WuXi AppTec (Wuhan) Co., Ltd.

iStock, ffikretow As the Chinese contract manufacturer awaits the U.S. Senate’s consideration of the BIOSECURE Act, it has added 800 new customers in the first nine months of 2024, while being hit with a 2% revenue decline in the third quarter. With the BIOSECURE Act looming, WuXi AppTec released a business report on Monday, touting revenue and profit growth in the first three quarters of 2024 amid “external challenges” from the proposed legislation seeking to restrict American companies from working with Chinese firms. In addition to its new clients, the China-based CDMO said it was able to retain its existing active customer base of more than 6,000 companies. Most of its new contracts were early- or mid-stage projects, with only 20 commercial or Phase III assets secured so far this year, according to a company presentation . In total, WuXi AppTec added 915 molecules in the first three quarters of 2024. In Q3, WuXi AppTec recorded around $1.46 billion in total revenue, a 2% year-over-year decline. Almost all its business segments took a sales hit, most notably the company’s domestic drug discovery division which suffered a 78.2% decline in revenue. Meanwhile, its biggest division—WuXi Chemistry—grew 1.4% to bring in $1.1 billion in the quarter. Still, chairman and CEO Ge Li in a statement called the company’s Q3 performance “steady,” choosing to focus on its results excluding COVID-19 and touting 14.6% year-over-year growth in Q3. For the full year 2024, WuXi AppTec expects to generate $5.36 billion to $5.67 billion in revenue, with free cash flow of $840 million to $980 million. “Although the recently proposed U.S. legislation may create short-term uncertainty for the global pharmaceutical and life sciences industry, WuXi AppTec remains steadfast in ‘doing the right thing and doing it right,’” Li said, noting that the company will continue to “enhance our capabilities and capacity” to better support its customers in developing treatments for patients worldwide. WuXi AppTec’s financial results on Monday suggest for now that the CDMO is remaining resilient in the face of the BIOSECURE Act threat in the U.S.—its biggest market. The BIOSECURE Act, introduced in January 2024 , is aimed at keeping U.S. taxpayer dollars from biotech companies of national concern, particularly those aligned with the Chinese government. WuXi AppTec is explicitly named by the proposed legislation, alongside WuXi Biologics, Beijing Genomics Institute, MGI and Complete Genomics. Last month, the U.S. House of Representatives overwhelmingly passed the BIOSECURE Act, which moves on to the Senate for consideration and where strong bipartisan support is expected. Several industry players are strongly in favor of the bill—including the Biotechnology Innovation Organization and manufacturing service providers —but other analysts point to supply chain vulnerabilities that the legislation would potentially aggravate. A June 2024 report from GlobalData noted that nearly 50 U.S.-based companies currently have contracts with Chinese firms, and that the BIOSECURE Act could disrupt the supply of many drugs—both commercially available or in clinical trials.

WuXi AppTec said it is still attracting hundreds of fresh customers despite the Biosecure Act looming in the background. But a vast majority of these new clients are for early-stage services with near-term milestones, and the manufacturer’s US revenues are down compared to last year. On Monday, the services company said it had signed on a total of 800 new customers in the first three quarters of the year, which is 300 more than it signed in the first half of 2024. It has “maintained the existing base of 6,000+ active customers,” according to its third-quarter earnings presentation . But among its new projects in the recent quarter, it only secured 20 Phase 3 and commercial-stage assets, the Shanghai-headquartered company said. These contracts tend to be more expensive for pharma customers and have longer timelines compared to earlier-stage work. A company spokesperson told Endpoints News that a “majority” of WuXi’s contracts are typically for early-stage or preclinical projects. Still, despite new contracts, the company’s overall Q3 revenue was down by 1.96% to $1.47 billion, compared with the same period last year. Its US revenues have been particularly hit, dropping by 9% to $2.47 billion for 2024 so far versus the same time last year. The Biosecure Act becoming law looks increasingly possible. But a grandfather clause which allows these CDMO-biopharma partnerships to keep going until 2032 will give some time to transition out of their contracts. Yet a key advantage of maintaining these contracts for as long as possible is that Chinese manufacturers have competitive prices compared with their US or European counterparts. Edgewater Capital life science operating partner Brian Scanlan, who was also the former CEO of the CDMO Cambridge Major Laboratories, told Endpoints News there’s also a current trend of biopharma companies signing on for shorter contracts for early-stage work to save on cash. This means CDMOs in general aim to have plenty of smaller — even if shorter — contracts to meet revenue targets, he added. But the WuXi AppTec spokesperson said that having plenty of early-phase contracts increases the likelihood that clients would work with the company all the way to commercialization. Because of WuXi’s new Q3 contracts, the company said it has a backlog worth $6.15 billion, which is up slightly from Q2. WuXi Chemistry, its largest revenue driver, pulled in 271 new molecule projects in Q3, bringing its total to 915 new molecules in 2024 so far. While the company’s US-based revenues are so far lower versus last year, it has been increasing by at least $100 million from quarter to quarter in 2024. The US is a key market for WuXi as it makes up the majority of its revenue, followed by China in a distant second and then Europe.

The coming month will be a critical juncture, as growth in contract services is expected to accelerate through 2025, according to the latest research from 280 pharmaceutical companies. These forecasts not only reveal the prospect of even better growth in 2025, but also reflect the industry's opposition to the recently passed BIOSECURE Act. Most analysts point to a slower-than-expected recovery in the first half of 2024. PBOA President Gil Roth reflected on the past year in the upcoming CPHI 2024 Annual Report: "While the report indicates that dollars are being reinjected into late-stage (CDMO) assets, there are few signs that early-stage pipeline products are gaining financial support. This means that CDMO's lifeline - where projects go through the development pipeline and small customers continue to work with major service providers - is still struggling." However, the broader industry sector is currently more optimistic about the growth prospects of contract services companies over the next 18 months, with 49 per cent viewing the outlook as very positive, 44 per cent as neutral and only 7 per cent as "negative". Another big focus for contract services in 2024 is the oversupply of GLP-1 drugs, the lack of existing contract capacity, and the impact that the ongoing BIOSECURE Act may have on the outlook for the contract services industry. It is widely believed that the act has further accelerated the trend of diversifying the supply chain after the pandemic, prompting CDmos in the United States and India in particular to show greater interest in forming strategic partnerships. A key finding was that most of the industry did not support BIOSECURE's stated goals. Only 19 per cent said China's CDMO "poses a threat and should be removed from Western supply chains". Thirty-eight percent of respondents disagreed with this view, arguing that BIOSECURE is a "politically motivated issue that sets a worrying precedent for the industry." Forty-three percent of respondents - making it the largest group - took a balanced view, recognizing "Wuxi Apptec's significant contribution to the industry" while also noting the wisdom of "diversifying supply partners" in the industry. These findings show that global pharmaceutical companies, both innovative and generic, are now actively seeking a wider range of supply chain customers and key development partners. More than 600 contract service providers will gather at CPHI Milan next month, and discussions are expected to gather pace as funding in the biotech sector begins to translate into larger trading volumes in 2025 and beyond. Tara Dougal, Director of Brand and Content at CPHI Milan, added: "CPHI's contract service area continues to grow year on year, driven in large part by the industry's need for trusted partners who can provide the capabilities to address the nuances of complex treatments and support the commercialization process. CPHI Milan is an important platform for connecting existing and potential partners, and we look forward to continuing to serve this growing sector of the industry in 2025 and beyond." We have also observed that participants (i.e., contract award parties) want to meet with existing partners and move forward with projects, as well as significantly expand their networks by 2025."