(Bloomberg) -- WuXi AppTec Co. posted better-than-expected third-quarter revenue despite concerns over a US bill seeking to block the Chinese company from accessing federally-funded contracts. While the company acknowledged impact on one part of its operations, the earnings provided an upbeat outlook on the overall business.
Revenue fell 2% to 10.5 billion yuan ($1.47 billion) in the three months ended September, according to a company filing on Monday. That was higher than the 10 billion yuan forecast in a median estimate of analysts compiled by Bloomberg. WuXi AppTec reported revenue from US clients of 17.6 billion yuan in the first nine months of this year, representing a 7.6% increase from a year earlier excluding Covid-19 projects.
The stable revenue masks concerns about the company’s ability to win more business in North America amid US lawmakers’ push to keep Chinese biotechnology firms out of government contracts. WuXi AppTec makes more than half its sales in the US.
One business segment in particular felt the political pressure, according to company slides released Tuesday. WuXi Advanced Therapies, which makes complex treatments like cell and gene therapies, saw a 11.6% drop in third-quarter revenue, bringing the year-to-date decline to 17%.
“Insufficient new business wins due to the proposed U.S. legislation” was cited as a reason for the unit’s waning revenue. Over the first nine months of 2024, it only added one new commercial project.
The unit is the smallest of four segments reported by the company, operating in a cutting-edge space that has seen a broader drying-up of investments. After the Financial Times reported that WuXi Advanced Therapies was up for sale, WuXi AppTec noted in the slides in relation to the unit that it’s “currently assessing options for continuing operations and avoiding impact on patients due to proposed US legislation.”
‘Fully Priced In’
For the three other segments, the firm said chemistry — by far the largest source of income — grew significantly when excluding the contribution of Covid commercial projects to 2023 revenue. Revenue from its lab testing services and drug discovery offerings, on the other hand, both dipped.
“Strong revenue growth in the company’s chemistry segment, driven by peptide-based therapies such as GLP-1 weight loss drugs, could shield WuXi AppTec’s revenue through year-end as strong demand for these drugs persists,” Bloomberg Intelligence analyst Jamie Maarten wrote in a report.
The Chinese drug research and contract manufacturer reported a 17% decline in net income for the third quarter. While it did not elaborate on a reason in the earnings statement, it also noted a 630 million yuan loss due to foreign currency exchange rate fluctuation.
Shares of the company rose as much as 6.4% Tuesday in Hong Kong trading.
“We think the negatives from Biosecure Act are fully priced in, considering the passage of the Act has been highly anticipated by investors,” Jefferies analysts wrote.
Customer stickiness is remaining high despite geopolitical concerns, they added, largely due to WuXi’s cost efficiency and proven FDA track record.
The pressure on its future US revenue lingers as WuXi AppTec waits for the final outcome of the Biosecure Act, including whether the bill is passed in the Senate. The latest version of the bill offers US companies until 2032 to decouple from biotech companies “of concern,” including both WuXi AppTec and its affiliate WuXi Biologics.
WuXi AppTec’s management believes that the bill is highly unlikely to be passed this year, given the upcoming US presidential election and also as the Senate meeting is yet to be scheduled, according to a Nomura research note by analyst Jialin Zhang after the company’s investor day on Sept. 26.
--With assistance from Rachel Yeo and Karthikeyan Sundaram.
(Updates throughout.)
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