Author/Apothea Under the Stars

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On January 26, a proposal called the "Declaration of Safety Act" in the United States triggered a bloody case in the medical sector.

Information shows that the proposal, once passed, would restrict the use of foreign rival biotechnology companies by federally funded medical institutions, including WuXi AppTec (603259), known as the "drug king. As soon as the news came out, the stock prices of not only yaoming kant, but also the entire yaoming system, including yaoming biology (0269 HK)(yaoming biology was once its division) and yaoming union (02268 HK))(yaoming biology and yaoming kant joint venture) directly collapsed.

As of January 31, WuXi AppTec's share price has declined for three trading days. In fact, WuXi AppTec has always suffered from "foreign dependence". Although it strives to develop domestic vitality, the effect is not significant. In the face of the turbulent international situation, the market value of WuXi AppTec has shrunk seriously, and shareholders have frequently reduced their holdings.

Source: Oriental Fortune-WuXi AppTec (as of January 31, 2024)

1. are heavily dependent on foreign countries and are afraid of becoming the biggest victim

WuXi AppTec is a leader in the pharmaceutical outsourcing (CXO) industry, providing research and development outsourcing services (CRO) and one-stop R & D and production services (CDMO) for pharmaceutical companies.

In terms of specific business, it mainly includes: chemical business, testing business, biological business, cell and gene therapy business, and domestic new drug research and development service department. Among them, the chemical business is the main income-generating business. In the first half of 2023, the company's total revenue was about 18.871 billion yuan, of which the chemical business was about 13.467 billion yuan, accounting for about 71%.

Revenue From a regional perspective, WuXi AppTec is full of "foreign dependence". In the first half of 2023, the company's revenue from overseas was about 15.644 billion yuan , accounting for about 83% of the total revenue. Among them, according to the company's semi-annual disclosure, about 12.37 billion yuan from the United States. It is well understood that the pharmaceutical outsourcing industry receives orders from innovative pharmaceutical companies, and companies with strong global innovation capabilities and the ability to invest huge amounts of research and development are almost all European and American giants.

Source: Flush iFinD-Operating Income-By Region

Relying heavily on overseas (the United States), once the overseas policy "changes", its performance will be directly affected.

although, on the evening of January 26, Yao Mingkang issued an announcement clarifying that the bill has not yet come into effect and promulgated. According to the legislative procedure, the U.S. House of Representatives and the U.S. Senate are required to vote on their respective versions of the bill after review by the corresponding committees to form the final version. The bill therefore remains subject to further consideration and is subject to change.

Source: Company Announcement (January 26, 2024)

But "possible" is not "sure". Once the bill is implemented, it will be a fatal blow to WuXi AppTec.

Moreover, on January 26 (the same day), international CDMO giant Lonza (Longsha) announced that it would close its biotech factory in Guangzhou, China, which started in 2018 and has just been fully operational in 2021. Only two years of operation, that is, the announcement of closure, seems to be pointed out.

2. development within the territory, the effect is not significant

Actually, this is not the first time.

In the past few years, news similar to this "Draft" has been common, such as the "pre-delisting list" and "unverified list" that have caused market panic, which have caused a huge impact on the pharmaceutical outsourcing industry.

It is clear that China's pharmaceutical outsourcing leaders have long been regarded as a "thorn in the flesh". In the face of "wolf coming" again and again, WuXi AppTec is also constantly improving the company's revenue structure. But from the results, the effect is not significant.

In the first half of 2023, although domestic business revenue rose, it accounted for only 17%. The root cause is that the overall investment in research and development in the domestic innovative drug market is insufficient. Compared with overseas, there is no suitable soil for the development of research and development outsourcing.

Source: Flush iFinD-Operating Income

2022 financial report data show that among China's listed pharmaceutical companies, the top three R & D expenses are: Baiji Shenzhou (688235), hengrui medicine (600276) and China biopharmaceutical (01177). Among them, Baiji Shenzhou, known as "the first brother of research and development", will invest about 11.2 billion yuan in 2022.

Source: Drug Melting Circle

compared with us stocks, the research and development cost of Mercadon (MRK) in 2022 is about us $13.548 billion, followed by Pfizer (PFE) and Novartis (NVS), and the research and development cost is also very considerable.

In contrast, light R & D and heavy sales are typical characteristics of domestic pharmaceutical companies. The R & D investment of pharmaceutical companies is not high, so the business of R & D outsourcing companies naturally does not have to be done.

Source: Public Data Collation

Although there is business abroad, it is precarious; although it is stable in China, it has no business to do. This is the dilemma faced by WuXi AppTec.

As a result, the market value of the drug has shrunk all the way. As of January 31, the total market value of WuXi AppTec is only 160 billion yuan, which has shrunk 2/3 from its peak in 2021 (the maximum market value is nearly 500 billion). Once the big white horse, now has fallen to the altar.

Source: Yiniu Net

3. reduction, simply can not stop

The large shrinkage in market value stems from the unpredictable external operating environment on the one hand, and the frequent reduction of executives and shareholders on the other.

In May 2018, WuXi AppTec only landed on the Shanghai Stock Exchange. A year later, it began to reduce its holdings frequently.

Public data show that between 2019 and 2023, WuXi AppTec reduced its holdings as many as 34 times, with the largest number in 2019, about 14 times. Most of the shareholders are senior management, including the company's head of research and development, chief financial officer and board secretary, etc.

what is more worth mentioning is that in 2021, Shanghai yingyi investment center, one of yaoming's former shareholders, secretly cashed in 2.894 billion yuan and did not disclose its reduction plan 15 trading days in advance. As a result, Yao Ming Kant was issued a "supervision work letter" by Shanghai, and Shanghai ying yi was eventually fined 0.2 billion yuan .

Source: WuXi AppTec Announcement (May 13, 2022)

In the past 2023, although only three reductions were made, in the 2023 A- share reduction list released by a financial media, WuXi AppTec ranked first with a reduction of more than 10 billion yuan a year. In other words, once popular in the capital market, it has now become the "outcast" with the largest reduction in holdings ".

Source: reading one trifoliate orange

as the first brother of CXO, Yao Ming at the moment focuses on internal and external troubles.

Note: This article does not constitute any investment advice. The stock market is risky and you need to be cautious when entering the market. No sale, no harm.