ongoing investigation. Now, the British pharma confirmed that the senior exec had been detained, according to WSJ.
Chinese authorities have this summer detained several current and former AZ staffers in Shenzhen. The accusations include violation of Chinese data privacy laws around the improper use of patient data, and illegal import of unapproved drugs, Bloomberg reported in September, citing people familiar with the matter.
AZ said its two current and two former senior execs in China are under investigation, WSJ reports. These include its former China oncology business chief, Eva Yin, who jumped to BeiGene as chief commercial officer of Greater China in 2022. Yin's detention by Chinese authorities was reported in late October.
Besides the police, China’s Supervisory Commission, a government body with anti-corruption powers, also got involved in Wang’s case, Yicai reports, citing its sole source.
Given the nature of the allegations, “the financial impact could be significant,” ODDO BHF analysts wrote in their Wednesday note. The lack of clarity on the ongoing investigations naturally put pressure on AZ’s stock price and could remain so until more details emerge, the team said.
As to the insurance fraud case, Chinese authorities disclosed the case back in early 2022 in which certain AZ staffers in the Chinese city of Shenzhen were accused of doctoring patients’ genetic testing data to boost sales of the company’s blockbuster EGFR lung cancer drug Tagrisso. At that time, AZ said it identified the problem during an internal investigation in 2021 and voluntarily presented the findings to local authorities.
Back then, AZ depicted the case as confined to a handful of employees in Shenzhen. China’s National Healthcare Security Administration, which oversees the country’s national medical insurance fund, said that all suspects had been arrested. But the agency also said in its January 2022 announcement that it would be working with health and police departments to conduct a nationwide probe of similar defrauding behaviors.
Apparently, the investigation around AZ is far from over, according to the new Yicai report. Since then, the investigation, led by the Chinese Ministry of Public Security, has unearthed more cases in other parts of China, implicating higher-ranking regional sales executives at the British drugmaker, Yicai reports, citing the one source.
Under Wang’s leadership, AZ has enjoyed years of strong growth in China that was unmatched by its Big Pharma peers. But things took a turn around 2021, when two price-cutting initiatives separately targeting new and off-patent drugs pulled back AZ’s business.
As coverage by national insurance expands the reach of AZ’s newer drugs, the company’s performance in China has recently bounced back. In the first half of 2024, AZ’s China sales reached $3.4 billion, up 15% year over year, representing 13% of the company’s total haul during the period.
Editor's note: The story was updated Wednesday at 10:30 a.m. U.S. ET and Thursday at 4:20 p.m. U.S. ET to include additional information from a report by The Wall Street Journal and an analysis from ODDO BHF.