WuXi AppTec looks to unload its Philadelphia manufacturing sites and WuXi Biologics slows its rapid expansion in the U.S. as the companies await the Senate’s review of the BIOSECURE Act that threatens to cut them off from U.S. biopharma.
While WuXi Biologics was at first spared from being named in the BIOSECURE Act when it was introduced to U.S. Congress late last year, a revision of the bill introduced in May added the Chinese-based contract development and manufacturing organization. Over the past five months, WuXi Biologics’ stock has at times fallen by more than 50%, and the company reported a drop in net profit of 24% in the first half of 2024.
The U.S. is particularly important for the company. With the market representing some two-thirds of its revenue this year, WuXi Biologics had been engaged in a rapid build out of its infrastructure in the country, as recently as January announcing plans to invest in expanding capacity within its network.
With the BIOSECURE Act looming, these plans are now in question, with at least one facility under construction in Worcester, Massachusetts, currently paused. There has also been a slowdown in expansion investment, Max Smock, an analyst at William Blair, told BioSpace.
Smock further noted that there is the potential that WuXi Biologics could be looking to divest the facilities. Indeed, last week The Financial Times reported that WuXi Biologics is considering the sale of some of its production sites in Europe, while another company named in the legislation, WuXi AppTec, is looking to sell its Philadelphia facilities involved in cell and gene therapy manufacturing. WuXi Biologics’ stock was buoyed by the news, climbing over 20% after the potential sale was announced.
However, he said that from a strategic perspective, unless WuXi Biologics needs the capital, selling its U.S. facilities would not help the company in the short term. WuXi Biologics did not respond to BioSpace’s request for comment.
The U.S. House of Representatives recently passed the bill with bipartisan support in a 306-81 vote. John Strom, special counsel at Foley & Lardner, told BioSpace that the bill is highly likely to become law and that he expects it will be packaged with the National Defense Authorization Act to go before the Senate after the 2024 presidential election.
What Are WuXi Biologics’ Options?
The BIOSECURE Act aims to restrict American companies from working with specific Chinese firms, now including WuXi Biologics, along with WuXi AppTec, BGI (formerly known as the Beijing Genomics Institute), Complete Genomics and MGI.
John Strom, special counsel at Foley & Lardner, told BioSpace that naming specific companies is unusual but is part of a broader strategy that is emerging in the geopolitical competition with China. “If there are ‘national champions’ that Congress is specifically concerned about, the trend is increasingly to identify them by name,” he explained.
WuXi Biologics currently has four U.S. locations: Boston and Worcester, Massachusetts, Cranbury, New Jersey, and King of Prussia, Pennsylvania. As of the beginning of this year, the company employed over 400 workers across its network, which had been set to increase to over 600 through the previously mentioned Worcester site expansion.
The Financial Times suggests that both WuXi Biologics and WuXi AppTec will likely look to divest some of their sites due to reduced demand—though the article noted that the former company may retain its locations in Europe should clients continue to demand its services. Speaking on the rumors, Strom suggested that “an early sale, when there are likely multiple companies interested, has advantages to a later sale, after the BIOSECURE Act becomes law and the guidance and regulations are being issued. Practically speaking, moving early gives the companies more leverage to get a good price.”
Strom continued that even if the bill does not become law, the risk for companies doing business with either WuXi AppTec or WuXi Biologics has become so high in the U.S. as to make divestment inevitable. However, he added that any sale would still be dependent on the Chinese government’s approval.
Alison Labya, business fundamentals analyst at GlobalData, raised a similar point about how the BIOSECURE Act could lead to political wrangling over the future of such sites. She told BioSpace that the company could face pressure from the U.S. government to sell its U.S.-based facilities to non-Chinese companies. This prospect may face complications “if China’s restrictions on foreign investment prevent the selling of facilities to non-Chinese companies,” Labya added.
If China bars the sale of the facilities, the capacity for clinical research and manufacturing services in the U.S. could drop significantly. Strom explained that there is a chance that China will decide to “take their product home with them.” Rather than continuity for the facilities, the technology and the employees, this could see the research and manufacturing equipment simply disassembled and repatriated, he said.
The BIOSECURE Act Rocks US Biopharma
As WuXi Biologics mulls over its options for how to handle its U.S. presence in the face of BIOSECURE, U.S. partners are also preparing for the likely separation. A May 2024 survey by the Biotechnology Innovation Organization (BIO) found that 79% of the 124 companies that responded have at least one contract with or purchase one product from China-owned or -based CDMO/CMOs, while an analysis by GlobalData estimates there are 120 U.S. biopharma drugs currently being developed in partnership with the Chinese companies named in the bill.
The GlobalData research also noted that companies such as Merck, Gilead and Vertex had outlined the potential for delays in clinical trials, regulatory submissions and drug launches as a result of the BIOSCURE Act. To guard against such delays, the CDMO industry and its clients in the U.S. are rushing to reorganize. Massachusetts-based iTeos Therapeutics, for example, stated in an SEC filing that it had already begun the work of transitioning from WuXi Biologics and WuXi AppTec to other manufacturers.
The latest version of the BIOSECURE Act includes a grandfather clause that would permit existing contracts with the companies named to be maintained until 2032. Representative Jamie Raskin explained that the updated bill “includes several provisions that were designed to address concerns raised in the drafting process, particularly about potential supply chain disruptions and drug shortages.”
However, this grace period might not give companies sufficient time to find alternative CDMO partners. In the same SEC filing from iTeos, the company noted that decoupling from the Chinese companies “may take longer than expected due to challenges inherent in technology transfer.”
Strom agreed that the process of “disentangling” the relationships between U.S. and Chinese companies “is not that easy.” He explained that for years there had been incentives and encouragement from the U.S. to develop these kinds of partnerships with China, and the demands of the BIOSECURE Act are therefore an about-face in directives. “It is going to be tough to navigate,” Strom said.
