Chinese biomed firms take ill on Biden’s decoupling order

Date:

Shares of China’s contract drug makers have been under pressure since US President Joe Biden signed an order that urges drug makers to reduce reliance on foreign labs.

On Monday (September 12), Biden signed an executive order to coordinate a whole-of-government approach to advance biotechnology and biomanufacturing, jointly referred to as the “bioeconomy,” to address health and global warming issues.

White House officials told Reuters on Sunday that the US hoped to reduce its dependence on China in terms of biomedical research. Chinese media followed up by acknowledging that Biden’s latest decision would hurt China’s contract drug manufacturing industry.

On Tuesday and Wednesday, the Hong Kong-listed shares of WuXi Biologics, which provides research and manufacturing services for global drug makers, fell by 24% from last Friday’s level. Two other biomedical firms, WuXi AppTec and Pharmaron Beijing, rebounded on Wednesday but were still down 15.7% and 10.8% respectively from last Friday.

In recent months, the Biden administration has unveiled a series of export bans to prevent China from obtaining cutting-edge semiconductors and chip-making software and equipment.

The banned items included several high-end graphics processing unit (GPU) and artificial intelligence (AI) chips, as well as electronic computer-aided design (ECAD) software that is used for designing 3-nanometer (nm) chips.

On Monday, Biden signed an executive order to launch a National Biotechnology and Biomanufacturing Initiative, which is aimed at ensuring biotechnology firms stay in America and help develop the technologies addressing cancer and greenhouse gas emissions.

Mao Ning, a spokesperson for China’s Foreign Ministry, said: “Economic globalization is the reality and a historic trend. We hope the US can respect the law of market economy and the principle of fair competition, instead of hampering global technological exchange and trade.”

An Dong, a host of Phoenix Television, a Hong Kong-based partially state-owned network, wrote in an article, “Biotechnology is one of the most important sources of profit for the US, and the largest market is China.”

“If the US reduces its dependence on China and suppresses the Chinese biotechnology sector,” An added, “it will definitely hurt itself.” An said US suppression would only force China to grow its technologies faster and more comprehensively while causing US firms to lose business opportunities in China.

In the biomedical sector, global drug makers tend to lower costs by outsourcing their research and manufacturing businesses to local pharmaceutical contract development and manufacturing organizations (CDMOs).

Together with those that only provide drug research (CRO), manufacturing (CMO) or sales (CSO) services, all these companies combined formed the so-called CXO sector in China.

In China, major CDMOs include WuXi Biologics, Asymchem, Porton Pharma Solutions, WuXi STA and Jiuzhou Pharma while large CROs include Wuxi AppTec, Pharmaron and Medicilon.

Shares of most Chinese CXOs fell by between 10% and 20% on Tuesday due to the announcement of Biden’s newly-signed executive order. In comparison, shares of Johnson & Johnson fell 2.6% on Tuesday while those of Pfizer Inc declined 3.3%.

An unnamed CRO executive told Yicai.com that stock investors were overconcerned about Biden’s executive order, which was only aimed at encouraging US technology firms to boost local investments and strengthen their supply chains.

The Yicai article also said China’s CXOs had recorded annual growth of 34% in their overseas income between 2017 and 202,0 and would continue to receive orders and technologies from foreign drug makers.

Total revenue of Chinese CXOs grew 38.17% to 66.5 billion yuan (US$9.8 billion) in 2021 from a year earlier while their combined net profits increased 52.47% to 14.8 billion yuan, according to Vzkoo.com, a Chinese financial website.

CXOs’ revenue rose 62.42% to 22 billion yuan in the first quarter of this year from a year earlier while their net profits surged 32% to 4.2 billion yuan.

A columnist who uses the pen name Archimedes said in an article that Biden’s executive order would have only a mild negative impact on China’s biomedical sector as Chinese CXOs could build new facilities overseas to bypass any possible US restrictions.

He noted that WuXi Biologics had already announced a plan to build a lab employing 1,5o0 in Singapore for US$1.4 billion. Currently, the company has facilities in Ireland, Germany and the US, according to its website.

Read: US chip-export ban throws wrench into China AI works

Follow Jeff Pao on Twitter at @jeffpao3

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