WuXi Biologics sells vaccine plant as new U.S. law looms

The Chinese drug services giant built an Irish factory to produce vaccines for Merck, but has now opted to sell the plant to the U.S.-based multinational for $500 million
Key Takeaways:
- WuXi Biologics estimated that it stood to make just $55 million in profit from the vaccines site, far short of the expected return
- Despite concern over a pending U.S. biosecurity law, the Chinese firm recently clinched two big deals with U.S. drug companies
By Molly Wen
China’s WuXi Group is streamlining its international operations as it braces for U.S. legislative curbs on the biotech business.
Late last year, drug research firm WuXi AppTec (2359.HK; 603259.SH) announced it was selling its overseas-based cell and gene therapy business. Then on Jan. 6, WuXi Biologics (Cayman) Inc. (2269.HK) said it had agreed to sell one of its European vaccine production centers to its multinational partner Merck (MRK.US).
WuXi and other Chinese biotechs are the target of a proposed U.S. law that seeks to restrict their access to drug contracts, citing concerns over national security and the handling of sensitive genetic or health data.
The bill was passed by the U.S. House of Representatives in September and must gain consent from the Senate before being entered onto the statute books. Although the threat has not yet materialized, the prospect of being frozen out of U.S. partnerships has worried investors and spurred a boardroom rethink about overseas assets.
The vaccine subsidiary of WuXi Biologics built the Irish facility to serve a sole client, Merck, which is now buying the plant for $500 million (3.66 billion yuan). The unaudited net book value of assets held by the vaccine plant amounted to around $487 million, as of the end of November 2024.
The project was launched in February 2020 as part of a 20-year deal, worth up to $3 billion, to make innovative vaccines for Merck, a multinational headquartered in the United States. At the time, WuXi’s vaccines unit planned to spend $240 million to build the production and laboratory base, which was due to go into operation in 2022.
However, the vaccine market has shrunk since the Covid pandemic subsided, taking a toll on contract manufacturers serving the global pharmaceutical industry. In a conference call, WuXi Biologics said construction costs for the vaccine base had risen to nearly $500 million during the pandelic and operating costs were high, limiting future profits to about $55 million. On that basis, a sale was the best way to maximize its resources, WuXi Biologics said.
WuXi Vaccines began as a joint venture between WuXi Biologics and Shanghai Hile Bio-Technology (603718.SH), with a mission to become a leading provider of integrated vaccine services for the pharma sector. However, the results at WuXi Vaccines have not lived up to expectations in recent years.
The company posted revenues of 1.27 billion yuan in 2021, 1.05 billion yuan the following year and 983 million yuan in 2023. Over the same period, profits amounted to 36.10 million yuan, 32.11 million yuan and 38.30 million yuan. In the first three months of 2024, WuXi Vaccines even made a net loss of 20.94 million yuan.
Joint venture partner Hile Bio-Technology sold its entire 30% stake to WuXi Biologics last August for $108.5 million. On that basis, WuXi Vaccines as a whole was valued at just $361 million. By comparison the $500 million price tag for the Irish production center looks to be a good deal for WuXi Biologics.
The divestment will have a limited impact on the finances of WuXi Biologics, according to a research report from investment bank CICC. But WuXi Vaccines will be able to concentrate on providing services for more customers from its base in Suzhou, and cash could now be spent on expanding production capacity or buying back shares.
Hedging against US actions
WuXi Biologics played down the connection with the U.S. Biosecure Act, saying it was seeking to optimize the allocation of resources, but some analysts interpret the latest move as a defense against a commercial rift with the United States.
Launched in early 2024, the biosecurity act aims to restrict cooperation between federally funded pharma companies and any biotech suppliers suspected of links to China’s security services. WuXi Biologics was explicity named as a target when an amendment was passed in September 2024. The legislation enjoys bipartisan support and, if it clears the Senate and is signed into law, poses a risk to the overseas business that makes up more than 80% of revenue at WuXi Biologics.
Despite concern about the pending law, WuXi Biologics won three big orders over the past month, including two partnerships with U.S. drug companies. On Jan. 7 the company announced a research tie-up with drug company Candid Therapeutics that grants the U.S. firm global rights to a trispecific antibody in preclinical development. The deal will earn WuXi Biologics up to $925 million in down payments, milestone fees and commissions once the product is launched. A few weeks earlier, the company entered into another two collaborations, with U.S. pharmaceutical company Aadi Bioscience and China’s Sino Biopharm.
Shares in WuXi Biologics took a dive after the sale of the Irish vaccine base was announced, and did not immediately perk up when the Candid deal was made public. The stock pared its losses to close down 2.53% that day, recovering 1.85% in the following trading session.
WuXi Biologics has a number of production bases, research facilities and service centers in Europe, the United States and Singapore. The base in Ireland was only one of many overseas factories, representing a relatively small slice of revenue. As such, the sale in itself does not signal a significant shift in the firm’s overseas strategy.
The biotech sector as a whole has struggled under the shadow of the U.S. legislation. The price-to-earnings (P/E) ratio of WuXi Biologics has fallen back to 23 times but still beats the 15 times for its sister company WuXi AppTec. Although its profits fell in 2023 and the first half of 2024, WuXi Biologics enjoys an industry-leading stature that still attracts orders and provides some protection from industry pressures.
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