The Ministry of Finance of China issued the No. 40 Accounting Information Quality Inspection Announcement on April 12, imposing administrative penalties on 19 pharmaceutical companies. As early as 2019, Chinese regulators organized financial inspections of 77 pharmaceutical companies in China.
Among the 19 companies that were punished this time, many listed companies were involved, and the amount involved in Jiangsu Hansoh and other companies was as high as 130 million yuan. Four companies under Shanghai Pharma, a leading pharmaceutical distribution company, have been notified, and one company under China Resources Sanjiu, a leader in the OTC industry, has also been punished. In addition, multinational pharmaceutical companies are also involved, including Sanofi, Merck, and Eli Lilly.
Jiangsu Hansoh: “No such tickets” found 129 million yuan
Among the enterprises penalized by the Ministry of Finance in this round, Jiangsu Hansoh has a huge amount of money involved.
The inspection found that the company had the following problems: 1. The invoices for consulting review fees and advertising fees in 2018 were found to be “not found” or “inconsistent” after inquiries, involving an amount of 129 million yuan. Second, 27 information consulting service departments were falsely listed, and the consulting review fee amounted to 16 million yuan. Third, there is also false information about the conference expenses, involving an amount of RMB 2,740,600. Fourth, the inflated office supplies fee was 4,817,100 yuan, and some of the purchases indicated in the invoices did not exist at all. As a result, the Ministry of Finance of China imposed a fine of 50,000 yuan.
Jiangsu Hansoh is the operating entity of Hansen Pharmaceuticals, a Hong Kong-listed company. The company is the largest central nervous system disease pharmaceutical company and the fourth largest anti-tumor pharmaceutical company in China. These areas are precisely the “proliferation zones” of gold sales. Since 2018, the sales data disclosed by Hansen Pharmaceuticals has been above 3 billion yuan annually. Prior to this, together with Xinchen Pharmaceutical and Kexin Pharmaceutical, subsidiary of Hengrui Pharma, Hansoh subsidiary Hengte Pharmaceutical also fell into the “bribery gate”.
Hengrui Pharma: Non-company expenses emerge endlessly
Unlike Jiangsu Hansoh’s “confusing invoices” that exceeded 100 million yuan, Hengrui Pharma’s problems were concentrated on “non-company” issues.
The announcement shows that in 2018, the company reimbursed expert lecture fees, review fees, and hosting fees for air tickets that were not incurred by the company, involving an amount of 1.088 million yuan; air tickets and tolls that were not incurred by the company, consulting fees, advertising fees, etc. The invoice included the company’s employee welfare rewards, involving an amount of RMB 2,149,100. In addition, its affiliated Lianyungang Comprehensive Second Office reimbursed sales staff subsidies, gifts for customers, meals for academic activities and other expenses in 2018 with invoices for bridge tolls that were not incurred by the unit, involving an amount of 961,900 yuan. In terms of the punishment result, Hengrui Pharma was also fined 50,000 yuan.
Hengrui Pharma has always been a benchmark for A-share medicines, and has been hailed as the most successful case of transforming innovative medicines as a leader in chemical preparations. In June 2019, its Karelizumab was approved. In just half a year, the sales of this product exceeded 1 billion yuan, which is evident in the sales capacity. Although the company is recognized in the industry as the “research and development brother”, its sales investment is also substantial. From 2016 to 2019, the data were 4.352 billion yuan, 5.189 billion yuan, 6.464 billion yuan, and 8.525 billion yuan.
Shanghai Pharma: 20 million false travel and fake meetings
Shanghai Pharma is the company with the most “vest” in this round of investigations, and 4 of its subsidiaries were found to have irregular behaviors. They are Shanghai Xinyi United Pharmaceutical Co., Ltd., Shanghai Pharma Xinya Pharmaceutical Co., Ltd., Shanghai Xinyi Tianyi Pharmaceutical Co., Ltd., Shandong Xinyi Pharmaceutical Co., Ltd. (hereinafter referred to as Shanghai Xinyi, Shanghai Pharma Xinya, Xinya Yitianyi, Shandong Xinyi).
According to the investigation, the aforementioned companies have “feelings” on the expenses of travel, conferences, and academic activities. Among them, the Xinyi Pharmaceutical Division, a subsidiary of Shanghai Xinyi, inflated travel expenses of 20,033,600 yuan in 2018, and some of the invoices were fake invoices. Among the conference fees listed by Shanghai Pharma Xinya in 2018, there were acts of falsifying conference venues and sign-in forms, involving an amount of RMB 8,403,900. For these four subsidiaries, the Ministry of Finance has given a fine of 50,000 yuan.
For a long time, since its main business is pharmaceutical distribution and retail, Shanghai Pharma’s sales expenses can be said to be the “industry ceiling”. From 2016 to 2019, the company’s sales expenses were 6.067 billion yuan, 7.411 billion yuan, 11.058 billion yuan, and 12.856 billion yuan. However, during the same period, the company’s revenue scale was also very large. The revenue of the aforementioned four years reached 120.765 billion yuan, 130.847 billion yuan, 159.84 billion yuan, and 186.56 billion yuan.
China Resources Sanjiu: fake meetings, fake research, fake invoices
Also on the issue of the meeting was “captured” and Shenzhen China Resources Sanjiu Pharmaceutical Trading Co., Ltd. (Sanjiu Pharmaceuticals for short), a subsidiary of China Resources Sanjiu. According to the data, the company’s business scope includes the wholesale of medical equipment, Chinese patent medicines, biochemical drugs, chemical raw materials, chemical drug preparations, antibiotic raw materials and their preparations, Chinese herbal medicine pieces, health foods, etc.
According to the survey, in 2018, the problematic amount of the conference expenses of the company’s headquarters and the Guangdong area reached 88,481,200 yuan. Also in the aforementioned area, it still has the problem of false research fees, involving an amount of RMB 59,521,700. For these two items alone, the total amount of problems is over 130 million yuan. At the same time, the company also has fraudulent production costs for video shooting projects, involving an amount of 13.237 million yuan.
As a major OTC owner, China Resources Sanjiu has many ace products. 999 Ganmaoling, 999 Piyanping, Sanjiu Weitai, etc. are also placed as advertisements, appearing frequently in variety shows and film and television dramas. Based on this, its marketing expenses, which are reflected in the financial report, have been increasing year by year. From 2016 to 2020, China Resources Sanjiu’s sales expenses were 3.28 billion yuan, 4.75 billion yuan, 6.469 billion yuan, 6.55 billion yuan, and 5.015 billion yuan, respectively.
The industry’s stubborn illness needs to be addressed
If you look at the amount of money involved, Wanbang Marketing is also one of the companies with the highest amount of money involved in this financial inspection. The inspection found that Wanbang Marketing had invoices issued by third-party companies that had no substantial business dealings with the company in 2018, involving an amount of 140 million yuan. The Ministry of Finance imposed a fine of 50,000 yuan on him in accordance with the law.
Regarding how to improve the above issues, the reporter sent interview letters to the drug companies involved, but as of the time of publication, no reply letters were received.
The reporter noticed that, in addition to the problems of China’s large domestic pharmaceutical companies, some foreign companies have also been punished for financial irregularities. For example, in the 149 million yuan academic research fee of Sanofi (Beijing) Pharmaceutical Co., Ltd. in 2018, there were cases where the meetings were untrue or the doctor did not attend the meetings, and the amount involved was 938,200 yuan. Eli Lilly (Shanghai) Management Co., Ltd. failed to set up accounting books such as general ledgers and subsidiary ledgers in accordance with the provisions of China’s national unified accounting system. The accounting subjects of Merck Serono Co., Ltd. are set according to the unified code of the overseas parent company, and are listed in English, and Chinese are not used. The Ministry of Finance of China imposed a fine of 30,000 yuan on the aforementioned companies.
Regarding the issue of sales expenses for pharmaceutical companies, Shi Lichen, founder of Beijing Dingchen Medical Consulting, said in an interview with a reporter from International Finance News that false invoices are illegal and should be severely investigated, but the current penalties are obviously insufficient. The sharp increase in sales expenses of pharmaceutical companies year by year is related to the two-invoice system. Before the implementation of the system, pharmaceutical companies shipped at a reserve price; after the implementation of the system, since the distribution team must exist, more and more pharmaceutical companies are “opening higher and returning higher.” This pushed up sales expenses to a certain extent, causing sales expenses to soar.
Regarding the issue of how to reduce drug prices, Shi Lichen said that there are three main areas of work that can be done: First, accelerate the promotion of policies such as volume purchases and medical insurance catalog negotiations; Second, close the procurement of non-centralized drug purchases by hospitals and medical institutions Channels to further reduce drug prices; third, let more companies produce raw materials and encourage competition.
Source: International Finance News