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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

To contact the editor responsible for this story: Michael Patterson at mpatterson10@bloomberg.net

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