WuXi Biologics to Sell Irish Vaccine Facility to Merck for $500 Million

On January 6, 2025, WuXi Biologics (02269.HK) issued an announcement stating that its wholly-owned subsidiary, WuXi Vaccines, had entered into an agreement with MSD International GmbH (hereinafter referred to as “Merck & Co.”), under which Merck & Co. will acquire WuXi Vaccines’ vaccine manufacturing facility in Ireland for a total transaction amount of approximately US$500 million.

The transaction is expected to be completed in the first half of 2025, subject to the satisfaction of customary closing conditions. This transaction will have no impact on either the biologics manufacturing facility in Ireland or the vaccine manufacturing plant in Suzhou.

Notably, just two weeks ago, WuXi AppTec (603259.SH/02359.HK) also divested certain overseas assets. On December 24, 2024, WuXi AppTec announced the sale of its overseas gene therapy business, including the U.S. and U.K. operating entities of its wholly-owned subsidiary, WuXi Advanced Therapies.

WuXi Biologics is China’s leading biologics CXO (pharmaceutical outsourcing) company. WuXi Haideng was formerly a joint venture established by WuXi Biologics and Haili Bio (603718.SH), with WuXi Biologics holding a 70% stake and Haili Bio holding a 30% stake. In August 2024, WuXi Biologics acquired the 30% equity interest in WuXi Haideng held by Haili Bio for approximately USD 100 million, making it a wholly-owned subsidiary and consolidating its financial results into WuXi Biologics’ financial statements.

In November 2019, WuXi Heide announced a $240 million investment to build vaccine drug substance and drug product manufacturing facilities (i.e., dedicated vaccine plants) in Ireland for Merck & Co., including drug substance (DS) production, drug product (DP) production, Manufacturing Science and Technology (MS&T) laboratories, and Quality Control (QC) laboratories, with commercial production originally scheduled to commence in 2022.

Subsequently, in February 2020, WuXi Heide signed a vaccine production and supply agreement with Merck & Co., spanning approximately 20 years, to continue the development of a dedicated vaccine manufacturing facility in Ireland. The total value of this contract is approximately $3 billion.

Furthermore, since 2022, the vaccine manufacturing base has focused on technology transfer to produce high-quality vaccines for the global market. The facility’s main production infrastructure—including formulation and drug substance production facilities, the central quality control laboratory, warehouses, and utilities—is expected to undergo Good Manufacturing Practice (GMP) certification by the Health Products Regulatory Authority (HPRA) of Ireland in 2025.

At that time, the industry regarded the aforementioned strategic partnership as pioneering a new model of collaboration in the vaccine sector, holding historical significance for WuXi Biologics, WuXi Heide, and even the global vaccine industry.

Given the highly complex manufacturing processes, the multitude of analytical and testing methods, and stringent regulatory standards, vaccine production poses significant challenges. Process quality control during manufacturing is therefore critical to ensuring product quality. The strategic partnership between WuXi Heide and global vaccine giant Merck & Co., Inc. (known as MSD outside the U.S. and Canada), under which WuXi Heide will exclusively manufacture an innovative vaccine for global supply, further demonstrates the technological leadership of WuXi Biologics and WuXi Heide, as well as their global high-standard quality systems.

On February 21, 2022, WuXi Biologics, WuXi Biologics Investments, and Haili Bio respectively transferred their 35%, 35%, and 30% equity interests in Shanghai WuXi Heide to WuXi Vaccines (Hong Kong) Limited (“WuXi Vaccines”). This transaction, akin to a subsidiary selling assets to its sub-subsidiary, did not result in any change in the ultimate equity ownership.

Two and a half years later, in August 2024, Haili Biological announced two asset disposal plans. The first involved the company’s proposed cash acquisition of a 55% equity stake in Ruisheng Biological from Meilun Management, valued at RMB 935 million. The second entailed the company’s proposed sale of its 30% equity stake in WuXi Hyde to WuXi Biologics, valued at USD 108.5 million.

Undoubtedly, this move immediately drew market attention.

However, the reasons for the sale specified in Haili Bio’s announcement subtly suggest dissatisfaction with WuXi AppTec HD’s business performance. According to the announcement, Haili Bio is divesting assets that are expected to fall short of the listed company’s profitability targets in the near term and whose operational decisions are difficult to control, so as to realize investment returns, focus on controllable resources, enhance liquidity for the listed company, and strengthen its risk resilience.

According to Haili Biotechnology’s annual reports over the years, WuXi Hyde’s revenues from 2021 to 2023 were RMB 1.271 billion, RMB 1.053 billion, and RMB 983 million, respectively; its net profits were RMB 36.1043 million, RMB 32.1055 million, and RMB 38.2968 million, respectively. In the first four months of 2024, WuXi Hyde reported a net loss of RMB 20.9433 million.

Behind Haili Biologics’ rush to dispose of assets lies the company’s lackluster performance. In the first half of 2024, Haili Biologics reported revenue of RMB 108 million, a year-on-year decline of 9%; net profit attributable to shareholders of the parent company amounted to RMB 15.125 million, down 81.5% year on year; after deducting non-recurring gains and losses, the company posted a loss of RMB 13.0297 million.

Regarding the change in performance, Haili Bio stated that it was mainly due to the divestiture of related assets, the decline in performance of WuXi Hyde, an overseas investment, and the accrual of employee equity incentive expenses. Previously, in 2019 and 2020, Haili Bio also experienced losses, at which time the company attributed them to factors such as industry cycle fluctuations and the impact of the COVID-19 pandemic.

Over the past three years, Haili Bio’s profitability has also declined. From 2021 to 2023, the company reported revenues of RMB 347 million, RMB 300 million, and RMB 241 million, respectively; net profit attributable to shareholders of the parent company of RMB 53.857 million, RMB 122 million, and RMB 62.87 million, respectively; and net profit after deducting non-recurring gains and losses of RMB 22.719 million, RMB 24.814 million, and RMB 11.822 million, respectively.

From a business segment perspective, in addition to its animal health operations, Haili Bio is also engaged in the IVD business. However, both the animal health and IVD segments are currently facing developmental challenges, which have not only led to a decline in Haili Bio’s performance but also compelled the company to further optimize its assets and increase investment in new business ventures.

As WuXi Heide’s major projects have not yet been commercialized, the restructuring employed the market approach for valuation, which determines the value of the target by comparing it with comparable listed companies or comparable transaction cases. The restructuring draft revealed that the selected comparables were WuXi AppTec, Jiuzhou Pharmaceutical, and Asymchem. At that time, according to calculations by Cai Zhong She based on the closing prices in the A-share market on September 18, 2024, the price-to-book (P/B) ratios of these three comparables were 2.13x, 1.31x, and 1.41x, respectively. In contrast, the assessed P/B ratio for WuXi Heide was 1.23x, lower than those of all the aforementioned comparables, raising suspicions that the assets were sold at an undervalued price.

It should be noted that in recent years, China’s CDMO market has transitioned from a period of rapid growth to one of adjustment, with public opinion often leaning toward pessimism. However, viewed through the lens of global development trends, the CDMO sector remains promising in the long term. Moreover, backed by the WuXi ecosystem, WuXi Heide is widely regarded by the market as a high-quality asset.

For WuXi Biologics, the sale of its vaccine manufacturing facility in Ireland by WuXi Heide can be regarded as a significant step in its global resource allocation and business layout. According to the announcement, this transaction enables WuXi Biologics to further focus on its vaccine production base in Suzhou, China, and enhance its market position and competitiveness in the vaccine CDMO (Contract Development and Manufacturing Organization) sector by concentrating resources and efforts on developing the Suzhou facility. Furthermore, the divestiture of the vaccine facility will generate cash flow for WuXi Biologics, which can be used not only for business development and daily operations but also for share repurchases.

The market infers that WuXi Biologics’ sale of its overseas vaccine production facilities stems from the same rationale as WuXi AppTec’s divestment of overseas assets: namely, WuXi Biologics is responding to pressures arising from the Biosecurity Act. The Biosecurity Act has cast a shadow over the “WuXi Group” since January 2024. In the year following their inclusion on the list of specific biotechnology companies subject to scrutiny under the Act, the share prices of both WuXi AppTec and WuXi Biologics have fluctuated in tandem with developments related to the Biosecurity Act.

On a global scale, sentiment toward the CDMO industry has been less than positive since 2024. In recent years, the CDMO sector has undergone significant transformations, including expansion of the global market size, shifts in geographic distribution, upgrades in business models, and iterations of new technologies. Today, facing a crisis of overcapacity compounded by regional development dynamics, the industry stands at a tipping point between boom and bust, seeking new pathways forward. As CDMO giants such as Catalent divest assets and Lonza closes facilities, multinational corporations (MNCs) are increasingly stepping in to acquire these assets.

As the acquirer of WuXi Heide’s vaccine manufacturing facility in Ireland, Merck & Co., one of the world’s four major vaccine manufacturers, clearly views the acquisition of this Irish vaccine site as a significant step in further strengthening its global vaccine supply chain.

Notably, the vaccine manufacturing facility in Ireland was specifically designed and built for Merck & Co., featuring advanced production equipment and a rigorous quality control system capable of meeting Merck’s global demand for high-quality vaccine products. Through this acquisition, Merck directly manages the quality and efficiency of subsequent vaccine production, thereby reducing production costs and enhancing its market competitiveness.

Furthermore, Ireland has evolved into a global manufacturing hub for biopharmaceuticals. Over the past decade, it has invested tens of billions of euros in the biopharmaceutical sector to build and continuously strengthen a positive, closed-loop industrial chain, making it one of the preferred destinations worldwide for traditional biopharmaceutical manufacturing. Regulation, low taxation, geographic advantages, a robust talent pool, and a comprehensive pharmaceutical supply chain are interlinked to form Ireland’s pharmaceutical ecosystem. As a key European nation, Ireland offers competitive geographic location and business environment, serving as a strategic springboard for multinational corporations (MNCs) to access the European market.

In this transaction, WuXi Biologics has not yet disclosed the specific vaccine products to be manufactured at its Irish vaccine facility. Currently, Merck’s flagship vaccines are its HPV vaccines, including the quadrivalent and nonavalent HPV vaccines, which hold a firmly entrenched market-leading position. Nevertheless, even a powerhouse like Merck must contend with the increasingly intense competitive landscape driven by future iterations of HPV vaccines.

However, these two vaccines are encountering a growth bottleneck. Constrained by declining sales in China, Merck’s HPV vaccine performed poorly in the first three quarters of 2024. For instance, in the third quarter of 2024, sales of Merck’s HPV vaccine reached $2.306 billion, representing an 11% year-on-year decrease. Due to the underperformance of its HPV vaccine, Merck has also lowered the upper end of its full-year sales guidance.

In the pneumococcal vaccine arena, Merck & Co. and Pfizer are engaged in fierce competition, with the latter boasting its Prevnar product line. In 2024, Merck intensified its offensive as its 21-valent pneumococcal conjugate vaccine, Capvaxive (V116), received FDA approval in June, becoming the first pneumococcal conjugate vaccine specifically designed for adults.

Furthermore, Merck & Co. has strategically positioned next-generation products across many niche segments to strengthen its product moat; therefore, securing its global supply chain and production capacity is particularly critical and requires early strategic deployment.

In the long term, driven by global population aging and the evolving landscape of infectious diseases, demand in the vaccine market is expected to continue growing during the prevention phase. It can be argued that Merck & Co.’s strategic move aims to better respond to market changes and challenges by continuously optimizing and expanding its global vaccine production network, thereby enhancing its supply capacity and market share in the global vaccine market.