Why AstraZeneca risks Trump's wrath with bet on China

Yahoo

16 hours ago

When Pascal Soriot flew in to speak at the Boao Forum in China this year, many expected him to keep a low profile. With Donald Trump and Xi Jinping firing shots at each other in an ever-escalating trade row, it was presumed that the AstraZeneca boss would want to keep his head down.
Yet Soriot was happy to make his position clear: 'The two large innovators in our industry today are the US and China,' the no-nonsense Frenchman said on the sidelines of the forum, and China was set to 'emerge as really a driving force for innovation in our sector'.
Days later, Soriot was one of 40 Western executives summoned to a gathering with Xi Jinping, orchestrated to cement ties between global corporations and Beijing. 'China is absolutely open for us,' Soriot said.
Such statements threaten to thrust AstraZeneca into the spotlight at a time when US and China leaders are painfully sensitive to where companies are spending their cash.
In recent months, Trump has sought to exert growing power over where companies are investing. In particular, he is keen to ensure it is not in China.
Trump has threatened heavy tariffs on Apple unless it moves its manufacturing out of China and the trade deal with the UK struck earlier this year handed the US a 'veto' over Chinese investment in Britain.
While the US president's focus has so far been on pulling manufacturing jobs back to America, many company chiefs are wary of finding themselves in Trump's firing line. For pharmaceutical companies, there are particular risks.
Trump this year threatened new tariffs on pharmaceuticals, adding: 'When they hear that, they will leave China.' The US is currently in the middle of an investigation into drug imports, which could be a precursor to action.
For AstraZeneca, which does not ship drugs between the US and China, it may seem like they should be immune. Yet Trump's unpredictability means nothing can be assumed – and the president has been clear he wants companies to invest in the US, not China.
The president's push to make multinationals choose between the US and China is awkward for AstraZeneca, Britain's biggest pharmaceuticals company.
AstraZeneca has been in China for more than 30 years and is the largest drugmaker in the country. It made its first foray into the US in the 1970s and now makes 42pc of its revenues there.
Both countries have benefited from recent investment from the British drugmaker. Last November, AstraZeneca put $3.5bn into the US to expand its research and manufacturing facilities. It unveiled a $2.5bn (£2.6bn) new centre in Beijing in March. Two weeks ago, AstraZeneca announced a new strategic partnership with China's CSPC Pharmaceuticals Group, worth up to $5.3bn.
Michel Demaré, the company's chairman, insists the business is above the fray.
'When you are a global company like AstraZeneca you have always to cope with geopolitical risk,' he told the Financial Times in 2023. 'You have to try to manage that without getting too involved.'
Yet taking a studiously neutral approach is becoming ever more difficult.
When it comes to Trump, 'the company will have to manage a tightrope to ensure that they are not going to be penalised for their commitment to China and the wider Asian region,' says Ketan Patel, a fund manager at Whitefriars who is an AstraZeneca investor.
Over the past few years Soriot has not been shy in voicing his admiration of China. This year, he said that the nation was paving the way in fast-moving areas including antibody drug conjugates and cell therapy.
'They're very committed to China,' says Emily Field, a Barclays analyst who follows the company. 'And that's because there's going to be this huge volume opportunity where Chinese local players are not able to produce drugs.'
Patel believes recent pledges from AstraZeneca to do more research in the country and strike deals with Chinese biotechs are a risk move.
'Research and development is a long duration activity and the current partnerships with local players is very much at a nascent stage.'
It is not hard to see why some investors are nervous. This year, more than 100 of AstraZeneca's former sales staff were jailed in China over alleged medical insurance fraud. The National Healthcare Security Administration claimed AstraZeneca staff had been involved in scamming medical insurance companies.
At the same time, Chinese authorities have been investigating alleged illegal imports of unapproved medicines. AstraZeneca has said it risks millions of dollars worth of fines.
Perhaps most seriously for AstraZeneca is the situation surrounding Leon Wang, its country president in China. He was then detained in China last autumn amid an investigation into AstraZeneca's activities in the country and remains in detention today.
AstraZeneca says it has been unable to speak to him. 'We all think [about] and miss Leon,' Soriot said this year. 'We certainly wish him the best and we all hope that he's in good, good shape and dealing with a very difficult situation in the best possible way.'
Wang has been put on 'extended leave' and replaced for now. Amnesty International said earlier this year the case raised 'difficult ethical questions' about AstraZeneca staying in China.
The drugs giant argues that its role as a manufacturer of medicine means it has a moral right to be in as many countries around the world as it can. It has, for example, kept operating in Russia even as other companies have quit over the war in Ukraine.
Still, AstraZeneca is not just remaining in China but ramping up its investments.
With Beijing pushing to make the country a better place to create new drugs and run clinical trials, Soriot has hailed the country's pharmaceutical market as 'incredible'.
By the end of last year, AstraZeneca had over 200 projects in development in China. The company, which currently has around 40 medicines in China, has around 100 new medicines expected to be approved in China in the next five years.
Soriot argues that he has little choice but to turn to China, given ever increasing tax and red tape in Europe make it harder to get things done. In April, Soriot said the continent was 'falling behind in attracting R&D and manufacturing investments, putting its ability to protect the health of its own people at risk'.
There is a potential for things to change. This week, UK ministers have been thrashing out plans to try to boost Britain's competitiveness in an effort to attract more life sciences investment from the likes of AstraZeneca.
On Thursday, talks were under way to try to come to an agreement on the contentious issue of NHS charges paid by drugmakers. Labour is expected to publish its own overarching life sciences strategy imminently.
For now, though, AstraZeneca is focused on China – despite the risks of angering Trump.
'Of course, the US remains extremely important,' Soriot said in April. 'It's the biggest innovation part of the industry. But China is rapidly ramping up and so it's important for us to remain very committed to China.'
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