On December 7, 2024, local time in the USA, the military committees of both houses of Congress released the final agreement text for the fiscal year 2025 National Defense Authorization Act (NDAA), which balances proposals from both the House of Representatives and the Senate. The latest version of the NDAA shows that the biosecurity act has not been included.

According to the procedure, this version must be signed by the President of the USA to take effect.

On December 5, local time, the American news media focused on the biopharmaceutical industry, Endpoints, reported that sources said lawmakers are considering a compromise on the legislation concerning the biosecurity act, which would increase administrative review rather than directly prohibiting biopharmaceutical companies from collaborating with Chinese companies.

Allegedly, the potential revisions involve a key part of the legislation that specifically lists the names of Chinese companies; the compromise version may incorporate increased administrative review into the process, giving the White House or federal agencies the final decision authority on the issuance of restrictions.

Previously, HR8333 passed a collective vote in the House of Representatives, and with only the remaining workdays before December 20 this year, the timing of this year's legislative deadlines is becoming increasingly urgent.

The process of advancing the biosecurity act has been very tortuous, spanning almost an entire year without achieving substantial breakthroughs, further proving the irreplaceable industrial position of Chinese CDMO at present, as overseas scaled replacements are not achieved overnight, and decoupling presents significant difficulties.

Previously, institutions repeatedly emphasized three key events worth paying attention to in the CXO sector (legislation, interest rate cuts, new orders), which can provide clearer determinations on industry trends and turning points. However, from the perspective of stock prices, several CXOs are in the bottom range, and negative expectations are basically reflected in the current valuations, with limited short-term risks.

Looking at the medium to long term, with the implementation of legislation, improvement in the external environment, and new capabilities and capacities gradually contributing, the sector's growth rate is expected to turn upwards. Moreover, new molecules and therapies such as peptides, oligonucleotides, and CGT are likely to continually inject high prosperity into the sector, making the bottom layout opportunities in the CXO sector bullish.

Global investment and financing are gradually bottoming out, CXO orders are stable or even experiencing high growth, and leading CXO companies show a trend of improving gross margins quarter by quarter. The performance and profitability of CXOs are expected to turn upwards.

- Growth: From Q1 2023 to Q3 2024, many leading CXO companies have shown quarter-on-quarter YOY revenue increases. Substantial orders and investment financing are dragging the bottom recovery, and order execution is expected to drive YOY revenue further upwards.

- Profitability: From Q1 to Q3 2024, many leading CXO companies are showing an upward trend in gross margins, digesting pricing and capacity cycles.

- Orders: From Q1 to Q3 2024, leading CXOs such as Wuxi Apptec (on hand YOY +35.2%), Tigermed, Pharmaron (new orders YOY +18%), Asymchem Laboratories (new orders +20% in H1 2024), and Porton Pharma Solutions (on hand YOY +40%) will continue to experience rapid growth in orders.

Leading companies related to the CXO sector include:

Wuxi Bio (02269), Wuxi Apptec (02359), Asymchem Laboratories (06821), Pharmaron (03759), Tigermed (03347), and Joinn Laboratories (06127), among others.