A proposal in Congress to restrict the U.S. activity of some Chinese biotechs on national security grounds—a priority that has supporters among both Republicans and Democrats—has taken its toll this year on the stocks of two contract development and manufacturing organizations (CDMOs) based in China.
And that toll could increase since biosecurity will be among topics to be discussed at bipartisan hearings in the U.S. Senate that were announced Wednesday and are expected to take place in coming weeks.
Among possible legislative solutions to be discussed by the Homeland Security and Governmental Affairs Committee will be the BIOSECURE Act (H.R. 7085), which would forbid the awarding of federal contracts—including procurement of drugs for Medicare and Medicaid—from being awarded to “foreign adversary biotech companies of U.S. national security concern.”
Notably, the BIOSECURE Act was introduced in January by the Republican chairman and Democratic ranking member of the U.S. House of Representatives’ Select Committee on the Strategic Competition between the United States and the Chinese Communist Party, Mike Gallagher (R-WI) and Raja Krishnamoorthi (D-IL), respectively.
The measure has been referred to the House’s Committee on Oversight and Accountability.
Gallagher said Friday he will vacate his seat and depart Congress on April 19, avoiding a party primary he was reportedly facing this year after he was one of three House Republicans to vote against impeaching U.S. Homeland Secretary Alejandro Mayorkas last month: “I’ve worked closely with House Republican leadership on this timeline and look forward to seeing Speaker Mike Johnson appoint a new chair to carry out the important mission of the Select Committee on the Chinese Communist Party.”
The BIOSECURE Act cites four Chinese companies by name, including two CDMOs that have grown in recent years—and also provide contract research services, which is why they also refer to themselves as CRDMOs. One is WuXi AppTec (2359.HK), which describes itself as “provid(ing) R&D & manufacturing services enabling companies in the pharmaceutical & biotech industries worldwide to advance discoveries.” The other is WuXi Biologics (2269.HK), which calls itself “a global open-access biologics technology platform offering end-to-end solutions to empower organizations to discover, develop and manufacture biologics from concept to commercial manufacturing.”
WuXi AppTec spun off WuXi Biologics in 2017; both are now separate companies. The other companies mentioned in the BIOSECURE Act are BGI Group (300676.SZ), MGI Tech (688114.SS), and its U.S. subsidiary Complete Genomics.
“Unfortunately, this legislation will succeed only in driving BGI out of the U.S. and will not accomplish its stated goal. Rather, the bill will further strengthen the effective market monopoly held by one company that controls more than 90 percent of the market,” BGI stated. It did not name the company, but market watchers believe it to be Illumina (ILMN).
“There is no basis for the inclusion of Complete Genomics in the BIOSECURE Act, and similar bills,” Complete Genomics declared in a February 22 “Open Letter to the Genomics Community.”
On the Hong Kong Stock Exchange, where both Chinese CDMOs trade shares, WuXi AppTec has seen its stock price tumble 51% since January 2, from HKD 75.10 ($9.60) to HKD 37.05 ($4.74) on Friday. WuXi Biologics has fared slightly worse, plummeting 54% from HKD 28.55 ($3.65) to HKD 13.04 ($1.67).
Shrinking market cap
As a result, WuXi AppTec has lost more than one-third (about 37%) of its market capitalization—the product of the share price and the number of outstanding shares—since the start of the year, going from $28.369 billion on January 2 to approximately $18 billion as of Friday. WuXi Biologics’ market cap has sunk by more than half (55%), going from $15.636 billion to about $7.1 billion.
Behind the big drops is investor worry about the effect of the BIOSECURE bill on both companies, since the U.S. accounted for 65% of WuXi AppTec’s 2023 revenues, the company has disclosed—as well as 46% of sales for WuXi Biologics in the first half of 2023, according to Nomura Securities. (An updated percentage should emerge when WuXi Biologics reports full-year 2023 results on March 25).
The sliding stock prices include a 7.5% decline to HKD 39.55 ($5.06) for WuXi AppTec on March 19, after the company reported fourth-quarter and full-year 2023 results. WuXi AppTec saw its net profit rise 21% from 2022, to RMB 10.69 billion ($1.479 billion) under International Financial Reporting Standards (IFRS), on revenue that rose 2.5% to RMB 40.341 billion ($5.58 billion). The revenue jump would have been about 26% had COVID-19 commercial projects been excluded.
WuXi AppTec also projected 2024 revenues of between RMB 38.3 billion ($5.298 billion) and RMB 40.5 billion ($5.602 billion), for a growth rate of 2.7% to 8.6% when COVID-19 projects are excluded. That investor guidance was “significantly lower” than what a consensus of analysts had estimated, John Yung, head of Asia healthcare research at Citigroup, and colleagues wrote in a research note.
During its quarterly earnings call, WuXi AppTec co-founder, chairman and CEO Ge Li, PhD, insisted to analysts: “Our company has not been subject to any sanctions and does not pose a national security risk to any country.”
Echoing Li on the call was Edward Hu, vice-chair and chief investment officer: “The company has been actively working together with its advisers to set the record straight and advocate for changes to the proposed legislation.”
Different picture
However, the BIOSECURE Act paints a different picture of the company, declaring: “WuXi AppTec presents a national security threat to the United States.”
The bill supports that contention by citing that the company:
- Sponsored Military-Civil Fusion (MCF) events in China, according to reports in the state-controlled Chinese press. The U.S. State Department in 2020 described MCF as “an aggressive, national strategy of the Chinese Communist Party (CCP). Its goal is to enable the PRC [People’s Republic of China] to develop the most technologically advanced military in the world.”
- Received investments from a ‘‘Military-Civil Integration Selected Hybrid Securities Investment Fund,” controlled by the Peoples’ Liberation Army (PLA).
- Granted awards to researchers and invited 16 PLA institutes to participate in the selection process of company awards, also according to Chinese press accounts.
Earlier this month, WuXI AppTec parted ways with a key U.S. biopharma industry group, the Biotechnology Innovation Organization (BIO), after Gallagher requested that Attorney General Merrick Garland direct the U.S. Department of Justice to investigate the group. Gallagher argued that BIO’s earlier lobbying efforts for WuXi suggested it was advancing the interests of China and the Chinese Communist Party by operating as an unregistered agent of a foreign company.
A headline in a BIO-branded newsletter raised the possibility that the organization “may expel member WuXi AppTec,” before BIO revised a statement to emphasize that WuXi AppTec left BIO “proactively.”
“Our adversaries abroad have stated that they intend to become the biotechnology center of excellence in the world. America and our allies cannot let this happen,” vowed BIO president & CEO John F. Crowley, in an announcement referring to himself as “a combat veteran and former Naval Intelligence Officer with JSOC [Joint Special Operations Command], and member of the U.S. Intelligence Community.”
“Securing and advancing our preeminence in biomanufacturing will be one key component of a multi-prong approach to secure and advance this strategic imperative in biotechnology,” Crowley added.
“Brain control”
The BIOSECURE Act also alleges that WuXi Biologics CEO and executive director Zhisheng (Chris) Chen, PhD, “previously served as an adjunct professor” at the PLA’s Academy of Military Medical Sciences (AMMS). The U.S. Commerce Department added AMMS to the Entity List of institutions determined by the U.S. government to be acting contrary to U.S. foreign policy or national security interests, after concluding that “AMMS and its eleven research institutes use biotechnology processes to support Chinese military end uses and end users, to include purported brain-control weaponry.”
“Unfortunately [China] is choosing to use these technologies to pursue control over its people and its repression of members of ethnic and religious minority groups,” U.S. Commerce Secretary Gina Raimondo stated at the time.
In a statement to the Hong Kong Stock Exchange, WuXi Biologics termed Chen’s role as adjunct professor “an academic designation granted as a courtesy after a one-time guest lecture in 2013, a common practice in Chinese universities.
“The Company’s understanding is that Dr. Chen had no other engagement with the institution prior to or since then. He has neither worked for the Academy of Military Medical Sciences or any military-affiliated institution, nor has he received compensation from military-affiliated institutions,” WuXi Biologics countered.
The BIOSECURE Act substantially resembles S.3558, a bill introduced in the U.S. Senate in December 2023 by Sens. Gary Peters (D-MI), Chairman of the Senate Homeland Security and Government Affairs Committee, and the committee’s ranking member, Bill Hagerty (R-TN).
S.3558 is headed to the Senate floor after the Senate Committee on Homeland Security and Governmental Affairs voted 11–1 to report the bill out of committee—another sign of bipartisan support. Only Sen. Rand Paul (R-KY) voted against the measure, citing anticompetitive concerns (“By banning certain companies, we’re advantaging certain other companies”), and what he said was the need for further study on whether the bill would trigger supply chain disruptions that ultimately raise drug costs for consumers.
Peters plans to present a final draft of the bill to the Senate, along with a favorable committee report.
Last month, Peters and Hagerty joined Gallagher and Krishnamoorthi in signing a letter to Raimondo, U.S. Defense Secretary Lloyd Austin, and U.S. Treasury Secretary Janet Yellen. In the February 12 letter, the lawmakers requested that their agencies consider adding WuXi AppTec and WuXi Biologics to the Department of Defense’s Chinese Military Companies List (1260H list), the Department of Commerce’s Bureau of Industry and Security Entity List, and the Department of Treasury’s Non-SDN Chinese Military-Industrial Complex Companies List.
“WuXi AppTec and WuXi Biologics are rapidly becoming a global pharmaceutical and research-services giant that threatens U.S. intellectual property and national security. Both companies have close ties to the CCP and have worked at its behest, in multiple instances,” the letter stated.
“Positive energy”
Li “has personally commended CCP branch work in the company and has called on party branches and members to play an active role in the company,” according to the letter. That contention is based on a 2013 account from a Chinese government website that according to a Google Translate said in part: “Teams of party members are active in each building on the WuXi AppTec campus. They are willing to serve as “catalysts” for innovation and development, delivering positive energy among employees.”
Li has overseen WuXi AppTec’s growth from four co-founders and a single 7,000-square-foot chemistry lab in December 2000 to a global R&D powerhouse with 41,000 employees based at 32 sites worldwide. WuXi Biologics has more than 12,000 employees in China, the U.S., Ireland, Germany, and Singapore, as of June 30, 2023 supported 286 preclinical projects 269 early-phase clinical trials, 44 late-phase clinical trials, and 22 commercial manufacturing projects, according to its website.
WuXi Biologics and WuXi AppTec will be discussed at the upcoming Senate hearings announced Wednesday by Peters and Paul.
In addition to biosecurity, topics under review will include what the senators deem high-risk life science research, synthetic biology, biosafety and biosecurity lapses, early warning capabilities for emerging outbreaks or possible attacks, and potential origins of the COVID-19 pandemic.
Paul stated that he will press witnesses about COVID-19 origins and the need for improved federal oversight of biotech research: “In order to prevent a more catastrophic pandemic from occurring, we must understand the nature of U.S.-funded biotechnology and hold accountable those who engage in risky gain-of-function research.”
Added Peters: “Biotechnologies, such as CRISPR, are rapidly advancing, and our understanding of biological risks and threats is constantly evolving. While many of these advancements have the potential to greatly benefit Americans, we must also ensure we are addressing and minimizing the serious risks they can also pose to our health and national security.”
Leaders & laggards
- Endo International (ENDPQ) shares on the Over-the-Counter market plunged 62.5% on Tuesday, from $0.0008 to $0.0003, after the company—which was once large enough to rank on GEN’s A-List of Top 25 Biotech Companies of 2015—announced that the U.S. Bankruptcy Court for the Southern District of New York has confirmed its Chapter 11 reorganization plan, enabling the company to complete its financial restructuring. “Substantially” all of the company’s assets are being sold to a new entity, Endo Inc., over 95% of which is owned by holders of the company’s first lien debt. The transaction is expected to close as early as late April 2024 upon receiving final regulatory approvals and satisfying customary closing conditions.
- Fusion Pharmaceuticals (FUSN) shares all but doubled, zooming 99% on Tuesday from $10.64 to $21.18, after the developer of next generation radioconjugates as precision medicines announced it is being acquired by AstraZeneca for up to $2.4 billion. The deal includes a non-transferrable contingent value right (CVR) of $3 per share cash payable upon achieving a regulatory milestone—acceptance by the FDA of Fusion’s first submission of a New Drug Application or a Biologics License Application, and confirmation of FDA acceptance, for any product that contains its lead candidate FPI-2265, a Phase II prostate-specific membrane antigen (PSMA)-targeting potential treatment for metastatic castration-resistant prostate cancer. As part of the deal, AstraZeneca will acquire the cash, cash equivalents and short-term investments on Fusion’s balance sheet, which totaled $234 million as of December 31, 2023.
- Seelos Therapeutics (SEEL) shares slid 29% on Tuesday, from 92 cents to 65 cents, after the company acknowledged that its amyotrophic lateral sclerosis (ALS) candidate SLS-005 (IV trehalose) failed the Phase II/III HEALEY ALS Platform trial (NCT05136885) because its results did not meet statistical significance in the primary and secondary endpoint in the full analysis set. SLS-005 showed a 13% improvement in function and mortality with an 88% success probability (versus the pre-specified 98%). Seelos added that SLS-005 showed a potential signal of efficacy in a pre-specified subgroup of persons with ALS treated with SLS-005, without Amylyx’s approved ALS treatment Relyvrio® (sodium phenylbutyrate and taurursodiol). Among data shown by the subgroup was a 22% improvement in slope of change in ALSFRS-R assessment adjusted for mortality, with an 89% success probability, at 24 weeks.
