Recently, the major event in the domestic pharmaceutical circle is the flash crash and dive of AH shares of CXO leader WuXi AppTec (02359).
According to Zhitong Financial APP, on the news side, the main reason for the sharp increase in WuXi AppTec's secondary market is a draft of the "Biosafety Act" submitted to the U.S. House of Representatives. In the draft, some lawmakers proposed to prohibit foreign biotechnology companies such as BGI and WuXi AppTec from receiving funds from U.S. taxpayers.
In fact, it is not uncommon for hawkish lawmakers to write small essays on Chinese companies in the first year of the United States this year, but this draft seems to have hit WuXi AppTec's "lung tube". According to WuXi AppTec's previously disclosed 2023Q3 financial report, its revenue in the United States was 19.4 billion yuan, accounting for 66% of the company's total revenue in the current period, so the business development in the United States has a significant impact on WuXi AppTec.
On January 26, after the negative news about the draft of the U.S. "Biosecurity Act" came out, it directly hit the stock price of WuXi AppTec on that day. On the same day, WuXi AppTec's A-shares fell to the limit, and Hong Kong stocks closed down 1643%。Although WuXi AppTec quickly issued an announcement on January 27 to explain and clarify, on January 29, WuXi AppTec's A shares still fell again, and Hong Kong stocks closed down 106%。
The turmoil continued to ferment in the follow-up, and it was not until the morning of February 5 that WuXi AppTec issued an "open letter to customers" to clarify the recent events again, and the trend of the secondary market improved. Although WuXi AppTec's A-shares still closed down on February 5, Hong Kong stock prices rose all the way in early trading, with the highest intraday increase of 984%, and finally closed up 4%, and the stock price trend showed signs of stabilization.
But even so, based on the ** price on January 25, until February 5, the maximum decline in the price of AH shares in the WuXi AppTec range reached 3833% and 4741%。
Another drama of "Congress singing, capital harvesting"?
The reason why WuXi AppTec encountered the "black swan" this time is the draft Biosafety Act submitted to the U.S. House of Representatives mentioned above.
According to Zhitong Financial APP, on January 25, Rep. Mike Gallagher from Wisconsin submitted a proposal of HR 7085 to the U.S. House of Representatives, the content of which is mainly based on the so-called "**", requiring U.S. administrative agencies not to use the biotechnology equipment and services of foreign biotechnology companies, and named two Chinese companies, BGI and WuXi AppTec.
This is the main reason for WuXi AppTec's stock price the next day. But in fact, as early as December 20 last year, US Senator Gary Peters submitted S. to the US SenateProposition 3558, which predates Mike Gallagher's HR 7085 but is highly consistent with it, also mentions sanctions against BGI and WuXi AppTec.
It is worth noting that the above two public proposals are similar in content, but the secondary market reaction is very different. Compared with the stock price on December 21 last year, WuXi AppTec's AH shares closed up 116% and 104%, which was not affected by it in the slightest, also shows that it seems that WuXi AppTec's ** cannot be explained only by "investor glass heart". This may be followed by "**
In fact, long before WuXi AppTec, BlackRock announced the sale of WuXi 559 on January 23550,000 shares, a record for the agency to sell the stock in the past year, but on January 26, BlackRock backsold nearly 11 million shares, trading higher than its selling price on the 23rd.
Obviously, BlackRock will not do this kind of loss-making operation of buying high and selling low, which means that its shorting income is much higher than the repurchase cost. The answer may lie in WuXi AppTec's abnormal refinancing data after January 25. According to the data, shortly after the news of the Biosecurity Bill bill spread, the number of WuXi AppTec refinancing bonds increased significantly within a few days.
On January 26, WuXi AppTec raised nearly 630,000 shares of A-share refinancing securities, more than 30 times the scale of the previous day. From January 26 to 30, the cumulative number of its refinancing securities exceeded 1.1 million shares, and the "short-selling bullet" with a high rate may be coming from this. BlackRock is not the only organization that has done this, but also Morgan Stanley. From January 18 to 23, it cut its WuXi AppTec A shares in half, but on the 26th and 29th, it backsold more than 3 million shares.
Dramatically, after BlackRock** 11 million shares of WuXi AppTec, a U.S. Senate aide and three other sources recently said that the so-called "Biosafety Act" would be adjourned.
With WuXi AppTec's Hong Kong stock turning red on February 5, the turmoil seems to have stopped for the time being. However, the unscrupulous shorting of WuXi AppTec by foreign investors has undoubtedly dealt another blow to the confidence of fragile investors, and it may be unknown when WuXi AppTec's share price will bottom out in an already uncertain market environment.
Under the superposition of bearishness, the long-term logic may be broken.
In its third-quarter report released on October 30 last year, WuXi AppTec lowered its full-year performance forecast, saying that "the company expects early drug R&D demand in the fourth quarter to be weaker than previously expected", and revised the revenue growth rate to 2%-3% from the original 5%-7%.
However, due to the recovery of pharmaceutical stock investment and the high-level drug speculation node at home and abroad at that time, WuXi AppTec's stock price did not fluctuate much in the subsequent November, but the "black swan" put WuXi AppTec in the market spotlight, allowing more investors to begin to analyze its subsequent growth from a fundamental perspective.
Judging from the results of the third quarter, WuXi AppTec achieved revenue of 106 in the third quarter700 million yuan, a year-on-year increase of 03%, and if specific new crown commercialization projects are deducted, the single-quarter revenue increased by 157%, lower than market expectations; The net profit attributable to the parent company for the current period was 276.3 billion yuan, a year-on-year increase of 077%, down 1214%。Compared with the previous average annual net profit growth rate of 70%, the single-digit growth rate is now a significant decline.
From the perspective of revenue composition, small molecule CDMO is WuXi AppTec's dominant business and the company's largest revenue**. In the first two years, driven by large new crown orders, the revenue contribution increased from 35% in the previous period to more than 50%; Drug discovery and preclinical research revenue contributed the next most, at 19% and 18%, respectively.
The main reasons for the company's downward revision are the sharp decline in orders for new crown drugs on the one hand, and the weakening of global demand for early-stage drug development on the other. In the third quarter of 2023, WuXi AppTec expects that by the fourth quarter of 2023, its revenue will come entirely from non-COVID commercial manufacturing projects.
With the full clearance of new crown orders, WuXi AppTec will once again return to the previous "end-to-end integration" business model of combining R (drug discovery) and D and M (process development and manufacturing), and WuXi AppTec's customers have also switched from "R" customers to "R+DM" customers in recent years. It can be seen that "drug discovery" is not only a business division of WuXi AppTec, but also an entrance to its customer traffic. From this perspective, it is not difficult to understand why the reduction in demand for new drug research and development will directly affect its subsequent order taking.
Combined with the previous communication between WuXi AppTec's management, although the inquiries of MNC multinational customers showed a recovery trend in the third quarter of last year with the liberalization of global health incident policies, long-tail customers still faced varying degrees of financing difficulties. Under this logic, the improvement of downstream biopharmaceutical investment and financing will directly affect the degree of recovery of WuXi AppTec's performance.
According to Zhitong Financial APP, in October 2023, the interest rate on 10-year U.S. Treasury bonds reached 502%, the ability to intercept the dollar has reached the extreme, and it has also reached the limit of the United States. The following December, the interest rate on the 10-year US Treasury fell to 386%, a decrease of about 1 4 from the peak, at this time, although the United States ** has not officially issued an interest rate cut, the market has chosen to vote with its feet. To some extent, this also indicates that this two-year U.S. interest rate hike cycle is coming to an end.
However, referring to the previous U.S. bond trading data, it is expected that the Federal Reserve will cut interest rates for the first time in May this year, and liquidity will be released, and it is expected that the global pharmaceutical primary investment and financing data will not improve until the second half of 2024 at the earliest.
In addition, the fulfillment of overseas orders of domestic CXO companies requires a cycle, so there will be a certain lag in the changes brought by downstream prosperity fluctuations to CXOs. Until then, WuXi AppTec's valuation will struggle to find a stable support point, and its downward trend may not end anytime soon.