It’s time for Congress to step up and fund America’s supply chain independence from Chinese companies by bolstering our domestic manufacturing capabilities.
This week, the House of Representatives overwhelmingly passed the BIOSECURE Act by a bipartisan vote of 306 to 81, as Congress seeks to prohibit contracting with certain Chinese “companies of concern” to U.S. national security. Strong congressional support for the bill was not surprising given House Speaker Mike Johnson’s promise in July that he intended to have a “significant package of China-related legislation” signed into law by the end of this year.
The BIOSECURE Act still needs to be passed by the Senate and signed into law by President Joe Biden. However, given the escalating tensions between the U.S. and Chinese governments, it seems a foregone conclusion.
Although the Senate version of the bill was voted out of the Senate Committee on Homeland Security and Governmental Affairs in March, the House version of the BIOSECURE Act “is likely to be the version that becomes law,” according to law firm Foley & Lardner, which advises healthcare and life sciences companies.
The firm contends Biden is unlikely to veto it “given its bipartisan support, his previous executive actions to support domestic biotechnology development, and his administration’s approach towards competition with China.”
In the crosshairs are five Chinese companies named in the BIOSECURE Act: BGI (formerly known as the Beijing Genomics Institute), Complete Genomics, MGI, WuXi AppTec and WuXi Biologics.
BGI in a statement said it is “deeply disappointed” that the House of Representatives passed the BIOSECURE Act. “The bill is a false flag targeting companies under the premise of national security, but in reality it will strengthen the monopoly in the genomics market held by one dominant U.S. player that has been lobbying for the bill,” according to BGI.
Illumina has lobbied Congress in support of the BIOSECURE Act, according to recent disclosure forms filed by the company and its lobbying firms.
William Blair analyst Max Smock in a note to investors this week referenced his firm’s recently conducted survey of pharma and biotech sponsors, which asked about their outsourcing experience and general trends affecting the contract research organization (CRO) industry. The survey results were “most negative” for WuXi AppTec, which provides services to several prominent drugmakers.
“Within discovery and preclinical, WuXi AppTec saw its positioning decline relative to our fall 2023 survey, and a number of players seem to be benefiting from potential disruptions at the company in light of the pending BIOSECURE Act,” Smock wrote.
So far, however, WuXi AppTec appears to be weathering the storm better than WuXi Biologics. While Wuxi AppTec’s U.S. revenue dropped only 1.2% in the first half of 2024, WuXi Biologics reported a 24% drop in net profit in the same period. Shares of both companies slumped this week on the news that the House passed the BIOSECURE Act.
Are US Drugmakers Prepared?
Lawmakers in May 2024 updated the proposed legislation with a grandfather clause that would allow existing contracts with the five named Chinese companies to be maintained until 2032, providing some leeway for U.S. firms to make other arrangements. Still, the BIOSECURE Act has already impacted the biopharma industry’s confidence in China-based service providers and prompted efforts to diversify manufacturing partners.
Smock in a separate note to investors this week wrote while it is still unclear what version of the bill the Senate will take up—and when—his firm’s view is that the BIOSECURE Act “is already well on its way to achieving its intended goal, which is to force drug manufacturing out of China.”
By one recent estimate, more than 80% of all generic active pharmaceutical ingredients (APIs) consumed in the U.S. are currently manufactured overseas, predominantly in China. According to a survey earlier this year by the Biotechnology Innovation Organization, 79% of U.S. biotech companies contract with Chinese firms.
A New York Times review of “hundreds of pages of records” revealed that WuXi in particular is “heavily embedded in the U.S. medicine chest, making some or all of the main ingredients for multibillion-dollar therapies that are highly sought to treat cancers like some types of leukemia and lymphoma as well as obesity and HIV.”
Since the bill was first introduced in January 2024, it has had a chilling effect on the industry, pressuring an already strained U.S. supply chain and threatening continued R&D. A recent GlobalData report found the legislation could affect more than 120 U.S. drugs partnered with companies named in the BIOSECURE Act, of which about half are in clinical trials and a third are in early-stage preclinical studies and discovery.
Josh Carpenter, CEO of Southern Research, a non-profit scientific research organization, warned in an opinion piece last month in BioSpace that America’s leadership is “threatened by our dependence” on Chinese companies for crucial supply chain components and “the solution lies in decoupling from China and simultaneously investing heavily in domestic manufacturing.”
In its efforts to push through the BIOSECURE Act, Congress has taken a myopic stance focused on the goal of ensuring taxpayer dollars are not used to subsidize certain Chinese biotech companies. But, it seems, lawmakers are not considering the repercussions for America’s biopharma industry. It’s time for legislators to step up and fund our nation’s supply chain independence from China by bolstering U.S. domestic manufacturing capabilities.
