Ten years ago, the "anti-corruption storm" in China caused a dramatic change for the British pharmaceutical company GlaxoSmithKline (GSK). Ten years later, another British pharmaceutical company, AstraZeneca, once again stood on the edge of an avalanche.
On November 15th, Wang Lei, the President of AstraZeneca China, has been detained for half a month. So far, the outside world still knows nothing about the reason for Wang's investigation. Even Pascal Soriot, the global CEO of AstraZeneca, publicly stated that "this is part of an unknown investigation" and that "it is premature to draw conclusions at a very early stage".
An employee of AstraZeneca UK headquarters told First Financial reporters that both AstraZeneca headquarters and China have sent dedicated personnel to handle the latest cases in China.
Related lawyers told First Financial reporters that there are suspicious aspects to AstraZeneca's large-scale "insurance fraud case" that has not been filed against the unit, and Wang Lei's detention as the "top leader" of AstraZeneca in China may be the beginning.
The company distanced itself from personal connections
Although AstraZeneca headquarters has repeatedly emphasized that the current investigation only involves individual executives and the company has not yet become a target, Wang Lei, as AstraZeneca's most important figure in China, if his actions are not within the monitoring range of the headquarters, then the development of AstraZeneca China is also worrying.
AstraZeneca's latest statement states that in response to violations, the company has introduced resident compliance officers in each region and plans to regularly rotate regional sales supervisors to avoid "too much association with the local environment".
The crisis faced by AstraZeneca in China has disrupted the company's stable development in recent years, causing investors to panic. Over the past month, AstraZeneca's stock price has fallen by more than 18% and it has lost its title as the most valuable company in the UK's FTSE 100 index, replaced by Shell.
In the past week, AstraZeneca has responded to ongoing cases in China from CFO to CEO to appease investors. China is AstraZeneca's second largest market, second only to the United States. Investors believe that the more detailed the information disclosed by a company, the more reassuring it can be.
However, AstraZeneca did not disclose any new information regarding the case involving Wang Lei, but instead revealed that hundreds of former employees were prosecuted in the 2021 "insurance fraud case". AstraZeneca only recently disclosed the details of a criminal case with such a widespread impact, which was interpreted by the outside world as a slow response.
The case at that time involved falsifying the genetic test results of cancer patients, making these patients with "fake reports" eligible for medical insurance reimbursement of AstraZeneca's star cancer drug, Tiresa.
According to publicly available information online, pharmaceutical agents and their families who have been sued by AstraZeneca for insurance fraud have been engaged in a game with the company over the issue of refunds over the past few years. Among the employees who were sentenced, many were unable to provide compensation, and some wrote letters to Wang Lei and the company, hoping that the company would provide financial support. The majority of these employees' claims are that pharmaceutical agents work for the company, earning only a small profit, while the company takes the majority of the profits. However, in the end, all legal responsibilities are borne by pharmaceutical agents, which is unfair.
But most of their appeals have not been responded to, and AstraZeneca has never made a public response regarding arrangements for insurance fraud refunds. A relevant lawyer told a First Financial reporter, "There are indeed some suspicious aspects in the AstraZeneca case. Insurance fraud can be committed by units as the main body of the crime, involving large-scale insurance fraud. Units should also be defendants, but the specific case depends on the specific situation
He added that unit crimes often bear the responsibility of compensation, because it is impossible to make the unit fulfill its criminal responsibility, so the unit leader is ultimately sentenced. The GSK case was like this back then. At present, most lawyers believe that Wang Lei, as the "leader" of AstraZeneca China, can be understood as the "unit leader".
Another lawyer told a reporter from First Financial News, "Currently, online public information is fragmented and cannot represent the whole truth, so it is still difficult to judge whether a company should bear legal responsibility based on this information. Public security organs are particularly cautious about filing cases against multinational enterprises, especially in the current business environment
Will AstraZeneca become the next GSK?
AstraZeneca has over 16000 employees in China, including 12000 pharmaceutical salespeople, and there are not many multinational pharmaceutical companies with such a large sales team. And Wang Lei is the initiator behind the rapid expansion of AstraZeneca's sales team. His achievements were also quickly recognized - AstraZeneca China became the fastest-growing multinational pharmaceutical company in China and the undisputed "sales champion" for many years.
This radical approach was once recognized by AstraZeneca headquarters. Since taking charge of AstraZeneca for 12 years, Supco has fully shifted its focus to the oncology drug strategy. The fact also proves that this strategy is effective. AstraZeneca's latest third quarter financial report shows that the sales of its oncology division increased by 21% to $5.6 billion, accounting for over 40% of total revenue. The two drugs that have made significant contributions to the growth of AstraZeneca's oncology drug division are Tagrisso and Enhertu, both of which are involved in AstraZeneca's investigation.
Until the beginning of this year, Su Boke told investors, "Mr. Wang Lei, who has a strong sense of competition, wants to be the number one in every country. Growth is the real driving force for driving and stimulating vitality
But Suboko's enthusiasm cooled down from then on. On November 12th, he told investors, "Unfortunately, some employees may be tempted to maximize sales." He also stated that measures are being taken to further strengthen compliance, strengthen its compliance team of over 200 people in China, and introduce resident compliance officers to use artificial intelligence to review sales personnel's expense reports and monitor any improper behavior.
Subobo also mentioned that some employees use communication service tools such as WeChat to engage in illegal operations, which are not within the scope of the company's monitoring system. It is reported that the company's system only monitors internal information such as emails.
Although the nature of the AstraZeneca case is not entirely the same as the bribery case involving GSK ten years ago, the outcomes faced by the two companies may be similar. GSK has paid nearly £ 300 million in settlement for bribery allegations, and its highest ranking executives in China have also been expelled.
In the GSK case, the executives involved also advocated the business philosophy of "product oriented sales" and emphasized the sales method of "no cost, no sales" in order to achieve the high sales growth target set by the headquarters. They bribed hospitals, doctors, medical institutions, pharmaceutical related associations, and other pharmaceutical sales departments and their affiliated personnel to promote drugs and illegally obtained billions of yuan.
Compliance issues are fatal for a pharmaceutical company. Although AstraZeneca has not yet become a target at the corporate level, this incident is likely to trigger a major internal compliance rectification within the company. "A senior medical industry insider told First Financial reporters," GSK's lesson is profound. Ten years later, it has not fully recovered. AstraZeneca's negligence today may lay hidden dangers for its development in the next decade
At present, Wang Lei has not been charged, but he has hired a lawyer. The First Financial Journalist is unable to determine whether AstraZeneca headquarters has provided any assistance to Wang Lei in any way. At the same time, although AstraZeneca's business is still going on as usual, the investigation into Wang Lei is like a "time bomb" that could trigger a bigger "avalanche" at any moment.
A pharmaceutical investor told a First Financial reporter, "The country has a great determination to crack down on healthcare anti-corruption. Every pharmaceutical company, whether domestic or multinational, faces this reality. Enterprise managers must change their mindset. Behavior that was once seen as a daily operating cost may now constitute a crime, and these behaviors that were once commonplace and ignored will now be given renewed attention and subject to legal constraints
In China, multinational pharmaceutical companies have adopted different strategies, some are particularly aggressive, such as AstraZeneca, while others are relatively conservative, such as Bristol Myers Squibb (BMS). A former Chinese executive of a multinational pharmaceutical company told First Financial reporters, "AstraZeneca China has been considered a 'Chinese company' by the industry for many years, and it is paying the price for overly aggressive development
The above-mentioned individuals also stated that giant companies like BMS have been particularly strict in terms of risk control and compliance since their first day in China. This is related to the strategic priority of headquarters in the Chinese market. For some companies, the highest priority is compliance, not seeking high sales, but rather avoiding trouble, "he said.
He admitted that this is also related to the management style of Chinese executives. If Wang Lei, like the vast majority of Chinese CEOs of multinational corporations, had been obedient to their headquarters and dared not cross the line, then his performance would have been difficult to achieve today's level. Everything has two sides, "the person added.
Another medical institution insider told First Financial reporters, "AstraZeneca entered China as early as 1993 and knew the risks of operating in China, but it also achieved good results in China. Now the assessment of risks and returns needs to be recalculated. But it will definitely not give up on the Chinese market, so it must show 100% sincerity to solve this crisis