The "water seller" collapsed!

On February 8, when the world's attention was focused on the Chinese Spring Festival and the Beijing Winter Olympics, the latest "Unverified List (UVL)" released by the US Department of Commerce made waves again
.
Among the companies involved in this list, WuXi Biologics Co, Ltd.
(Wuxi WuXi Biotechnology Co.
, Ltd.
) and WuXi Biologics (Shanghai) Co, Ltd.
(Shanghai WuXi Biotechnology Co.
, Ltd.
) are impressively listed, triggering the market Follow
.
This is the first time that the U.
S.
government department has used "list management" to name Chinese pharmaceutical innovative companies after the U.
S.
Treasury Department issued the SDN (Specially Designated Nationals List) at the end of last year to sanction Chinese API companies
.
Chen Zhisheng, CEO of WuXi Biologics, said in a media conference call that UVL and the previously mentioned "entity list" or "blacklist" are completely different concepts and have limited impact on the company
.
However, the capital market is not so optimistic about this situation
.
Affected by the above news, the pharmaceutical third-party service sector represented by CRO and CDMO was severely impacted: A-share WuXi AppTec opened and closed the limit-down limit, and the limit-down board once reached 111,000 lots, with a capital of over 1 billion yuan.
The latest stock price A new low in a year; in Hong Kong stocks, WuXi Biologics and WuXi AppTec plunged sharply at the opening, and WuXi Biologics immediately suspended trading
.
Included in UVL CRO/CDMO Thunderstorms According to the relevant laws and regulations of U.
S.
export management, the items regulated by the U.
S.
export management are not only of various types, but also of a wide range, involving both products and technologies
.
It adopts the important means of "list management" for export management
.
The Bureau of Industry and Security (BIS) under the US Department of Commerce adopts a hierarchical list management model, and has compiled an Unverified List (UVL), an Entity List (EL) and a Denied Person List (DPL)
.
The DPL is the strictest
.
UVL is relatively light among the three lists, mainly for trading entities whose BIS cannot confirm the end-use of items in their previous transactions.
The negative impact is lower than that of DPL and EL, but being listed in UVL will mainly bring some negative effects to entities.
impact, especially on the stability of the supply chain
.
Industry experts pointed out that UVL is a monitoring method used by the US "long-arm jurisdiction", and it is also one of the main sanctions by the Ministry of Commerce.
All entities included in the list will be strictly controlled for exporting products from US suppliers.
U.
S.
companies doing business with these Chinese companies will also be subject to additional investigations, and U.
S.
exporters and supplier companies may be more cautious
.
According to the regulations, no license exceptions shall be made for the export, re-export or transfer of U.
S.
original product items to buyers, intermediate consignees, final consignees or end users listed on the UVL list, and a "UVL Statement" must be issued
.
This directly triggered market concerns that WuXi Biologics’ imports of raw materials or components from U.
S.
suppliers may be affected
.
This concern is justified
.
As early as 2013, WuXi AppTec's R&D and production base in Wuxi adopted Thermo Fisher's 2000-liter Single-Use Bioreactor
.
With the completion of the construction of production facilities in Wuxi and Shanghai, whether it is disposable bioreactors, or other core components and disposable consumables, imported products from many suppliers around the world occupy a major proportion
.
According to WuXi Biologics, in the past ten years, the company has been approved by the U.
S.
Department of Commerce to import some disposable bioreactor controllers and hollow fiber filters, strictly abiding by relevant export regulations, and has never re-exported or resold to any other legal entity
.
Originally, the U.
S.
Department of Commerce had a set of routine verification procedures for the reasonable use of these products (that is, for personal use, not for resale), but in the past two years due to the impact of the new crown pneumonia epidemic, it could not be completed in time, which led WuXi Biologics to enter the UVL
.
In the interview, Chen Zhisheng said that there are 4 to 5 parts suppliers for reactor controllers and hollow fiber filters, including American companies, as well as European and Japanese companies
.
"The company's U.
S.
parts suppliers account for about 50%.
This part is now exported from the United States, and the process will be a little more troublesome
.
At the same time, the company has timely coordinated with suppliers in Europe and Japan to increase supply
.
The production process, GMP management, changes and production costs that may be caused, we are also actively communicating and coordinating with customers, which will not affect the business
.
" Although WuXi Biologics issued the "Statement" at the first time, the capital market responded to this.
Still reacting violently
.
Driven by market sentiment, with WuXi companies leading the decline, the CRO/CDMO sector directly set off a downward frenzy, with Zhaoyan New Drug, Kanglong Chemical, Asymchem, and Kyushu Pharmaceuticals falling one after another
.
The "list" name is just a fuse? China's pharmaceutical innovation is under pressure The updated UVL includes WuXi Biologics, which is the first time that China's biopharmaceutical innovation enterprises have appeared on the list
.
It is reported that most of the companies included in UVL in the past are high-tech companies such as electronic information, precision optics, aviation, machine tools, and liquid crystal manufacturing, as well as university research institutions, national laboratories, etc.
After the inclusion of 33 Chinese entities this time, the list is The total number of entities included has exceeded 170
.
In fact, it is not the first time that unfavorable news from the United States has caused turmoil in the capital market
.
On June 8, 2021, the U.
S.
Senate passed the "2021 American Innovation and Competition Act", and Article 7 of the 10 key technologies identified for the first time is biotechnology, medical technology, genomics and synthetic biology
.
This field is also the key area of ​​China's "14th Five-Year Plan and 2035 Vision Outline", which clearly includes gene and biotechnology and clinical medicine and health into the key areas of scientific and technological frontier technology research.

.
On December 15 last year, the Financial Times reported that the U.
S.
Treasury Department will sanction 8 Chinese companies, and it is expected to add more than 20 Chinese companies to the “sanction list” on the 16th, including some companies involved in biotechnology.

.
Subsequently, the news of the "sanctions list" caused violent shocks in the pharmaceutical sector of the capital market
.
In the afternoon of December 15th, the pharmaceutical sector of the capital market started an avalanche, especially the stock price of CXO companies fluctuated the most: WuXi PharmaTech suffered a double kill of "A+H", Hong Kong stocks closed at HK$130.
80 per share, down 19.
06%, and A shares fell by the limit.
It closed at 124.
02 yuan/share, and the stock price hit a new low since November 8, 2021; Zhaoyan New Drug's Hong Kong stock closed at HK$72.
80/share, down 16.
27%, and A shares closed at 119.
10 yuan/share, down 6.
55%; In addition, Tiger Pharmaceuticals, Asymchem, etc.
all suffered sharp declines
.
However, after the US Treasury Department officially released the SDN, the companies actually included in the list were Hebei Aidou Trading Co.
, Ltd.
, Hebei Huanhao Biotechnology Co.
, Ltd.
, Shanghai Chishun Fine Chemical Co.
, Ltd.
, Wuhan Yuancheng Co-creation Technology Co.
, Ltd.
, etc.
The four companies were all sanctioned by the U.
S.
government on the grounds that they were “suspected of smuggling fen/tai/nylon or related production materials to the United States
.
” It was finally confirmed that "suppressing technological innovation" was an "oolong" by overseas media
.
Experts in the capital market believe that the "list" name is only the "fuse" that triggers the turmoil in the capital market.
China's pharmaceutical innovation still has a long way to go, at least in the CRO/CDMO sector, core technologies, major equipment, and value markets are all It is a global dimension.
China only has the advantage of human resources cost, and it is still difficult to reach the peak of pharmaceutical innovation only by "selling water"
.
"CRO/CDMO is a good business, and the Chinese are good at doing business, but to truly make China's pharmaceutical industry receive due respect, it still depends on innovation!" Lack of original technology makes it difficult to stand alone in the highly competitive biomedical field.
It is not the difficulty faced by a certain enterprise, but the challenge that the whole system needs to face
.
The above-mentioned person further pointed out: "Facing the opportunities brought by industrial transformation and upgrading, CRO/CDMO has developed rapidly, and biopharmaceutical enterprises have been actively innovating, but we must see that some core platform technologies are still authorized by external licenses, and some Raw materials, auxiliary materials, reagents, and high-end key production equipment still need to be imported, and the localization level of the biopharmaceutical industry chain still needs to be improved
.
" Facing the "unseen changes in a century", Biotech, as an important pole of the American industrial economy, has now begun to Considering China as a competitor in the pharmaceutical industry that cannot be ignored, "list management" from APIs to preparations, from the market to technology, may encounter an increasingly severe international competition environment, and only by holding the real hard-core innovative technology In the hand, it will not be "stuck in the neck"
.
WuXi's "Two Heroes" Both Plunge How the U.
S.
Unverified List Affects CXO On February 7, the U.
S.
Department of Commerce added 33 Chinese units to the "Unverified List (UVL)", Chinese CDMO leaders Wuxi Biologics and Wuxi Wuxi WuXi Biologics (Shanghai) is among them
.
Affected by this, the stock prices of WuXi Biologics and WuXi AppTec both fell sharply
.
On the morning of February 8, WuXi Biologics explained to the public: "Because the company uses a bioreactor, it needs to submit to the U.
S.
Department of Commerce for approval every year.
The U.
S.
Department of Commerce was unable to come to inspect the company’s Wuxi and Shanghai factories, so we are temporarily listed on the inverify list, and the others will not be affected
.
” Although WuXi has responded in a timely manner, the market has not responded to the U.
S.
Department of Commerce’s XX list.
The restlessness has a long history
.
What is an "unverified list" One of the core functions of the U.
S.
Department of Commerce's Bureau of Industry and Security (BIS) is to be responsible for "civil & military" export item control, by restricting the export of mid-to-high-end technologies by U.
S.
companies to achieve what they believe to be "" National security objectives", the XX list you see now is the derivative of its regulatory behavior
.
In addition to the military end-user list, the Entity List (EL) is the strictest, mainly for trade practices that are considered to endanger the national security and diplomatic relations of the United States; UVL is mainly for end-use, and its importance and regulatory are quite satisfactory; the Denied Person List is relatively the most lenient , published as a non-Federal Notice
.
The "International Economic Law Review" pointed out that the possible situations of being included in the unverified list are: 1.
In the end-use verification, the verification object is inconsistent with the characteristics of the item governed by the US Export Control Act (EAR), such as the item's The recipient is unable to present the item subject to end-use inspection for visual inspection, or provide sufficient documentation or other evidence to confirm the disposition of the item
.
2.
The existence or authenticity of the end-use verification object cannot be verified, such as the foreign party cannot be found at the address indicated on the export document, nor can the foreign party be located by phone or email
.
3.
The end-use verification cannot be carried out due to the failure of the host government to cooperate
.
If the host country government agency does not respond to requests to conduct end-use inspections, prevent such inspections from being scheduled, or refuse to schedule such inspections in a timely manner
.
This time WuXi Biologics was included in UVL.
It is highly probable that the company imported bioreactors and some filters from the United States.
This part of the goods is subject to export control.
The US Department of Commerce needs to verify whether these parts of the goods are used for their own use and whether they have been resold to other countries
.
The impact on WuXi Biologics The most serious consequences will be spread out first.
If the UVL entity does not cooperate with the BIS, it may be upgraded to the entity list by it, which is equivalent to the export ban of the United States
.
Before WuXi Biologics was included in the UVL, "license exceptions" could be applied to normal export trade
.
After being included in the UVL, exporters, re-exporters and forwarders who trade with them need to obtain their UVL declaration, which means signing a series of declaration agreements, agreeing to BIS for end-user review, and agreeing to provide export records
.
In other words, stricter reporting compliance requirements for WuXi Biologics' re-import of related goods have increased commercial uncertainty and transaction costs.

.
Now it seems that the more direct impact is: it may cause certain obstacles to WuXi Biologics' large-scale new production capacity.
The company may need to consider switching suppliers from other countries and purchase some materials and equipment
.
When will it be removed from the list According to the management of WuXi Biologics’ conference call: the company will take temporary emergency measures to declare and guarantee to the US Department of Commerce, and will not transfer it to other entities for use, and will wait for the Ministry of Commerce to verify it later
.
In addition, it is mentioned that, to remove from UVL, only BIS is required to conduct an on-site inspection, but the time is uncertain
.
Previously, Chinese entities included in UVL had also been removed, and the duration was short
.
On April 11, 2019, the U.
S.
BIS included 37 Chinese entities into UVL, including listed companies represented by Bayi Shikong and Sanan Optoelectronics
.
On June 26, 2019, BIS in the United States revised the "Export Administration Regulations" to remove UVL from 8 companies such as Bayi Shikong and Sanan Optoelectronics.
It took less than three months from being included to being removed
.
According to the stock price trend of Sanan Optoelectronics at that time, it also experienced a wave of deep correction after April, and then went out of a sharp rise
.
According to the experience of the predecessors and possible coping strategies, it is generally necessary to submit the materials to confirm its end-use to the BIS as soon as possible.
After the BIS accepts the application, it will conduct on-site inspection or use other alternative procedures to verify the application
.
The name will be removed after BIS successfully completes the verification
.
As long as there is no problem with the company's own internal control, it is believed that with the execution of WuXi Biologics, it should be able to respond relatively quickly to ensure that the market impact is within the controllable range, but it is difficult to predict how long it will take
.
Although being included in the unverified list has less impact than the entity list, due to the uncertainty of the time required, the boots will not be on the ground, which will suppress the market sentiment.

.
It is imminent that the raw materials and equipment are independent and controllable.
Whether it is the purchase of imported culture medium outer packaging that may carry the new coronavirus, or WuXi Biologics being included in the U.
S.
unverified list due to imported bioreactors, it is a wake-up call to the market: China realizes life science The autonomous control of upstream raw materials and equipment is imminent
.
Data from Industrial Securities shows that at present, the localization rate of bioreactors in China is less than 20%, and the localization rate of culture medium is only over 10%
.
Blacksmithing needs to be hard on its own
.
How to balance the core competitiveness of life science upstream companies and inflated valuations is worthy of in-depth consideration by market investors
.
After the news comes out, don't rush to the conclusion of "big bad" or "mistaken kill", you might as well let the bullet fly for a while
.
(Yang Zekang)