(Bloomberg) -- Shares of Chinese biotech service providers WuXi AppTec Co. and WuXi Biologics Cayman Inc. surged Monday, after draft US legislation seeking to eliminate their linchpin role in global drug development missed its last big window for passage into law this year.
WuXi AppTec’s shares rose as much as 12% in early trading in Hong Kong on Monday, lifting the stock to the highest level in two months. WuXi Biologics gained as much as 13%, while MGI Tech Co. climbed 4.3% in Shanghai.
The absence of the so-called Biosecure Act from the proposed amendments to the US National Defense Authorization Act comes as a reprieve for the companies, which risked being barred from federally-funded contracts. Such restrictions would give global drugmakers reason to sever ties with Chinese drug research and contract manufacturers.
The latest twist is a blow to a meandering legislative effort that was once widely expected to be completed before the end of 2024. Since the bill’s debut late last year, it has also gone through several iterations that softened its impact, including the introduction of a waiver program, the clarification that Medicare and Medicaid reimbursement is not affected, as well as the inclusion of a grandfather clause that gives US companies until 2032 to end their relationships with the named Chinese firms.
While there’s still a chance for the bill’s passage, the window is increasingly narrowing before the US Congress goes on recess.
“This seems a blue sky scenario exceeding investor expectations,” Jefferies analysts led by Cui Cui said in a note, as they reiterated WuXi Bio as their top buy.
It also marks a temporary triumph on behalf of these targeted Chinese companies and industry groups that seeks to mitigate disruption to drug development. If the bill fails to pass by the year end and expires, it would be up to a new administration to re-initiate the legislation, according to the Jefferies analysts. But many believe President-elect Donald Trump’s government will be more business-oriented and embrace the drug cost savings that Chinese service providers can bring, they added, making it unlikely for Biosecure to come back next year.
Morgan Stanley analysts called it a “strong positive development” for WuXi names as well as other China-based companies offering contract research, development and manufacturing services with significant overseas revenue exposures.
Uncertainties Ahead
Proponents of Biosecure have cited national security concerns surrounding human genetic information and supply chains. US biotech and pharmaceutical companies, on the other hand, have suggested that cutting their extensive ties with WuXi companies could lead to disruption and delays in drug development and production.
Despite passing the House in September, opposition to Biosecure has been building in recent months, with influential lawmakers speaking out against the naming of specific companies on the bill without due process.
Even if the bill does advance, it could be reshaped even further. Lawmakers are considering a compromise by adding an executive branch review on which companies will face the restrictions, Politico and Endpoints News reported last week. That could offer even more breathing room for the companies currently named in the draft.
“WuXi 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 from other companies named in the Biosecure Act,” a spokesperson for the company said in an email.
WuXi AppTec, WuXi Bio and MGI Tech are still down more than 30% year-to-date. But overall business of WuXi AppTec, one of the world’s largest providers of drug research and manufacturing services, has remained resilient. The company has reported stable revenue from its main offerings, even though a smaller unit focused on advanced therapies suffered.
“We 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,” a WuXi AppTec spokesperson said in an email.
MGI Tech, BGI Group and Complete Genomics Inc., the other firms named in the Biosecure Act, declined to comment.
(Updates throughout.)
©2024 Bloomberg L.P.