The Pentagon added Chinese pharmaceutical contractor WuXi AppTec to a list of entities it alleges are linked to the country’s military, but the blacklisting will not stop multinational drug makers from collaborating with China’s biopharmaceutical firms, according to analysts.
“We view minimal impact given multinational [companies] in pharma still prefer made-in-China for cost efficiency,” said Cui Cui, head of healthcare research for Asia at Jefferies. “Meanwhile, Wuxi AppTec earnings visibility remains intact.”
Cui said the global pharmaceutical industry sought “cost flexibility amid mounting pressure from drug pricing reforms and looming blockbuster patent expirations”, giving China a competitive edge.
The US Department of Defence published an updated Section 1260H list of “Chinese military companies” on Monday, expanding the roster to 188 entities, up from 134, with WuXi AppTec among the newly added names in the healthcare sector.
It was not the US government’s first attempt to target Chinese biotech and pharmaceutical firms. The BioSecure Act, first introduced in Congress in late 2023, named five Chinese life-sciences companies as entities that US federal agencies would be barred from contracting with: WuXi AppTec, WuXi Biologics, BGI Group, MGI Tech and Complete Genomics. When the bill was finally signed into law in December, all five company names had been removed.
The political headwinds were unlikely to derail healthcare collaboration, as the drive to improve patient outcomes and reduce costs would ultimately prevail, industry players said.
WuXi AppTec’s Hong Kong‑traded shares tumbled as much as 5.2 per cent on Tuesday before recovering to close at HK$116.80, down 3.7 per cent. On Wednesday, they rose 2.3 per cent to HK$119.50 by 9.45am.
The news was likely to weigh on investor sentiment in the near term, particularly as WuXi AppTec’s recent gains could prompt profit-taking, said Zhang Jialin, head of China healthcare research at Nomura.
The stock has gained about 16 per cent so far this year, while Hong Kong’s benchmark Hang Seng Index has lost about 7 per cent.
The latest inclusion under Section 1260H only bars the US Department of Defence from directly, or through third parties, procuring services from WuXi AppTec, Zhang said, adding that the firm’s core business and outlook remained “buoyant”.
The company posted revenue of 12.44 billion yuan (US$1.8 billion) in the first quarter, 28.8 per cent higher than a year earlier. Net profit climbed nearly 27 per cent to 4.65 billion yuan, driven by strong demand from global pharmaceutical companies.
Some analysts framed the recent geopolitical turbulence as an entry point for long-term investors.
“We regard recent noises from the macro side and sector volatility as a good opportunity for long-term investors to bottom fish high-quality leading Chinese biopharma,” said Jonah Chen, head of healthcare research at China Merchants Securities (Hong Kong).
“We think the market has overreacted, and expect recovery of innovative biopharma leaders, backed by earning solidity and pipeline,” he said.
In response to the rising geopolitical tensions, WuXi AppTec was expanding its US facilities, according to Jefferies. -- SOUTH CHINA MORNING POST
