China to audit Sanofi, Bristol-Myers in drugmaker accounts probe

[BEIJING] China will audit 77 major pharmaceutical companies, including the local arms of Sanofi, Eli Lilly & Co. and Bristol-Myers Squibb Co., after one of its largest listed drugmakers was found to have overstated its cash position by US$4.3 billion.

The list of drugmakers to be audited in June and July was randomly chosen, China's Ministry of Finance said Tuesday. It also includes China's biggest domestic drug firms, among them Jiangsu Hengrui Medicine Co. and Shanghai Fosun Pharmaceutical Group Co. The announcement triggered a drop of as much as 1.8 per cent in an index of health-care companies traded in Shanghai and Shenzhen.

Shandong Buchang Pharmaceuticals Co., whose chairman Zhao Tao was recently in the news for allegedly paying a US$6.5 million bribe to get his daughter into Stanford University, was also on the list released Tuesday.

The audit comes weeks after Kangmei Pharmaceutical Co., a producer of traditional Chinese medicines, said after a regulatory probe that it had used false documents and transaction records to overstate its cash holdings by 29.9 billion yuan. China is embarking on a major overhaul of its health-care system as its growing middle class demands better-quality medical access, and it's attempting to clean out errant firms from the sector, which run the gamut from those with accounting irregularities to makers of low-quality vaccines.

Stocks Roiled

China's regulators are also embarking on a campaign to drive down generic drug prices so that more money can be spent on new medicines. The new pricing policy has roiled Chinese pharmaceutical shares, as the sector largely relies on generic drug sales to prop up profit.

"Regulators also seem to want to find out the real cost of drugs as this audit may focus on looking into companies' sales expenses and costs," said Wang Ruizhe, analyst at Capital Securities Corp. "This paves the way for further drug price cuts."

A spokeswoman for Shanghai-based Fosun Pharmaceutical said the company had taken note of the ministry's statement but had no further comment. Other drugmakers didn't immediately respond to requests for comment.

The probe will be conducted by the finance ministry and China's National Healthcare Security Administration, which runs the nation's health insurance fund.

BLOOMBERG