U.S. lawmakers pushed for the Biosafety Act, which would prohibit federal agencies or agencies receiving federal funding from purchasing equipment and services from Chinese biotechnology companies, and CXO companies such as WuXi AppTec were named.
Highlights:
More than 65% of WuXi AppTec's revenue in the first half of last year came from the United States.
WuXi AppTec clarified that it has never sponsored military-related projects and has not directly received such investments.
This article was written by Li Shida.
The competition between China and the United States is shifting from a first-class war, a scientific and technological war, and a financial war to a "medical war". On January 26, a report made the stock prices of many CXO (pharmaceutical foundry) companies in China echo the **, and the Senate and House of Representatives of the U.S. Congress crossed partiesProposals, which proposes to prohibit U.S. federal agencies from purchasing equipment and services from certain biotechnology companies. For Chinese CXOs, whose revenues come primarily from the United States, the bill can be a matter of life and death.
After the news was announced, he was namedWuxi AppTec New Drug Development Co., Ltd. ***(2359.hk; 603259.SH) stock price fell sharply in response to the A-share and Hong Kong stock markets, and its affiliatesWuXi Biologics(2269.hk)、WuXi XDC(2268.HK) was not spared. WuXi AppTec from the 25th ** price 76HK$2, 3 trading days**26% to 56HK$3; A-shares also fell by 22%; WuXi Biologics' share price fell 31%.
It is undoubtedly a heavy blow to WuXi Group, which just announced a large share buyback last month.
The new bill, known as the BioSecure Act, was introduced by Mike Gallagher, chairman of the House Committee on Strategic Competition between China and China. The bill mentions that China seeks to dominate biotechnology as an industry of the future, and that the country's biotech companies "have repeatedly cooperated with PLA entities" and that the authorities have the power to force them to hand over data.
Senator Mitt Romney, who introduced a similar proposal in the Senate, said that Chinese biotech companies are collecting genetic data from millions of people around the world through medical testing, and that many American citizens who have had their blood drawn do not know who has access to their DNA and sensitive data. As the biotechnology sector develops, China will be able to collect this data in large quantities and gain the upper hand in the future U.S.-China technology war.
The bill directly names WuXi AppTec, pointing out that it has sponsored "civil-military integration activities" and received investment in "civil-military integration**", and that its CEO Chen Zhisheng was once one of the professors of medical science and technology of the People's Liberation Army.
For these allegations, WuXi AppTec releasedVoluntary Announcements, saying that the content of the bill on WuXi is "inappropriate and inaccurate", reiterating that the company's development will not pose a risk to the security of any country, and clarifying that the company has never sponsored military-related projects and has not directly received relevant investments.
Is it a "very unlikely event"?
WuXi Biologics issued itClarification announcementIt refers to the fact that Chen Zhisheng's academic title in medical science and technology of the People's Liberation Army (PLA) was awarded as a courtesy after the only lecture he was invited to give in 2013, which is the practice of Chinese colleges and universities. It is emphasized that Chen has not worked for the Academy of Military Medical Sciences or any institution with a military background, nor has he received any remuneration from an institution with a military background.
The biosecurity law is only a proposal by an anti-China parliamentarian, and it is a very unlikely event to become a law, and it will take several years. Chen Zhisheng said.
The "extremely probability" incident in Chen's mouth almost overturned the company's efforts to save the stock price. After the company's clarification, WuXi shares continued**.
More than 80% of WuXi AppTec's revenue comes from overseas. According to the 2023 interim results, WuXi AppTec's overseas business accounted for 82% of total revenue, the United States accounted for more than 65%, and revenue from China accounted for only 17%. The same is true for WuXi Biologics, which generated 54% of its revenue in North America in the first half of last year.
"Fuji" in the eyes of pharmaceutical companies
WuXi is to European and American pharmaceutical companies what Foxconn is to Apple. European and American pharmaceutical companies are responsible for the development, branding and sales of new drugs, while CXO companies such as WuXi are responsible for the R&D, validation and production of relatively less sophisticated technologies, and provide outsourcing services. The concentration of top pharmaceutical companies in Europe and the United States means that China's CXO companies rely on overseas for their revenue, which is difficult to change.
Although many Chinese analysts believe that the chances of the bill being successfully enacted are not high, as the United States approaches, strategic competition with China will be examined at more levels. Companies like WuXi that work extensively with U.S. companies and have access to sensitive data are bound to be pushed to the forefront.
In fact, calls for a ban on Chinese companies in the biotech sector emerged as early as last November, when 16 conservative groups sent letters to the Senate and House of Representatives calling for amendments to the National Defense Authorization Act (NDAA) to ban "hostile biotech companies," particularly ChinaBGI(300676.sh) to sign a contract.
*In the 2024 National Defense Authorization Act finally signed by Biden, China-related technical cooperation and technology transfer are given special attention, especially in key areas such as new energy, biotechnology, and aerospace. Therefore, regardless of whether the bill eventually becomes law, the gradual tightening of cooperation between the United States and China in the field of biotechnology is already a factor that cannot be ignored.
Political risks have to be observed
However, some investment banks believe that the current market reaction is too violent, and Morgan Stanley issued a report pointing out that even if the bill becomes law, it will only restrict the outsourcing of projects that receive federal funding to overseas companies. As a cost-effective service provider, WuXi AppTec can benefit from the development of the biopharmaceutical industry. Daiwa said that WuXi Biologics had been excluded from the U.S. Department of Commerce's unverified list, which could be used as a reference for similar incidents, and upgraded WuXi Biologics' rating from "hold" to "**".
Pharmaceutical R&D remains a fast-growing area, with WuXi AppTec's P/E ratio falling to 15 times, lower than WuXi Biologics' 21 times and still higher than its peersGloria Young(6821.hk; 002821.SZ) 7 times withTigermed(3347.hk ; 300347.SZ).
According to the Frost & Sullivan Report**, the global outsourcing services provided by Chinese pharmaceutical R&D service companies will grow from 131.2 billion yuan in 2022 to 336.8 billion yuan in 2026, with an average annual growth rate of 266%。WuXi is like other CXOs in China, and it has to get through geopolitics first.