AstraZeneca PLC's (LSE:AZN) stock has suffered in recent days, losing 15% of its value as details emerged about ongoing investigations involving the company’s operations in China.
Shore Capital analysts have offered further insight into the factors impacting the Anglo-Swedish giant, noting that Chinese authorities are investigating several issues involving the drugmaker’s current and former employees.
AZ, however, has clarified that it is not a direct target of the investigation.
According to ShoreCap, one area under scrutiny relates to an insurance fraud scheme allegedly involving former employees who reportedly falsified genetic test results to secure reimbursement for the lung cancer drug Tagrisso.
This issue, though previously disclosed, has gained new attention as China enforces a sweeping anti-corruption campaign across its healthcare sector.
ShoreCap notes that while the allegations are serious, they focus on past activities by former AZ employees, rather than recent actions by the company itself.
A second part of the investigation involves four executives—two current and two former—who are alleged to have breached data privacy laws and imported unlicensed cancer medications from Hong Kong.
While the drugs involved have not been confirmed, the brokerage suggests they could include AZ’s leading cancer treatments, Enhertu, Imfinzi, or Imjudo.
ShoreCap points out that this incident highlights the challenges facing foreign pharmaceutical companies in navigating China’s stringent regulatory landscape, especially as the country tightens its data protection laws.
Further complicating AZ's situation in China is the recent investigation into Leon Wang, AstraZeneca’s China President.
Shore Capital states that Wang, who was instrumental in expanding the company’s footprint in China, has now been detained, although AZ has not been informed of specific charges against him.
ShoreCap cautions that Wang’s detention could signal increased scrutiny of foreign pharmaceutical companies in China and may prompt further regulatory hurdles for the drug giant.
Despite the setbacks, ShoreCap suggests the market response to AstraZeneca’s recent challenges in China may be exaggerated.
China accounted for approximately 13% of AstraZeneca’s total revenue in the first half of 2024, largely driven by its oncology portfolio.
Tagrisso alone represented around $500 million of these sales, underscoring the significance of China to AZa’s cancer drug strategy.
However, the broker believes AZ’s valuation should remain strong, projecting growth in both earnings and future pipeline developments.
The firm also sees the pharma group's stock as undervalued at its current level, trading at a forward earnings multiple of 14 times—below its historic average.
Looking ahead, ShoreCap suggests that AstraZeneca’s upcoming third-quarter earnings report could help alleviate investor concerns by providing clarity on its China business and reaffirming its growth prospects.
It maintains a “buy” rating on AstraZeneca, with a target price of 15,000p per share, emphasising that the company’s long-term growth potential could justify a premium valuation even amid China-related challenges.
In early afternoon trading, the stock was off 1.6% at 9,766p.