Amid the escalating tensions between the United States and China, the U.S. is intensifying its scrutiny of Chinese companies within the biotech sector. A particular target is WuXi Biologics, the world’s third-largest biotech contract development and manufacturing organization (CDMO). This heightened scrutiny is anticipated to benefit competitors, notably South Korean firms.
On Feb. 12, a bipartisan group of four U.S. House of Representatives members sent a letter to Treasury Secretary Janet Yellen, Defense Secretary Lloyd Austin, and Commerce Secretary Gina Raimondo. They urged consideration of sanctions against Chinese biotech firms WuXi AppTec and its affiliate WuXi Biologics on national security grounds. The lawmakers accused WuXi AppTec of having deep ties to the Chinese Communist Party, including receiving investment from funds linked to the Chinese People’s Liberation Army.
The scrutiny from U.S. lawmakers towards Chinese biotech entities has heightened this year. Last month saw the introduction of the Biosecure Act by the U.S. House of Representatives, aiming to limit the operations of Chinese biotech firms in the U.S. to safeguard genetic data. The legislation mentions WuXi AppTec and BGI Genomics, a Chinese genetic data company. Moreover, the U.S. Active Pharmaceutical Ingredient (API) Innovation Center has set an ambitious target to produce 25% of all active small-molecule ingredients within the U.S. within the next five years, reducing dependency on Chinese biotech companies.
WuXi Biologics, which derives over half its revenue from North America, could face significant challenges from tighter U.S. sanctions. The Biosecure Act, if enacted, would bar U.S. government bodies, including public healthcare programs like Medicare and Medicaid, from engaging with WuXi AppTec. In a Jan. 29 letter to its investors, WuXi Biologics addressed concerns raised by the Biosecure Act, stating, “The U.S. Biosecure Act bill inaccurately portrays Chris Chen, CEO of WuXi Biologics, asserting that he neither has affiliations with Chinese military entities nor receives any form of compensation from them.”
Following the bill’s introduction on Jan. 26, WuXi Biologics’ shares plummeted by 18.2% to close at HK$24.55 and have continued to decline. The stock values of its parent companies, WuXi AppTec and WuXi Biologics, have also seen a significant downturn, dropping by over 40% this year.
The potential tightening of U.S. sanctions in the biotech industry is an opportunity for Samsung Biologics, a key competitor of WuXi Bio in the global market. As of 2022, Samsung Biologics is trailing WuXi Biologics, the fourth-largest player globally, by an estimated $375 million (500 billion won) in sales. However, this gap could close rapidly, given that CDMO contracts can often exceed $100 million (130 billion won) each.
An industry insider said, “Given the CDMO sector’s emphasis on stability and trust, it’s likely that clients of WuXi Biologics will switch to Samsung Biologics. Nevertheless, to capitalize on this shift, Samsung Biologics must ramp up its investments, especially as leading Japanese firms like Fujifilm are advancing aggressively in the market.”
