Shares of Wuxi Apptec (603259.SH; 02359.HK) experienced a sharp decline during the morning trading session on June 9th, with both its A-share and H-share prices falling by over 7% at one point.

This market movement follows an update from the US Department of Defense on June 8th, which added Wuxi Apptec to a list of "Chinese military companies" under Section 1260H of the National Defense Authorization Act for Fiscal Year 2021.

In response to this designation, Wuxi Apptec issued a pre-market announcement on June 9th to clarify its position, asserting that it does not meet the statutory criteria for being labeled a "Chinese military company." The company stated that the inclusion in the updated list and the purported basis for the determination are clearly erroneous.

In its announcement, the company detailed three key points: Firstly, it is not owned, controlled by, or affiliated with any Chinese military or governmental entity. Secondly, it does not provide services to the Chinese military. Thirdly, it has no connections to China's defense industrial base or civil-military integration initiatives, making the allegations underlying its inclusion on the 1260H list completely inconsistent with the facts.

This incident marks another geopolitical 'black swan' event for Wuxi Apptec following the legislative controversy surrounding the US Biosecurity Act in 2024, reigniting concerns in the capital markets about the risks associated with the company's international operations.

By the market close, the declines in Wuxi Apptec's A and H shares had moderated. The A-shares closed at 93.48 yuan per share, down 2.63%, corresponding to a total market capitalization of approximately 279 billion yuan. The H-shares closed at 116.8 Hong Kong dollars per share, down 3.71%, with a total market cap of around HK$347.34 billion.

Persistent Challenges for the Sector

The global CXO (Contract Research, Development, and Manufacturing Organization) industry has been in a phase of steady expansion in recent years. Continued increases in R&D investment by pharmaceutical companies globally and rising outsourcing penetration have driven sustained order flow and steady industry growth.

In this context, international expansion has consistently been a strategic direction for leading domestic CXO firms. However, the biopharmaceutical industry is characterized by stringent regulation and high compliance requirements. Business operations are highly sensitive to policy changes and geopolitical shifts in various countries, making cross-border regulatory volatility a routine operational challenge for Chinese biopharma companies expanding overseas.

Looking back to 2024, the legislative push for the Biosecurity Act by some US lawmakers, which identified Chinese CXO companies like Wuxi Apptec for special attention, sparked widespread discussion in global markets about the stability of their US operations.

To optimize its global business layout, Wuxi Apptec signed agreements in late 2024 to sell its WuXi ATU operations in the US and UK, as well as its US medical device testing business. These were classified as "discontinued operations," having collectively contributed revenue of 1.32 billion yuan in 2024.

With the conclusion of the 118th US Congress in early 2025, the relevant Biosecurity Act proposals were not passed. Wuxi Apptec's operating performance subsequently returned to a path of steady growth, achieving record annual revenue of 45.46 billion yuan in 2025, a 15.8% year-on-year increase. Net profit attributable to shareholders reached 19.15 billion yuan, surging 102.6% year-on-year.

Breaking down the operational data, Wuxi Apptec's revenue from continuing operations in 2025 was 43.42 billion yuan, with revenue from US clients amounting to 31.25 billion yuan, a 34.3% increase. Against the backdrop of steady industry recovery and the continuous improvement of global compliance systems, this recent inclusion on the military-related list may once again serve as a risk warning for the overseas operations of the CXO industry.

Foundations for Risk Resilience

In fact, addressing geopolitical changes, Wuxi Apptec noted in its 2025 annual report that it has established or acquired several companies to advance its global business development, accumulating extensive international operational experience over the years. The company's overseas operations and establishment of entities require compliance with local laws and regulations, and to a certain extent, rely on raw material suppliers, clients, and technical service providers to ensure the orderly conduct of daily business.

Concurrently, the company candidly disclosed potential risks of its global operations, such as significant changes in laws, regulations, industrial policies, or the political-economic environment in countries where it operates, or impacts from unforeseen factors like international tensions, war, trade sanctions, or other force majeure events, which could adversely affect its normal and sustainable global business development.

Regarding the impact of this recent US listing, an industry analyst indicated that the short-term effect is likely limited. On one hand, R&D outsourcing partnerships with global large pharmaceutical companies are characterized by strong stability and long cycles, with high barriers to switching partners. On the other hand, Wuxi Apptec has built a robust compliance system and high technical barriers, routinely undergoing various global regulatory and client compliance audits, and has developed strong capabilities in data authenticity, integrity, and reliability.

Solid compliance capabilities may be the core support for its resilience against overseas risks. According to Wuxi Apptec's 2025 annual report, the company underwent 741 quality audits and inspections from global clients, regulatory bodies, and independent third parties during the reporting period, with no major findings. It also underwent 60 information security audits from global clients, again with no major findings. Twenty of its major operational sites have obtained the internationally recognized ISO/IEC 27001 Information Security Management System certification, covering all its major operational bases in China.

It is noteworthy that in this updated US 1260H list, besides Wuxi Apptec, the domestic gene sequencing company Novogene (688315.SH) was also included. Public information shows that Novogene, leveraging high-throughput sequencing and bioinformatics technologies, has established a leading-scale gene sequencing platform. Combined with multi-omics research techniques, it provides multi-level scientific research technical services and solutions for basic life science research, as well as medical and clinical application research. It also develops innovative gene testing medical devices based on its technological expertise in sequencing and its applications.

In terms of performance, the company achieved operating revenue of 2.21 billion yuan in 2025, a 4.66% year-on-year increase. Net profit attributable to shareholders was 167 million yuan, a decrease of 15.16% year-on-year. Additionally, overseas technology services constitute a significant part of Novogene's revenue stream. Geographically, Novogene has established locally operated laboratories in the US, UK, Singapore, Germany, and Japan.

Acknowledging global operational risks, Novogene stated in its annual report that uncertainties remain in the global macro-environment, including supply chain disruptions from geopolitical shifts, monetary policy adjustments in major economies, the ongoing evolution of trade protectionist policies, and tightening regulations in data security and biosecurity, all of which could impact its domestic and international business to varying degrees. The company stated it will closely monitor macroeconomic trends and industry developments, continuously strengthen operational management and cost control, optimize capital management strategies, and enhance overall risk resilience.

The analyst added that in the context of escalating global compliance regulations, competition for biopharmaceutical companies is no longer just about investing more resources to meet diverse international requirements; client demands have also become more stringent. Compliance capability is becoming a core bargaining chip in the global supply chain restructuring and a key element in building long-term core competitiveness.

Regarding the listing of Wuxi Apptec and other companies on the US military-related list, some industry observers suggest that legal proceedings may be the most feasible recourse to correct the erroneous designation. Compared to short-term business fluctuations, subsequent shifts in market sentiment and the confidence of global partner clients will require ongoing monitoring.