China to Audit Drugmakers After Kangmei Pharma Overstated Cash by USD4.3 Billion
Chen Yikan
/SOURCE : yicai
China to Audit Drugmakers After Kangmei Pharma Overstated Cash by USD4.3 Billion

(Yicai Global) June 4 -- Chinese authorities will comb the accounts of 77 drug-making companies after Kangmei Pharmaceutical, one of the country's biggest listed drugmakers, was found to have overstated its cash position to the tune of USD4.3 billion in 2017. Shares fell.

The finance ministry and the National Healthcare Security Administration will look into the books of firms including the local units of Sanofi, Eli Lilly and Bristol-Myers Squibb as well as domestic players such as Beijing Tongrentang between June and July, according to a document seen by Yicai Global.

The ministry has issued a notice about accounting inspections in the pharmaceutical sector, an insider confirmed to Yicai Global.

The financial probe comes after the China Securities Regulatory Commission started an investigation into Kangmei Pharmaceutical, which fabricated its accounts from 2016 to 2018. The company's figures for revenue, costs, expenses, receipts and payments do not matching the facts.

The list of drugmakers for inspection also includes Shanghai Fosun Pharmaceutical Group, Jiangsu Hengrui Medicine, Shandong Buchang Pharmaceuticals, China Resources Sanjiu Medical & Pharmaceutical and Tasly Pharmaceutical Group.

Medical and healthcare index components fell more than benchmarks in Shanghai and Shenzhen today, dropping 1.71 percent compared with 0.96 percent and 1.23 percent. Shares of Fosun Pharmaceutical [SHA:600196], Hengrui Medicine [SHA:600276], Buchang Pharmaceuticals [SHA:603858], Sanjiu Medical & Pharmaceutical [SHE:000999] and Tasly Pharmaceutical [SHA:600535] fell 3.04 percent, 1.88 percent, 0.44 percent, 2.17 percent and 1.88 percent, respectively.

The audits will focus on three areas, the notice said. First, whether the firms squeezed a large amount of cash with invoices for consulting commissions, conference fees, accommodation charges and transportation costs. Second, whether medical institutions transferred meeting expenses, office costs and equipment purchase charges to the drug companies. Third, whether the firms paid kickbacks to medical staff in the name of expert consulting fees, research and development dues and marketing fees.

The inspections will also check whether these firms deliberately increased production costs and rebated part of their sales to medical institutions and staff.

The regulators will also expand the probe to the drugmakers' affiliates, advertising agencies, and consultants, the notice said, adding that if necessary, extended inspection of medical institutions was also a possibility.

Editor: Liao Shumin

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Keywords: Finance Ministry , National Healthcare Security Administration , Kangmei Pharmaceutical