economic observer reporter Zhang xiaohui on January 25, 2024, us congressmen submitted a biosafety bill (the English name is the BIOSECURE act, which is currently a draft and is only at the proposal stage), it is required to ensure that foreign biotechnology companies such as Shenzhen Huada Gene Co., Ltd. (300676.SZ, hereinafter referred to as "Huada Gene") and its subsidiary Shenzhen Huada Zhizao Technology Co., Ltd. (688114.SH, hereinafter referred to as "Huada Zhizao"), Wuxi WuXi AppTec New Drug Development Co., Ltd. (603259.SH, hereinafter referred to as "WuXi AppTec") cannot obtain US taxpayers' funds. This news attracted the attention of the market. The share prices of related Chinese biopharmaceutical stocks continued to fall, and listed companies issued an urgent clarification announcement.

from January 26 to February 2, the share price of BGI fell from the highest 42.92 yuan to the lowest 35.61 yuan, a drop of more than 17%; the share price of BGI fell from 81.65 yuan to the lowest 64.65 yuan, a drop of more than 20%.

during the same period, the share price of Yao Ming Kant dropped from the highest 74.69 yuan to the lowest 50.22 yuan, a drop of more than 32%. Based on the closing price of 50.22 yuan on February 2, compared with the closing price on January 25, the market value of 68.1 billion yuan of Yao Ming Kant disappeared in just six trading days.

US Congressman to Proposed Biosecurity Bill

The Biosecurity Act, sponsored by Congressman Mike Gallagher and Congressman Raja Krishnamoorthi, seeks to ensure that foreign rival biotech companies involved in U.S. national security do not have access to U.S. taxpayer funds.

Gallagher said, "The potential use of Americans' genetic data by foreign companies poses a threat to the American people. The good news is that there are steps that Congress can take. I urge both parties and my colleagues in both chambers of Congress to support this bipartisan legislation and ultimately take action to protect Americans from foreign companies."

"It is unacceptable that U.S. taxpayer money is being used to subsidize a foreign rival biotech company. By allowing these companies to collect and analyze large amounts of foreign genomic data, we risk having our most sensitive information being used against us by foreign adversaries. Our legislation addresses this issue by creating a regulatory framework to prevent the flow of taxpayer funds to the relevant biotech entities. Clocking this loophole is the first step in protecting the US bioeconomy and national security and ensuring that our genomic data is safe and reliable." Krishnamotti said.

The draft is full of prejudice against Chinese biotech companies, arguing that WuXi AppTec poses a national security threat to the United States.

Multi-listed company clarification

On the evening of January 26, WuXi AppTec issued a Clarification Notice, which stated: "The company notes that WuXi AppTec was mentioned in a draft version of the Biosafety Act submitted to the U.S. House of Representatives on January 25, 2024, and a similar draft bill was recently introduced in the U.S. Senate. The draft biosecurity law has not yet been enacted, and the subsequent legislative process requires the U.S. House of Representatives and the U.S. Senate to vote on their respective versions of the bill to form the final version after review by the relevant committees. Therefore, the content of the draft Biosafety Law (including the reference to WuXi AppTec) is still subject to further consideration and possible changes. The company is closely monitoring the progress of the legislative process of this draft together with the consultant."

WuXi AppTec said in the above announcement: "The Company is aware that the draft Biosecurity Law contains information about WuXi AppTec, which it believes is neither appropriate nor accurate. The Company firmly believes that WuXi AppTec's business development does not pose a risk to the security of any country."

on the evening of January 28, huada zhizao also issued a clarification announcement.

Huada Zhizao said: "In a recent draft biosafety law proposed by the United States, Huada Zhizao was mentioned. The company noted that the draft is still in the proposal stage, and there are many factual errors in the allegations against the company, which may be amended or terminated, and there is still great uncertainty about whether it can be formed into law."

Huada Zhizao stressed: "The company strictly abides by the laws and regulations of the market where it operates, and pays great attention to data security and privacy protection. As an upstream equipment provider in the gene sequencing industry, the company's business links do not involve data collection, and the data generated by customers based on the company's sequencing platform are collected, stored, processed and controlled by the customers themselves."

On February 1, a reporter from the Economic Observer called the Office of the Secretary of the Board of Directors of Huada Zhizao to inquire about the proportion of its overseas business income. The staff replied: "There is no accurate statistical data at present, and it needs to be disclosed in the annual report."

In the 2023 semi-annual report, BGI Zhizao stated: "The company has vigorously expanded its overseas business, and its business has spread to many overseas countries. Overseas revenue accounts for a relatively high proportion. During the reporting period, the company's overseas revenue accounted for 33.78 of the current sales.%."

in the performance forecast on January 31, huada zhizao disclosed that its net profit attributable to the parent company in 2023 would be a loss of 0.687 billion yuan to 0.578 billion yuan, and mentioned that the sales revenue of its gene sequencer sector increased by about 30%.

on January 29, Jiangsu jicui yaokang biotechnology co., ltd. (688046.SH, hereinafter referred to as "yaokang biology") also issued a clarification announcement on the draft of the us biological law, saying that the company was studying a mouse model and did not involve any human-source gene sequence analysis business.

Nevertheless, Yaokang Bio's stock price fell more than 24% from January 26 to February 2, closing at 11.81 yuan on February 2, with a total market value of 4.8 billion yuan.

Investor concerns

Investors expressed their concerns to listed companies on the interactive platform.

WuXi AppTec's stock price fell on January 26, when investors asked: "There are reports that proposed legislation in the United States would restrict the use of foreign rival biotechnology companies, including BGI and WuXi AppTec, by federally funded health care providers. Is the company's stock price crash related to this news? If so, does it have a significant adverse impact on the company's subsequent operating results?"

After the clarification announcement, another investor suggested: "Consider extreme thinking, extreme cases, if the House of Representatives does pass the bill, can your company let customers outsource their needs to a third country company, and then the third country company subcontracts to your company? Because referring to the example of many export enterprises opening factories in third countries to export to their destinations, your company is exporting services, which will logically be easier to transport than goods. Can this method work?"

WuXi AppTec has yet to respond to questions from the two investors.

As the stock price fell by more than 20%, WuXi AppTec made further clarification in the "Announcement of Abnormal Stock Trading Volatility" on January 30:

"in response to the reference to WuXi AppTec in the draft biosafety law, WuXi AppTec believes that:(1) the company firmly believes that WuXi AppTec's business will not pose a risk to the national security of any country;(2) the company has not sponsored conferences or other activities on the theme of military-civilian integration; and (3) the company has never received any direct investment from any military-civilian integration fund. As a publicly listed company in Shanghai and Hong Kong, more than 200000 institutions and individual investors around the world trade company stocks on the secondary open market, and the company will not receive investment funds from these secondary market investors;(4) In order to promote scientific and technological progress and development in chemistry, life sciences, medicine, pharmacy and related fields, WuXi AppTec established the" WuXi AppTec Life Chemistry Research Award "in 2007", it aims to reward outstanding young and middle-aged scientific and technological talents who have made great achievements or made outstanding contributions in scientific research, technological innovation and invention in the fields of chemistry, life science, medicine and pharmacy. The objective selection criteria of the award are only related to scientific research experience, scientific research ability and scientific research achievements, and will not give special consideration to the background or employment unit of any candidate."

The overseas market is the focus of the layout of Huada Zhizao and WuXi AppTec. The United States is a more important market for WuXi AppTec. According to the results of the first three quarters of 2023, WuXi AppTec's revenue from US customers was 19.4 billion yuan, up 36% year-on-year after excluding specific commercial production projects; revenue from European customers was 3.28 billion yuan, up 10% year-on-year; revenue from Chinese customers was 5.24 billion yuan, up 5% year-on-year; revenue from customers in other regions was 1.62 billion yuan, up 10% year-on-year.

the U.S. region is also the fastest growing region in the gene sequencing business segment of Huada Zhizao. in the first three quarters of 2023, the revenue of Huada Zhizao gene sequencing business segment in the Americas was 0.1 billion yuan, with a year-on-year growth rate of 85.83 percent.

On February 2, WuXi AppTec issued the "Report on the Repurchase of A Shares by Centralized Auction Trading", which stated: "In order to maintain the company's value and shareholders' rights and interests, and enhance investor confidence, comprehensive consideration The company's financial status, future development and reasonable valuation level and other factors, the company plans to use its own funds for share repurchase to promote the company's stock market price to match its intrinsic value. The company intends to repurchase A shares through centralized bidding transactions, with a total amount of RMB 1 billion, and the price does not exceed RMB 100.9 per share (inclusive); all the repurchased shares will be canceled and the registered capital will be reduced after the repurchase is completed; this time The plan for the repurchase of shares has been reviewed and approved at the seventh meeting of the third board of directors held on February 1, 2024."

Economic Observer reporters will continue to follow the progress of the event.