WuXi Biologics sells overseas assets, but not due to the Biosecurity Act

WuXi Biologics announced today that the company has reached an agreement with Merck, whereby Merck will acquire WuXi Biologics' vaccine factory in Ireland for a total transaction amount of approximately USD 500 million (approximately HKD 3.9 billion). The company expects the transaction to be completed in the first half of 2025 after meeting customary closing conditions.

The transaction involves the assets of WuXi Biologics' Ireland vaccine base

This transaction involves the vaccine factory of WuXi Biologics located in Ireland. According to data, WuXi Biologics' revenue in 2023 was CNY 983 million, with a net profit of CNY 38.3 million, accounting for 1.1% of WuXi Biologics' total net profit.

As of November 30, 2024, the unaudited net book value of the factory's assets is approximately USD 487 million. After deducting related expenses and tax impacts, this transaction has no significant impact on WuXi Biologics' profit and loss statement.

It is important to note that this transaction only includes the assets of WuXi Biologics' Ireland vaccine factory and does not include WuXi Biologics' biopharmaceutical factory in Ireland or its vaccine factory located in Suzhou.

WuXi Biologics is a wholly-owned subsidiary of WuXi Biologics, primarily engaged in contract custom development and manufacturing (CDMO) of human vaccines (including cancer vaccines). The Ireland vaccine factory was announced for construction in November 2019 to fulfill a production agreement signed between WuXi Biologics and Merck, with a total amount exceeding USD 3 billion over 20 years.

It is worth mentioning that this sale was not without warning. In August of this year, WuXi Biologics acquired a 30% stake in WuXi Biologics from its partner Haili Biologics for USD 108.5 million, making it a wholly-owned subsidiary. At that time, the valuation was USD 361 million, and the current sale of assets for USD 500 million clearly brings additional benefits to WuXi Biologics.

More transaction details and future plans

WuXi Biologics stated in a conference call that the main reason for the sale is the high operating costs of the Ireland factory and the lower-than-expected return on investment.

Due to the impact of the COVID-19 pandemic, project construction and operating costs have significantly increased, resulting in a lower return rate compared to other factories. After a strategic assessment, the company decided to allocate resources to projects with higher returns.

The company further revealed that after the sale of the Ireland vaccine factory, it will increase its investment layout overseas, such as in Ireland, Singapore, and the United States, with the goal of achieving an overseas investment return rate of over 17% to 18%.

At the same time, although this transaction involves a 20-year production agreement with Merck (with an annual revenue of approximately USD 150 million), the company stated that other projects can compensate for this revenue gap. Additionally, after the transaction is completed, the company's gross profit margin is expected to increase by approximately 100 basis points

The Biosecurity Law May Have an Impact, but Trading of European Assets Still Relies on Fundamentals

In early October, foreign media reported that WuXi Biologics was working with consultants to assess market interest in some of its European production facilities.

At that time, WuXi Biologics was reviewing the assets for sale, primarily focusing on two German production facilities purchased from Bayer, which the company had invested heavily in expanding last year. WuXi Biologics also has a vaccine production base in Ireland and large-scale antibody drug production facilities.

The market speculated that the sale of vaccine assets might be related to the Biosecurity Law, but the company responded that it was due to considerations of profit margins.

However, the announced transaction confirmed the sale of the WuXi Hyde Ireland vaccine production base, but the German production facilities acquired from Bayer were not included in this announcement.

Additionally, one month after the rumors of the sale, WuXi Biologics announced plans to expand production capacity at its Leverkusen site in Germany, with the construction of a new production line for isolator-filled prefilled syringes.

This new production line can fill prefilled syringes of various specifications (1ml, 2.25ml, and 3ml), with a filling speed of up to 400 units per minute and an annual capacity exceeding 17 million units. The new production line is expected to begin construction soon and reach GMP production standards by 2026.

Globally, the filling capacity for prefilled syringes continues to be in short supply. With the explosive demand for GLP-1 weight loss drugs, related capacity has become a strategic resource. Novo Nordisk and Eli Lilly faced long-term listings of GLP-1 products on the FDA shortage list due to insufficient filling capacity. Novo Nordisk even spent heavily to acquire Catalent to gain filling capacity from its three factories. The adjustment of WuXi Biologics' European assets is also taking place against this broader backdrop.

Thus, it is evident that the primary reason for WuXi Biologics' adjustment of its assets in Europe is based on the yield and future prospects of the related assets.

Although it has sold the Ireland vaccine factory, WuXi Biologics emphasized that it has not abandoned its vaccine business but has chosen to provide CDMO services to global clients in a more cost-effective manner through its vaccine production capacity in China. The company stated that it would no longer bet on a single product but would focus on improving the efficiency and flexibility of its overall layout.

Despite a series of external shocks in 2024, the comprehensive layout of the WuXi system has created more space for asset maneuvering, allowing the company to achieve higher efficiency and adaptability. As the industry warms up, the WuXi system, as a leader in the CXO industry, is expected to experience greater upward elasticity