<div id="readability-page-1">Market talk is swirling that WuXi AppTec may be preparing to shed its cell and gene therapy business to limit potential exposure to U.S. biosecurity legislation<h4>Key Takeaways:</h4><ul><li>The drug services giant could mitigate the law’s impact by selling off its fledgling advanced therapy business, WuXi ATU</li><li>The U.S. biosecurity measures were not folded into wider defense legislation for swifter passage and are unlikely to enter the statute books this year</li></ul>By Molly WenSince the start of the year, a proposed U.S. law targeting Chinese providers of biotech services has sent the shares of WuXi AppTec Co. Ltd. (2359.HK; 603259.SH) and WuXi Biologics (2269.HK) on a rollercoaster ride.The sector is enjoying a respite for now, but WuXi AppTec is still reported to be considering selling off some of its offshore operations to soften the blow if the biosecurity bill becomes law.The drug services giant responded to the rumors on Tuesday, saying it was considering the future of its U.S.-based gene and cell therapy unit, WuXi ATU, but had not reached any firm decision.“The company is currently assessing options for continuing WuXi ATU’s operations in line with our priorities: our employees and the patients who need essential, time-critical and life-saving treatments,” the statement said.The advanced therapies unit, one of the company’s five main business segments, has its headquarters in Philadelphia and falls squarely within the scope of the draft Biosecure Act, which would lock prominent Chinese companies out of U.S. federal contracts on national security grounds.The legislation, which is making its way through the U.S. Congress, explicitly sets out to prevent “foreign competitors from stealing sensitive U.S. genetic data and personal health information”.By shedding the unit, the group could insulate itself against the restrictions without sacrificing a big chunk of its current business.In the first half of 2024, revenues from the gene and cell business fell 19.4% to 575 million yuan ($81.04 million), a mere 3% of overall turnover. In its earnings statement, WuXi AppTec said some of the unit’s commercial projects were still at an early stage and had been hit by delays or cancellations by customers. It also cited a lack of orders due to uncertainty generated by the U.S. biosecurity bill.Some analysts say divesting the unit could be a smart move under the circumstances.Morgan Stanley said in a research report that the company could better focus on its core business of small molecule drugs after offloading the unit, potentially boosting overall profit margin.However, WuXi AppTec would risk weakening its ability to pursue cutting-edge treatments for cancer, autoimmune conditions and infectious diseases, affecting its future business prospects. For example, cell therapies are revolutionizing the treatment of blood cancers by modifying a patient’s T cells to recognize and attack tumor cells.<h4>Policy vs business risks</h4>The company must weigh up the risks of giving up a foothold in a promising area of bioscience against the potential damage from the U.S. law, with the progress of the bill through Congress being key to the decision.The bill has two routes onto the statute books from here.It could be passed as standalone legislation, after the House of Representatives voted by a majority in favor of the bill on Sept. 9. It is now waiting to be approved by the Senate before the end of the current U.S. Congress. If the draft law passes that milestone, the two versions of the bill would still need to be reconciled for a final text to gain presidential approval. Looking at the Senate’s legislative schedule, there is little chance that the measures would be enacted this way in 2024.Another path would be to bundle the biosecurity law with another legislative vehicle, namely the Senate version of an act covering defense spending for fiscal 2025. However, the National Defense Authorization bill released on Sept. 19 did not include the biosecurity provisions.The absence of an embedded biosecurity bill makes it even more unlikely that the measures will be enacted this year, according to a research report from J.P. Morgan Chase.In fact, the U.S. pharmaceutical industry could face collateral damage if Chinese service providers are banned from federally funded contracts, given the way work is divided up and outsourced in the globalized biomedical sector.Chinese companies already play an important role in carrying out research and development for U.S. drug companies or manufacturing their products.Meanwhile, Chinese biotechs are looking to hedge their risks by expanding their operations outside the United States. For example, WuXi AppTec began building an R&amp;D hub and production base in Singapore in May this year. Asymchem Laboratories (6821.HK) has also set up its first R&amp;D and production base in Europe, while Porton Pharma Solutions (300363.SZ) has established a facility in Slovenia.A Chinese stock market rally has helped lift WuXi AppTec since late September, along with a perceived easing of policy risks.From a closing price of HK$38 on Sept. 19, the WuXi AppTec share price has surged 90% to a high of HK$72.45 this month. But the company still lags Asymchem Laboratories in terms of price-to-earnings (P/E) ratios, with about 15.5 times to its rival’s 18 times, and the multiple is way below its own peak above 100 in 2021.However, WuXi AppTec’s orders are growing rapidly, according to its financial results for the first half of 2024. And it has added more than 500 new clients to its existing base of more than 6,000 active customers. The numbers generally point to a stable performance that could start to close the valuation gap.To subscribe to Bamboo Works weekly free newsletter, click here</div>

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WuXi AppTec is reportedly considering selling its cell and gene therapy unit, WuXi ATU, to mitigate potential impacts from proposed U.S. biosecurity legislation targeting Chinese biotech firms. The company aims to protect its operations amid declining revenues in this segment, which fell 19.4% in the first half of 2024. Analysts suggest divesting could allow WuXi to focus on its core small molecule drug business, although it risks losing a foothold in advanced therapies critical for treating diseases like cancer. The fate of the legislation remains uncertain as it progresses through Congress.

WuXi AppTec mulls gene unit sale to soften U.S. legal blow