Chinese biotech giant WuXi AppTec’s shares jump after Pentagon blacklist reversal

WuXi AppTec, a Chinese biotech giant, saw its shares surge on Tuesday following the Pentagon's decision to remove the company from a list of entities allegedly connected to the Chinese military. This decision, which was published in the Federal Register, marks a significant victory for the biotech service firm and boosts hopes for other mainland companies facing US blacklists.

The US deputy secretary of defense removed WuXi AppTec from the list of "Chinese military companies" on Tuesday, according to a notice published by the Federal Register. The company's shares rose more than 6 percent at the open in Hong Kong before settling at around 2 percent in early trading. Its Shanghai shares also increased by approximately 1.8 percent.

In a filing, WuXi AppTec stated that the decision relieves the company from facing further adverse consequences of the 1260H designation. The US Department of Defense initially added WuXi AppTec to its Section 1260H list in June, which blocks federal procurement and can expose targeted companies to broader restrictions and capital market risks.

The biopharmaceutical contract service firm vowed to pursue all available remedies to correct the erroneous designation and filed a lawsuit against the agency in June. The removal from the blacklist is seen as a positive geopolitical development for WuXi AppTec, potentially easing investor concerns. Jialin Zhang, head of China healthcare research at Nomura, believes that developments around the 1260H designation should have a more significant impact on sentiment than fundamentals, and anticipates a positive market reaction.

The removal from the blacklist could now enable WuXi AppTec to work on US government-funded projects. In August, WuXi AppTec secured an initial victory when the US District Court for the District of Columbia barred the Pentagon from enforcing the designation through a preliminary injunction, citing that the Pentagon's justifications were arbitrary and capricious. However, the lawsuit remains ongoing, and the company could still be added back to the list.