House bill targets some Chinese outsourcing firms

The stock prices of the pharmaceutical outsourcing providers WuXi AppTec and WuXi Biologics were pummeled after a US House of Representatives committee introduced a bill that would restrict federally funded medical providers from using several Chinese outsourcing firms.

Based in Shanghai, WuXi AppTec is a top drug service provider and one of the world’s largest employers of chemists. WuXi Biologics is a separate company that WuXi AppTec spun off in 2017. The bill also mentions the private genomics firm BGI Group.

The draft bill, from the House Select Committee on the Strategic Competition between the United States and the Chinese Communist Party, cites US national security concerns. It says WuXi AppTec has sponsored “military-civil fusion” events in China and received investments from a military-civil integration investment fund.

The bill also says WuXi Biologics CEO Chris Chen was previously an adjunct professor at the People’s Liberation Army Academy of Military Medical Sciences. Similar legislation has been introduced in the Senate.

WuXi AppTec says in a stock market announcement the findings stated in the draft bill are not accurate. “We are confident that the business development of WuXi AppTec will not pose a security risk to any country,” it says. In its own announcement, WuXi Biologics says the bill references a courtesy designation that Chen received after a guest lecture in 2013.

Despite the companies’ assurances, their shares fell in the days following the Jan. 25 introduction of the bill. WuXi AppTec’s shares on the Hong Kong stock exchange, for example, were down almost 30% on Jan. 30.

Stock analysts who cover WuXi AppTec note that a draft bill marks the beginning of the legislative process and that much could change. Still, one analyst report notes that geopolitical tensions have long shadowed the drug outsourcing sector and that the proposed legislation could cause that tension to worsen.