China Drugmakers Decline on Corruption Crackdown

China Drugmakers Decline on Corruption Crackdown: Shanghai Mover

Jiangsu Hengrui Medicine Co. fell the most in almost three years in Shanghai trading as drugmakers declined after the Xinhua News Agency reported China is starting a campaign to crack down on illegal competition in the industry. Jiangsu Hengrui dropped 5.9 percent to 32.76 yuan at the close, the biggest loss since Oct. 11, 2010. Beijing SL Pharmaceutical Co. slid 5.8 percent to 55.59 yuan. A gauge of health-care companies fell 3 percent, the most among 10 industry groups on the CSI 300 index. The Shanghai Composite index dropped 0.9 percent and CSI 300 index lost 1.2 percent. “The crackdown on irregularities in the medical sector has undermined confidence among some investors and they expect drug prices to fall,” said Wu Kan, a Shanghai-based fund manager at Dragon Life Insurance Co., which oversees $3.3 billion.The campaign, which will last until the end of November, will target “commercial bribery” and “unfair competition” by companies abusing a dominant market position, Xinhua said, citing the State Administration for Industry & Commerce.

China has expanded its anti-corruption probe of pharmaceutical companies to drive down drug prices as it seeks to expand health care to the poor and uninsured. President Xi Jinping has made affordable health care a key part of the Communist Party’s agenda.

The National Development & Reform Commission is already investigating 60 foreign and local pharmaceutical companies in relation to pricing, the China Daily reported separately.

Sanofi, Glaxo

Authorities in the southeastern province of Fujian said 1,088 medical professionals from 73 hospitals were suspected of corruption after a six-month investigation, Xinhua reported on July 24. In southern Guangdong province, 39 employees of a hospital will be punished for taking illegal kickbacks from pharmaceutical companies, according to another Xinhua report.

Sanofi, France’s largest drugmaker, said on Aug. 10 it will cooperate with a review of its business in China after a newspaper reported this month a whistle-blower’s allegations that the company paid about 1.69 million yuan ($276,000) in bribes to 503 doctors in the country.

GlaxoSmithKline Plc, the U.K.’s largest drugmaker, is the subject of a corruption probe, and three other companies have been, or are in the process of being, examined by authorities. Johnson & Johnson was fined for monopolistic practices this month, while Eli Lilly & Co. was reviewed earlier this year by authorities in Shenyang, the company said on Aug. 1.

Authorities budgeted 850 billion yuan in April 2009 for an overhaul of the nation’s health care system to reduce the costs of essential drugs and provide more than 90 percent of the population with basic health insurance. Spending in the three years since then had exceeded 1.1 trillion yuan, Xinhua reported in March 2012.

To contact the reporters on this story: Weiyi Lim in Singapore at wlim26@bloomberg.net; Zhang Shidong in Shanghai at szhang5@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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