WuXi AppTec Co. and WuXi Biologics Cayman Inc., two Chinese biotech service providers, saw their stock jump Monday after a draft US bill that would have eliminated their pivotal position in worldwide drug research lost its final significant window for enactment this year.
Early Monday trading in Hong Kong saw a 12% increase in WuXi AppTec’s shares, bringing the company to its highest level in two months. In Shanghai, MGI Tech Co. increased 4.3%, while WuXi Biologics had a 13% gain.
The companies, who faced the possibility of being excluded from federally-funded contracts, are relieved that the so-called Biosecure Act is not included in the proposed revisions to the US National Defense Authorization Act. Global pharmaceutical companies would have an incentive to cut their connections with Chinese contract manufacturers and drug development as a result of such restrictions.
The most recent development is a setback to a convoluted legislative endeavour that was previously generally anticipated to be finished by the conclusion of 2024. The introduction of a waiver program, the clarification that Medicare and Medicaid reimbursement is unaffected, and the inclusion of a grandfather clause that gives US companies until 2032 to terminate their relationships with the named Chinese firms are just a few of the changes made to the bill since its introduction late last year that have lessened its impact.
The window before the US Congress goes on recess is getting smaller, but there is still a chance that the law may pass.
鈥淭his seems a blue sky scenario exceeding investor expectations,鈥� Jefferies analysts led by Cui Cui said in a note, as they reiterated WuXi Bio as their top buy.
Additionally, it represents a short-term victory for these targeted Chinese businesses and industry associations that aim to lessen the disruption to medication research. According to Jefferies analysts, a new administration would have to start the legislation over if the law doesn’t pass by the end of the year and expires. It is unlikely that Biosecure will return next year, they noted because many think President-elect Donald Trump’s administration would be more business-oriented and welcome the medicine cost savings that Chinese service providers can offer.
It was deemed a “strong positive development” by Morgan Stanley analysts for WuXi brands and other Chinese businesses that provide contract R&D and manufacturing services with large foreign revenue exposures.
Uncertainties Ahead
Biosecure proponents have pointed to national security issues with human genetic data and supply networks. On the other hand, US biotech and pharmaceutical firms have warned that severing their close connections with WuXi businesses may cause delays and disturbances in the creation of new drugs.
Even though Biosecure passed the House last September, there has been growing resistance in recent months as prominent politicians have voiced their disapproval of the bill’s designation of certain firms without following the proper procedures.
The law may undergo additional changes even if it moves forward. According to Politico and Endpoints News, lawmakers are thinking of reaching a compromise by including an executive branch review on which companies will be subject to the limitations. This was reported last week. For the businesses that are currently listed in the draft, that might provide even more breathing room.
鈥淲uXi Biologics has been diligently working to educate Members of Congress about the company, including that we are not a national security threat, that we do not handle human genomic data, and we are fully independent fofother companies named in the Biosecure Act,鈥� a spokesperson for the company said in an email.
MGI Tech, WuXi AppTec, and WuXi Bio have all seen declines of over 30% thus far this year. However, WuXi AppTec, one of the biggest suppliers of medicinal research and manufacturing services worldwide, has maintained a strong overall company. Although a smaller subsidiary focused on innovative therapies underperformed, the company has maintained steady sales from its core operations.
鈥淲e continue to provide lawmakers and federal agencies with the facts about our company and educate them on the valued services we provide customers in the U.S. and around the world,鈥� a WuXi AppTec spokesperson said in an email.
The three companies listed in the Biosecure Act鈥擬GI Tech, BGI Group, and Complete Genomics Inc.鈥攔efused to comment.
