Futu: US-China Biotech Geopolitical Risks Easing; CXO Sector Set for Recovery
On.cc · 1 SOURCES1 day ago6 MIN
Summary
Futu Securities projects a recovery in China's Contract Research, Development and Manufacturing Organization (CRDMO) sector as US-China biotech geopolitical risks ease. The US Treasury's proposed new regulations on biomedical investment targeting China adopt a precision-control approach rather than the comprehensive restrictions seen in semiconductors or artificial intelligence. The CXO industry, often called the "shovel sellers" of pharmaceutical research and development, entered a structural recovery phase in 2025 following an upcycle from 2015 to 2021 and a downturn from 2022 to 2024.
Key Points
- The US Treasury's new regulations permit most pharmaceutical licensing, equity investments, and joint development collaborations between American and Chinese firms, with restrictions only on national security-sensitive directions .
- The CXO industry cycle is driven by four key factors: R&D investment, biotech financing, blockbuster drug developments, and outsourcing rates, spanning 7 to 15 years .
- WuXi AppTec (WuXi Kangde, 藥明康得), the sector leader, has deep strategic positioning in GLP-1, oral cyclic peptides, and small nucleic acids, with next year's forward P/E at approximately 20 times, significantly below overseas peers .
- WuXi XDC acquired Dongtao Pharmaceutical (Dongyao Yaoye, 東曜藥業) at a 99 percent premium of 4 Hong Kong dollars per share, targeting the company's verified ADC commercial manufacturing capacity .
- Dongtao Pharmaceutical is undertaking commercial production of Lepu Biologics' (Lepu Shengwu, 乐普生物) Vegubiktamab (Weibei Katuota Daning, 維貝柯妥塔單抗), the world's first approved EGFR-targeted antibody-drug conjugate (ADC) .
Why It Matters
The targeted approach of US investment regulations removes a significant cloud of uncertainty over China's biomedical sector, potentially unlocking valuation recovery for CXO companies that have underperformed since 2022. For Hong Kong investors, the structural recovery presents opportunities in sector leaders like WuXi AppTec and emerging beneficiaries such as Dongtao Pharmaceutical, which trades at a valuation anchor of 4 Hong Kong dollars per share following its acquisition by WuXi XDC .
The targeted approach of US investment regulations removes a significant cloud of uncertainty over China's biomedical sector, potentially unlocking valuation recovery for CXO companies that have underperformed since 2022. For Hong Kong investors, the structural recovery presents opportunities in sector leaders like WuXi AppTec and emerging beneficiaries such as Dongtao Pharmaceutical, which trades at a valuation anchor of 4 Hong Kong dollars per share following its acquisition by WuXi XDC .