WuXi Biologics is back. Since the progress of the US Biosafety Act has continued to jump sideways, WuXi Biologics' stock price performance has been suppressed before September. As the company's stock price rose to more than 3% today and closed up 2.19%, it not only outperformed the Hang Seng Index and Hang Seng Medical ETF, but the company's overall recent trend has continued to improve (a cumulative increase of 58.21% since September 2024).

This is due to the fact that the negative shoe finally landed. According to the latest news from the US House of Representatives bill, the Biosafety Act was not included in the 2025 NDAA (National Defense Security Act), which objectively confirmed the failure of the bill's rapid legislation. In addition, according to recent news, the 2025 Continuing Appropriations and Extension Act (CR Act) announced by the US Congress also did not include the Biosafety Act. WuXi Biologics has rebounded from the bottom. This incident may reflect a deeper level of thinking, which is still the irreplaceable nature of China's CXO industry chain in the global pharmaceutical industry. The story of CXO going overseas can still be told, and it is likely to get better and better in the future.

▍The Biosafety Act finally failed due to violation of the law of industry development
Recently, the Biosafety Act incident has finally ushered in the final moment. First, on December 7, US time, the Biosafety Act was not included in the 2025 NDAA, and then it was not included in the CR Act in recent days. A "roller coaster" of the bill process that lasted from the beginning of this year to the end of the year finally ended in failure.

The end of the bill can be glimpsed from the speeches of American politicians. Among them, the most vocal opponent is Democratic Congressman Jams P. McGovern. James McGovern's opposition to the Biosafety Act is actually worth pondering. He believes that it is very hasty and irresponsible to directly prohibit several Chinese biotech companies from cooperating with American companies without reason and clear review procedures. He said he could not get a clear answer about how companies such as WuXi AppTec were identified as national security risks.
Similarly, the bill was strongly opposed by people in the US pharmaceutical industry.

According to a survey of biotechnology companies, investors and other industry insiders by BioCentury, the bill could deal a devastating blow to the pharmaceutical industry, with more than 90% of respondents expecting the bill to hinder their company's product lines. Cutting off access to Chinese CDMOs and forcing companies to look for alternatives will lead to a slowdown in clinical trials, which in turn will lead to a slowdown in drug approvals. Some respondents believe that this proposal is very short-sighted, and losing Chinese CDMOs will seriously weaken the competitiveness of US biotechnology companies on the world stage because they will not be able to obtain efficient, high-quality and cost-effective services from Chinese CDMOs. Now that the shoe has landed, on the one hand, the irreplaceable nature of Chinese CXOs to the US pharmaceutical industry chain has been confirmed, and on the other hand, it is also worth paying attention to what surprises WuXi Biologics will bring to the Sino-US linkage in the near and future.

In terms of irreplaceability, the New York Times has reported that many core products of global MNCs are produced by Chinese CDMO companies, including GSK's Jemperli (PD-1 monoclonal antibody), AbbVie's ibrutinib, and Vertex's core product Trikafta (cystic fibrosis). Taking Vertex as an example, Trikafta is produced by WuXi AppTec's Shanghai factory. According to HSA's Summary Report of Benefit-Risk Assessment for Jemperil, the production of Jemperli, one of the major PD-1 products, is the responsibility of WuXi Biologics.

There are many reasons behind this, and the underlying logic is naturally the irreplaceable quality, speed and cost advantages provided by Chinese CXO services. Senior executives of biotechnology companies participating in the BioCentury survey said that almost all companies that cooperate with Chinese CDMOs will encounter challenges in finding substitutes, and the services provided by companies like WuXi Biologics are difficult to obtain at the same price and time.

As Claudia Lin, executive vice president of Pharmatech Associates, a pharmaceutical and life sciences industry consulting firm, said at the CPHI conference held in Milan this year, "When we talk about the extent to which other regions or companies can replace WuXi Biologics' production capacity, you can't expect to take over the capacity gap left by them by simply building some bases, but you must be able to operate at the same level. This is not just a question of capacity, but a question of ability... Ultimately, what customers need is efficiency and service." Of course, if you only rely on the personnel dividend with developing countries to fight a low-price war, this is a low-end game and not a solid competitive barrier, because there are always countries with lower costs, such as India. What is more worthy of attention is WuXi Biologics' solid business barriers and WuXi Biologics' "high-end operations" to help partners maximize product value. Previously, Merck acquired Tongrun Bio's CD3×CD19 bispecific antibody CN201 under development with a down payment of nearly US$700 million. WuXi Biologics was behind this overseas transaction. CN201 was built with the help of WuXi Biologics' multiple technology platforms. Recently, WuXi Biologics and Aadi Bioscience of the United States reached a research service cooperation of up to US$800 million for three innovative ADCs, which further reflects the high recognition of its technological leadership by American customers.
This can lead to a topic, what is the strongest moat of WuXi Biologics?

▍The best moat - continuous innovation
As mentioned above, the current MNC and biotechnology companies in the world cannot do without WuXi Biologics. WuXi Biologics' macromolecule business occupies the entire chain of the ecological chain, truly realizing "all in one". In terms of the current hot global market for macromolecule research and development, the lack of WuXi Biologics, a macromolecule CXO giant, will cause a qualitative change in the upstream supply shortage.

From now until 2030, it is also a precious year for the advancement of macromolecule pipelines. According to the report "Status and Trends of CDMO Industry Development" released by Frost & Sullivan in 2023, the global antibody/protein/non-nucleic acid vaccine CDMO market size increased from US$9.9 billion to US$17.7 billion from 2017 to 2021, with a compound annual growth rate of 15.5%. It is expected to reach US$35.3 billion in 2025 and US$67.9 billion in 2030.

From the perspective of the business share of the entire CDMO market, since large molecule CXO is still in the stage of making the cake bigger, it is completely expected that the proportion of large molecule CXO business in the entire market CXO business will continue to increase in the future. According to the "Status and Trends of CDMO Industry Development", in 2021, biopharmaceuticals accounted for 24% of the global pharmaceutical market size, and by 2025, it will exceed 30% to 31%, and by 2030, this figure will be close to 40%.

The entire market still needs to be expanded. To expand the large molecule (or biological drug) market, large molecule CXO is an indispensable power engine, and WuXi Biologics is also showing its irreplaceability to the market. According to Morgan Stanley's research report. When pharmaceutical companies choose partners, there are two conclusions: 1) to obtain more enhanced manufacturing capabilities than themselves; 2) flexibility in production and manufacturing. In addition, respondents hope to improve their own internal manufacturing capabilities by using CDMO, such as by increasing manufacturing output and economic benefits rather than just using CDMO to expand their existing capacity. And these are the absolute advantages of WuXi Biologics at present.

Judging from the latest WuXi Biologics semi-annual report, it also acknowledges the huge challenges in the near future, but its current performance can still be steadily improved compared with the same period last year. According to WuXi Biologics' semi-annual report, its revenue growth after excluding the new crown is still considerable: reaching 7.7%. In addition, it is more worthy of attention to the details of the orders in hand.

According to the 2024 H1 semi-annual report, the number of new comprehensive projects is as high as 61, which is also one of WuXi Biologics' best half-year performances. Among them, the Phase III clinical projects with a relatively high revenue share have achieved a considerable amount of growth: the data from the 2022 annual report to the 2023 annual report remains unchanged, but in this year's semi-annual report, the Phase III clinical projects have increased from 51 to 56, providing a solid moat for revenue. In addition, in terms of new projects, about half of the newly signed projects in the first half of this year came from the United States.
In addition, from the perspective of the breakdown of biological drug types, whether monoclonal antibodies, bi/multi antibodies, ADCs or fusion proteins, in these currently hot fields, the orders on hand are all in a stage of steady growth. Although WuXi Biologics has been hit hard by public opinion, at present, the real order growth has not been greatly affected.

From the customer's perspective, the achievements made by WuXi Biologics are also very commendable. CN201, a bispecific antibody product that Tongrun Biopharma has reached a deal with Merck, uses multiple technology platforms of WuXi Biologics, including WuXiBodyTM, TCE, WuXiUPTM and WuXiaTM. WuXiBodyTM is the R&D platform for bispecific antibodies, while WuXiUPTM is the production platform. The former is combined with WuXi Biologics' unique CD3 antibody that rapidly binds and dissociates, and the TCE bispecific antibody developed has strong and deep B cell clearance capabilities, and the probability of CRS will be significantly reduced, and safety will be greatly improved.

Nowadays, the efficiency of MNC's early self-research has declined, and outsourcing R&D is a trend. Small and medium-sized biotechnology companies focus on innovation and "go light", and hand over development and production to more professional CDMO companies. This is the opportunity for the rise of full-chain CXOs such as WuXi Biologics, because their delivery efficiency is extremely stable and efficient. According to the information disclosed by WuXi Biologics, the average time from the application for clinical trial of new drugs to the application for production and marketing registration is 10-12 months, and the fastest project is only 6 months; while the global pharmaceutical CXO leader, Lonza, generally takes 15-18 months for projects, and the industry average is 18-24 months.
The current stability of revenue and projects is only superficial, and what is more worthy of in-depth analysis may be WuXi Biologics' core competitiveness - R&D service platform.

▍Mastering the CXO of the next era
Judging from WuXi Biologics' current R&D service platform, it is not an exaggeration to say that it is a CXO that masters the technical code of the next era. WuXi Biologics has a leading advantage in providing discovery and development services for the recently popular TCE bispecific antibodies and ADC drugs. Recently, five or six transactions in the field of TCE bispecific antibodies have occurred because it was discovered that this TCE bispecific antibody not only has sufficient imagination in hematological tumors, but can also break through the ceiling and enter the autoimmune field. And WuXi Biologics' current platform WuXiBodyTM is one of the best platforms for developing such bispecific antibodies.

As we all know, one of the important components of TCE monoclonal antibodies is CD3 antibody, which is used to bind to T cells, but this is a double-edged sword. If handled improperly, it will cause CRS (cytokine release syndrome) in the human body. According to WuXi Biologics' public information, its core idea on this issue is to weaken the affinity of CD3 antibodies to reduce the "overreaction" of T cells, which has achieved a qualitative improvement in safety.

According to the clinical phase I data reported by Tongrun Bio's TCE bispecific antibody CN201 at ASCO mentioned above, in terms of safety, the CRS incidence rate is 7%, and all are grade 1 or 2, and there is no neurotoxicity. This is relatively rare in TCE monoclonal antibodies.

In addition to bispecific antibodies, ADC is also a hot export variety at present, and WuXi Biologics also has a subsidiary with extremely high current prosperity in the ADC business: WuXi Helian. As of June 30, 2024, WuXi Biologics still holds 50.1% of WuXi Helian's shares and has absolute control over the company.

WuXi Biologics recently reached a research service cooperation agreement with the US company Aadi to support Aadi in developing three new-generation ADCs in the preclinical stage, which once again confirmed its forward-looking layout in technology. The technological moat comes from continuous innovation.
WuXi Helian's ADC business is very powerful. Its technology platform has developed from the initial DAR4 conjugation technology to the current DARX conjugation, which can support multiple conjugation forms such as DAR2, DAR4, DAR6, and DAR8.

According to WuXi Helian's official website, one of the main advantages of its WuXiDARX is the ability to generate ADC molecules with uniform structural specificity and ideal developability, thereby allowing efficient CMC development and economical manufacturing. In addition, only one UF/DF step is required to remove free linkers-loads and other small molecule impurities, which is also one of its main advantages. The yield and cost of ADCs produced using WuXiDARX are comparable to those produced by random cysteine conjugation.

In 2023, WuXi Biologics CEO Chen Zhisheng said: In the next 5-10 years, the main field of biopharmaceuticals may be bispecific antibodies and ADCs. Now this prediction has been verified. The world's top two disease areas correspond to tumors and autoimmune diseases, and ADCs and bispecific antibodies are becoming the main battlefields for MNCs, Biopharma and Biotech to compete for layout.

It can be seen that WuXi Biologics' cutting-edge layout and characteristic technology platform of TCE bispecific antibodies have achieved one of the largest autoimmune TCE bispecific antibody BD cases in China, which provides an excellent model for the company's continuous global bispecific/multispecific antibodies in the future; in addition, WuXi Helian, as the world's largest ADC CXO company with the largest number of comprehensive projects, continues to show super-high growth in revenue and profit, which also represents WuXi Biologics' strong attraction to customers and customer dependence. It is worth noting that WuXi Helian's revenue in North America increased by 124% year-on-year in the first half of 2024, far higher than the 22% in China and 35% in Europe. In addition, the revenue base in North America (820 million) is larger than that in China (440 million) and Europe (310 million), demonstrating the strong demand from overseas customers.

The growth potential and achievements of WuXi Biologics' top macromolecule technology platform are sufficient to prove that the company, as a CXO with advanced platform technology and robust delivery guarantee, is an indispensable member of the global pharmaceutical market. A bill cannot stop profit-seeking overseas companies from cooperating with excellent suppliers like WuXi Biologics.

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