By Fineline Cube An anti-corruption crackdown announced by the National Health Commission (NHC) at the end of July has quickly begun to impact the healthcare industry. Unlike previous efforts led by local authorities, this campaign is being driven by central authorities, with the Commission for Discipline Inspection of the Central Committee of the CPC holding a mobilization meeting in conjunction with the launch. Provinces and cities, including Zhejiang and Guangdong, have introduced related policies to correct unhealthy practices in pharmaceutical procurement and sales, as well as medical services.
Unprecedented Impact on the Pharmaceutical Industry
The crackdown has been unprecedented, causing a significant shock to the pharmaceutical industry. Medical institutions have requested personnel to self-check and correct any unreasonable remunerations, proactively returning monies that could be construed as bribes, including sales rebates and lecture fees. This has led to share price declines for several China-listed pharmaceutical companies, with industry leader Hengrui Pharmaceuticals (SHA: 600276) experiencing a near-daily limit drop of 9.18% on August 2, 2023. Amid social media rumors, Hengrui denied that its offices had been raided but has reportedly disbanded multiple group chats related to “lecture fees” and recalled pharmaceutical representatives for internal training.
Investigations and Industry Response
As of 2023, at least 155 hospital presidents and secretaries have been investigated nationwide, more than double the number for the entire previous year, according to https://www.cnr.cn/. In July, Zhou Wei, chairman of Winning Health Technology Group Co., Ltd (SHE: 300253), a medical information company, and Fan Zhihe, chairman of Shanghai Serum Bio-Technology Co., Ltd. (SHA: 688163), an antivenom specialist, were investigated for suspected bribery and duty crimes, respectively.
Regulatory Warnings and Industry Costs
The Shenzhen Stock Exchange, in February, released a “Report on the Supervision of Commercial Bribery Related Issues in Shenzhen Pharmaceutical Companies,” warning against corrupt practices in the pharmaceutical industry. The report highlighted that the “cost of sales” reported by the pharmaceutical industry in Shenzhen is significantly higher than the average for other industries, with 18 listed companies having sales expenses accounting for over 50% of operating revenue. The report suggests that some companies’ sales expenses are almost entirely promotional, indicating a relatively high possibility of commercial bribery risk.-Fineline Info & Tech