Contract manufacturing giant WuXi Bio's stock plummets as it warns of $400M revenue miss

A challenging year for the biotech industry has taken a heavy toll on Chinese manufacturer WuXi Biologics, sending the company’s stock plummeting nearly 24% Monday. Meanwhile, the greater contract development and manufacturing sector isn’t immune, WuXi Bio warned.

Biopharma's contract manufacturing field is in a rut, WuXi Bio explained in its Monday investor presentation (PDF), noting the industry has slowed to single-digit growth in 2023 compared to roughly 15% growth in previous years. As sales from COVID-19 pandemic-related contracts wane, coupled with greater financial difficulties for the healthcare sector at large, many contract manufacturers have been caught in the slump.

Germany’s Merck KGaA, for instance, warned of a “challenging year” back in March, flagging decreased demand for COVID-related services and “persistently high inflation.” That prophecy proved true when, over the summer, the company’s contract manufacturing and contract testing services arm logged a “strong organic sales decline” in the second quarter.

As for WuXi Biologics, the company now expects to miss its original sales target for the year by around $400 million, thanks to reductions across its development and manufacturing services. WuXi Bio primarily blamed the projected miss on the “fast decline of COVID revenue,” though fewer development projects and production deferrals are also expected to take a toll, the company said.

WuXi Bio foresees this year and the first half of 2024 as the “most challenging” time periods for its business. The company expects a “positive turnaround” by the second half of next year.

Despite WuXi Bio's optimism for a turnaround, analysts and investors were surprised by the scope of the company’s forecast revisions. The company's shares traded sharply lower on Monday.

“This is not just a matter of fine-tuning given the magnitude of the cuts,” Wilfred Yuen, head of China healthcare at Daiwa Capital Markets said, as quoted by The Wall Street Journal. “It's already December, and the company should have known the outlook much earlier.”

WuXi Bio expects its growing roster of biologics projects to drive growth in the coming months. The company pointed out that it’s currently manufacturing three biologic drugs with $5 billion in individual peak sales potential, plus two with $3 billion at peak and three with $1 billion in revenue potential. WuXi Bio added that it’s in “active discussions” to take on more commercial manufacturing projects.

Despite 2023’s industry downturn, WuXi Bio and its sibling companies have continued to evolve and expand over the course of the year.

Back in July, WuXi Biologics unveiled plans to spin off its bioconjugation unit WuXi XDC Cayman. Early last month, WuXi XDC said it was planning to sell 178.45 million in shares in an Initial Public Offering (IPO) in a bid to rake in 3.68 billion Hong Kong dollars ($470.5 million) on the Hong Kong Stock Exchange.

Aside from potential acquisitions, WuXi XDC said much of its IPO earnings would go back into production facilities in China and Singapore.

Meanwhile, WuXi’s immunization subsidiary, WuXi Vaccines, launched its first standalone vaccine contract manufacturer facility in Suzhou, China, in late September. WuXi Vaccines’ site currently employs around 200 people. The company aims to grow its headcount to more than 500 once the facility reaches full operation.

The company is also ramping up operations at a site in Ireland. There, WuXi Bio says it’s booked “significant” commercial manufacturing jobs from 2024 onwards and is almost fully booked for 2025.

Editor's note: This story has been updated to clarify references to WuXi Biologics and its relationship to WuXi AppTec.