As the U.S. Biosecurity Act continues to stir concerns in the market, WuXi AppTec is seeking to sell its cell and gene therapy manufacturing division, WuXi Advanced Therapies, located in Philadelphia. WuXi Biologics, on the other hand, is exploring the sale of some of its production facilities in Europe.

According to a report by the Financial Times, WuXi AppTec has put its WuXi Advanced Therapies division up for sale, which operates four labs and production facilities in Philadelphia. These discussions have been ongoing for months, and the company has already been in talks with competing contract manufacturers about acquiring all or part of these assets.

Meanwhile, WuXi Biologics is working with advisors to gauge market interest in some of its European production sites. The primary assets under review include two German facilities purchased from Bayer, which WuXi Biologics heavily expanded last year. The company also has large production facilities in Ireland.

WuXi AppTec stated it is “evaluating” various options and will continue its advanced therapies business “in line with our priorities: our employees and the patients who need critical, urgent, and life-saving treatments.” WuXi Biologics commented that it “routinely reviews its business with a focus on delivering strong returns for our investors on all assets. We do not comment on market speculation.”

In recent months, new business in Europe has dwindled, partly due to concerns related to the Biosecurity Act among U.S. biopharmaceutical companies that hold or are seeking federal contracts. In the first half of 2024, WuXi Biologics' revenue from European customers dropped by 27% year-on-year to RMB 1.8 billion (USD 260 million). WuXi Biologics said: “We continue to maintain strong business momentum, securing new projects across the U.S., EU, China, and other parts of Asia.”

In August, WuXi Biologics announced that it had added 61 new projects in the first six months of 2024, half of which were from the U.S., surpassing the 46 projects added in the same period in 2023. Most new projects focus on preclinical drug candidates. Revenue in the first half of 2024 grew by 1% year-on-year, reaching RMB 8.6 billion (USD 1.2 billion), and its backlog of pending orders stands at USD 20.1 billion.

During the same period, WuXi AppTec's sales declined by 9% to RMB 17.2 billion (USD 2.4 billion). However, the company noted that, after adjusting for pandemic-related revenue, the decrease was only 1%. WuXi AppTec also reduced its workforce by nearly 3,000 employees in the first half of 2024.

Data from GlobalData shows that both WuXi AppTec and WuXi Biologics play crucial roles in the U.S. and global pharmaceutical supply chains. They have been involved in producing AbbVie's USD 3.5 billion cancer drug Imbruvica, Pfizer’s COVID-19 treatment Paxlovid, and numerous other drugs. Although the two companies are related, they operate independently. According to AlphaSense, over 20 pharmaceutical companies, including AbbVie, have flagged their reliance on these firms in regulatory filings this year.

WuXi AppTec and WuXi Biologics are among five Chinese companies targeted by the Biosecurity Act, which would prohibit U.S. pharmaceutical firms that have federal contracts from using services provided by Chinese companies after 2032. Last month, the act passed overwhelmingly in the U.S. House of Representatives and is now under review in the Senate. With the designation of WuXi AppTec as a “biotechnology company of concern,” its stock price fell by 14%, while WuXi Biologics' shares have dropped nearly 30% this year. The combined market value of the two companies is around USD 36 billion.

One provision of the Biosecurity Act allows existing contracts with WuXi AppTec to remain valid, meaning few U.S. clients are required to cut ties with the company immediately. However, both companies are struggling to attract new clients. WuXi AppTec's revenue is expected to slightly decline compared to 2023, and with the U.S. elections in November, WuXi AppTec executives noted that time is running out for the act to pass in this legislative session.

Sources familiar with the sale process suggest that these assets may ultimately not be sold. WuXi AppTec and WuXi Biologics are carefully weighing their options, as the companies may no longer require as much capacity as previously thought. One source mentioned that if existing clients continue to use WuXi AppTec’s European factories, WuXi Biologics might choose to retain them, as it will take time for the Biosecurity Act to fully take effect.

One rare bright spot was WuXi AppTec’s announcement in last month’s investor update, which noted that its core chemical division (excluding the advanced therapies unit) continued to benefit from new clients and increased activity in the first half of the year. Its stock price surged nearly 24%, marking the biggest intraday gain since its IPO in 2018.

Data source: https://www.ft.com/content/540412cb-7273-4ae4-a890-9d432db8e0be