[EXCLUSIVE] WuXi Biologics CEO dismisses U.S.-China volatility despite decoupling concerns

Industry

Published: 14 Feb. 2024, 07:00 Updated: 14 Feb. 2024, 08:34

[EXCLUSIVE] WuXi Biologics CEO dismisses U.S.-China volatility despite decoupling concerns

WuXi Biologics CEO Chris Chen speaks during an interview with the Korea JoongAng Daily on Jan. 12 in San Francisco. [SHIN HA-NEE]

After a tough ride through the post-Covid biotech slowdown of 2023, WuXi Biologics once again found itself thrust into the middle of a geopolitical standoff between the world’s two greatest powers.

While acknowledging the biotech industry is exposed to risks of the potential U.S.-China decoupling, Chris Chen, CEO of China’s largest biologics contract company, remained certain of WuXi Biologics' resilience against geopolitical turmoil.

“The pharmaceutical industry is so intertwined,” said Chen, CEO of WuXi Biologics, in an exclusive interview with the Korea JoongAng Daily on Jan. 12 in San Francisco, California where the annual J.P. Morgan Conference took place.

“If there is a decoupling happening, it will certainly affect our industry — but right now, for the pharmaceutical industry, the sum of collaboration is more than the sum of decoupling,” said Chen.

WuXi Biologics, founded in 2010, is a bio contract company in the research, development and manufacturing of drugs, or CRDMO. Grown at a steep pace over the past several years before the sector-wide slump, the company ranked fourth as of 2022 in terms of contract development and manufacturing revenue, according to Statista’s latest data, with Korea’s Samsung Biologics trailing close behind.

WuXi Biologics’ share price took a plunge on the Hong Kong Stock Exchange in early December after the company said that it would miss its growth guidance of 30 percent in 2023, citing lower-than-expected revenue and capacity expansion. In less than two months since the dip, the Chinese biotech company once again nose-dived on Jan. 26 as investors scrambled to offload their shares as a bill targeting WuXi Biologics along with other major Chinese biopharmaceutical players was proposed at the U.S. Congress.

About a month prior to the latest development in U.S. Congress, Chen sat down with the Korea JoongAng Daily on Jan. 12 in San Francisco, where the annual J.P. Morgan Healthcare Conference took place from Jan. 8 to 11. WuXi Biologics confirmed in its regulatory filing, as well as its written statement to the Korea JoongAng Daily, that the management is confident in the company's business outlook to remain unchanged by the proposed regulations.

The following are excerpts of the interview, edited for clarity and length.

Q. Do you see that lingering geopolitical uncertainties might affect WuXi Biologics’ global operations, and perhaps the biopharmaceutical industry as a whole?
A. Yes, if there is a decoupling happening, it will certainly affect our industry.

But right now, for the pharmaceutical industry, the sum of collaboration is more than the sum of decoupling. So geopolitics hasn’t really played into our daily lives yet, in terms of the pharmaceutical industry.

That's why the United States is still WuXi Biologics’ largest market.

But as a strategy, that's why we invest in Ireland, invest in Germany, invest in the United States, to truly become a global company.

I think that geopolitics, in the end, is actually about the free movement of goods.

So as long as we invest in the United States or Europe, goods can go into the United States freely, meaning politics wouldn’t really impact it that much.

The biopharmaceutical industry, at its current stage, seems to have been relatively less affected by geopolitical concerns, compared to manufacturing. What do you think is the reason?
The biopharma industry is so intertwined. The non-U. S companies need the U.S. market, and the U.S. also needs innovation, because the unmet medical need is so big. No one country can serve the global community, and no one country can develop innovations on its own.

That’s why in a global community, everyone needs to work together to develop drugs for the unmet medical need. That's why it's about collaboration rather than competition.

WuXi Biologics' drug manufacturing site in Hebei, China [WUXI BIOLOGICS]

Will the upcoming U.S. presidential election increase market volatility?
This industry is so intertwined — and very different from the semiconductor industry. And this is a heavily regulated industry. Even if the U.S. wants to build a factory today, it won’t serve the market until five years later, which is a huge lag. It is harder to switch the manufacturing base here as well, because if you order a drug from China today, and you want to switch it, it would take two or three years. You will need to redo the qualification, have a filing to the agency and have authorities come to inspect the facility.

Why did WuXi Biologics lower its growth guidance from 30 percent to 10 percent for 2023?

WuXi Biologics has been growing at an average rate of 60 percent, top line, in the past 10 years. Before 2022, we had a big portion of revenue coming from the Covid-related projects.

But last year, suddenly, the Covid revenue disappeared, and we had a biotech slowdown in the meantime.

Because of such factors, we had to lower the guidance — but if you look at our industry, actually it is still one of the best performances in the industry. Excluding the Covid revenue, we still grew strong last year.

So last year was very slow, except for December, which was a fantastic month. Between Christmas and the New Year, we’ve signed 10 projects, even though people typically take a leave during that time of the year.

Because we need some time to work on the contract before it becomes revenue, the first half of this year will also be relatively flat. As most of the contracts were signed in December, some of them will turn into revenue in March, and more in June, but most of the revenue will come in September.

I think there are three segments behind that. The biotech sentiment is getting better. Second, funding is getting better. And lastly, there was a Christmas rush, because people wanted to get it done before the year’s end to move the molecule to the clinic. As a result, we actually had more market share last year.

Some pointed out that the guidance adjustment was done too late, considering that the market outlook had been negative throughout the year.
In our business model we have three engines: contract research, development and manufacturing. We had been seeing only the development segment being weak while research and manufacturing were catching up.

But by September we'd lost some revenue in manufacturing. So by then we knew that we would miss the growth guidance but didn’t know how much we would be missing.

For example, in the development part, a significant part of the revenue takes six to nine months to materialize. But for the research segment, it takes only two to four weeks. For manufacturing, it takes longer — 12 to 18 months.

The three businesses have very different dynamics. We couldn’t give the adjustment until September, because we’ve been trying very hard in the research part to make it up. But our research business actually did better, growing more than 100 percent last year.

And with November being the final deadline for a deal to be signed within the year, November was the last time to beef up more revenue.

What is your company’s competitive edge compared to peers?
This is our strategy: We always invest in technology. We always want to be ahead of the competition in terms of technology.

During the presentation at the J.P. Morgan Healthcare Conference, I talked about CD3 [T-cell marker] technology, which we licensed to GSK. If all the programs with GSK are successful, we will receive a billion dollar payment from GSK; and we have royalties for every program they launch. That’s the intellectual property (IP) part, a very different business model from a CDO or CMO.

Our segments of success include strategy, technology and also quality. Clients like us for our execution — every project that comes to WuXi Biologics, we deliver. So far we have one of the best track records, if not the best.

If we promise to deliver by Christmas, we'll deliver by Christmas. This has happened even during the Covid lockdown, when Shanghai was locked down. Regardless of what the environment is, we'll deliver.

Over the past six or seven years, we established a track record, which is very, very hard to earn. Biotech is also a small community, so people who haven’t yet worked with us yet heard the story from their friends.

The manufacturing business started out pretty recently, because we didn’t have the capacity. But because we now have 300,000 liters in capacity already, we are also focused on CMOs, which also have very similar track record.

This industry deals with very tough science, a lot of challenges. That's why technical strategy is considered very important. If you have issues in manufacturing, for example, sometimes you may actually fail a batch, which needs profit of four batches to make up for it. So far, we have a very good batch rate, 98 to 99 percent, the best in the industry.

Chinese government is trying to bring in foreign investment, especially in the biotech industry. Would the geopolitics have an impact on that initiative, and what is the Chinese biotech industry’s biggest strength?
I think foreign companies are interested in China because of the market size, which is the second-largest. So the government is saying ‘if you want the market, you need to do something in China,’ which I think is probably the rationale behind such moves.

I'm sure you've noticed that in the past 18 months, there has been a lot of collaboration between Chinese biotech companies and global companies, especially in the antibody-drug conjugate, or ADC field.

China has a lot of room for innovation, and also a very strong execution capability, as well as a very large patient population for clinical trials.

In terms of pricing, how do you assess Samsung Biologics’ aggressive capacity expansion strategy?

The market needs both of us.

We mostly work with companies to help in R&D, while Samsung mostly works in the manufacturing part. But even in manufacturing, the global community needs four or five strong players, not only one, because drugmaking is a complex process. If there is only one partner, it may cause delays when you run into an issue, and the shortage could affect patients. People in our industry always want to work with two or three players to diversify the risk on the manufacturing side. And Samsung’s been incredibly successful launching the manufacturing business.

The industry needs both of us to become successful, as there's still so much unmet medical need out there.

Going back to the capacity side, because a lot of large pharma is not building capacity, I think the market needs that capacity. We're not sure whether it will be 1 or 2 million liters. That's a business decision.

What’s your strategy in CMO business?

We’re mostly interested in investing in continuous manufacturing. The technology we launched recently, WuXiUI, is also a part of continuous manufacturing.

The biotech industry is heavily regulated, compared to the food industry or petroleum industry, which always run on a continuous process. If you deploy continuous processes, the cost gets very low.

Our industry will sooner or later face cost pressure due to the capacity. So we believe that sooner or later, continuous technology will be used. We are investing in continuous technology, as well as disposable technology, on the CMO side.

There were several collaborations with Korean biotech last year. What drives your interest in Korean biotech?
I see a lot of innovation in Korea as well, especially in the research space. For an entrepreneur to be successful, you need research, development and manufacturing. A lot of Korean biotech companies just started, so they need the R, and then D and eventually M. Working with Korean companies helps local industries — it’s the same model that we've been serving in the U.S. market. The Korean market is as exciting. We are now working with, probably, some 40 companies there. We're making a commercial product for a Korean company as well.

I haven't been to Korea since Covid, but before then, I visited Korea twice a year. We engage with all companies, large and small, and this year, I will definitely go visit as well.

What is your company’s — and perhaps your personal — ultimate goal?
What I'm very passionate about is making drugs available to global patients, initially to developed countries, but also for developing countries.

That's something we will continue to work on — how do we make drugs more accessible to the global community? That’s both our company’s and my personal goal.

We also are very passionate about rare diseases. For one of our first drugs, we worked with Amicus for a Pompe disease treatment. That’s actually a fascinating story, and it has also affected me. We’ll have many rare disease drugs developed by WuXi Biologics as well.

BY SHIN HA-NEE [shin.hanee@joongang.co.kr]