Recently, at the hearing of the proposal of the U.S. Senate Homeland Security Committee, the "Biosecurity Act" (S3558) passed by 11 votes in favor and 1 against.
Biosafety Act (s.).3558) aims to prohibit U.S. federal agencies from contracting with BGI, WuXi and other biotech companies of concern.
The news caused WuXi to plummet its stock price. Why the crash? Because the vast majority of WuXi is overseas? For example, WuXi AppTec's overseas revenue accounts for 82%, and WuXi Biologics' overseas revenue accounts for about 79%.
Why is the proportion of overseas so high? Because WuXi is a pharmaceutical outsourcing company (CRO), there is very little demand for pharmaceutical R&D in China, while there is a lot of demand for pharmaceutical R&D in Europe and the United States.
The reason why big pharmaceutical companies in Europe and the United States are willing to hand over their business to domestic CRO companies is that they value the high cost performance of domestic CRO companies.
Pharmaceutical CRO has been developing rapidly in China for nearly 20 years, and WuXi alone currently has 60,000+ employees. However, due to the high degree of binding to overseas big pharmaceutical companies, there are also huge risks in the industry. "Sanctions" hang high over their heads, and every now and then they give these CRO companies a critical blow.
Taking WuXi Biologics as an example, due to the impact of the news, since December 2023, there have been 4 times when it has fallen by more than 15%: December 4, 23, **2379%；1/26/24, **1817%；February 2, **2066%；March 7, **2147%。
In fact, since the beginning of 2022, WuXi has suffered"Sanctions"Message impact. At the beginning of 2022, WuXi Biologics' stock price fell by more than 30% in a single day due to the "unverified list". The reason for the inclusion in the "unverified list" turned out to be that some of the hardware controllers and hollow fiber filters in the imported bioreactors used in the two factories were subject to US export controls.
What's next for WuXi Technologies? Hotspot Engine Program
In the author's opinion, the impact of the Biosafety Act on WuXi is more emotional, and the impact on its specific business is limited. The cooperation between domestic CRO and European and American pharmaceutical companies is the most efficient way, and if the cooperation is canceled, the impact on European and American pharmaceutical companies will be greater.
What WuXi really has to worry about is the rise of new forces such as India, and what CRO is pursuing is nothing more than a cost-effective price. Thanks to the huge engineer dividend, in the past 20 years, domestic CRO has conquered cities around the world. However, with the increase of domestic labor costs, competitive pressure has followed.
In the future, Indian CRO will be our biggest competitor. This is determined by the trend of the global industrial division of labor, and the industry will definitely flow to more cost-effective regions. Just like Foxconn's OEM, it will initially flow from developed countries to domestic coastal cities, then to inland cities, and finally to India and other places.
When CRO also begins to transfer, what we need to do is to upgrade the industry, do blockbuster drugs, top-level R&D, and drugs go overseas. These are the ways out for domestic pharmaceutical companies in the future.
At the moment, for domestic CRO companies, it is important to remember one thing: sanctions are not the most critical, the rise of competitors such as India is!