On September 9, 2024, the U.S. House of Representatives voted 306-81 in favor of H.R. 8333, known as the Biosecure Act.[i] The Biosecure Act prohibits U.S. companies from entering into contracts with biotechnology “companies of concern” and their U.S. subsidiaries.[ii] Specifically, the bill blocks partnerships with BGI Group, MGI, WuXi AppTec, WuXi Biologics, and MGI’s U.S.-based subsidiary Complete Genomics.[iii] To maintain eligibility for Medicare and Medicaid—vital revenue sources for many pharmaceutical companies—the bill’s current version mandates that U.S. drugmakers terminate relationships with these Chinese contractors by 2032.[iv]
In light of the recent passage of the Biosecure Act, significant concerns have been raised among stakeholders in the pharmaceutical and biotechnology sectors, particularly regarding potential supply chain disruptions. Chinese-based companies have become major partners for U.S., European, and U.K. drugmakers as the industry has sought their manufacturing expertise and support in developing clinical programs.
According to a survey conducted by the Biotechnology Innovation Organization of 124 biopharmaceutical and biotechnology companies, 79% reported having at least one contract or product linked to a China-based or China-owned development and/or manufacturing organization.[v] The survey’s key takeaway indicates that companies may need as many as eight years to transition to new manufacturing partners, with more advanced research programs requiring even longer adjustment periods. Companies with already-approved medicines would face the most significant delays.[vi]
In particular, WuXi has built one of the largest biologics manufacturing networks globally, serving as a key contract manufacturer for many major pharmaceutical companies. WuXi has played a crucial role in the development of numerous drugs in the U.S. in recent years, including Trikafta, a groundbreaking drug that treats cystic fibrosis and has significantly extended the life expectancy of many U.S. residents, and Trogarzo, the first HIV-1 inhibitor and long-acting monoclonal antibody for multidrug-resistant HIV-1.[vii] Stakeholders in WuXi and other companies that rely on it are concerned that the BioSecure Act will heavily impact U.S. companies and threaten WuXi’s revenues, as most of its business is conducted with U.S. firms, including the twenty largest pharmaceutical companies.
The U.S. pharmaceutical industry’s increasing dependence on Chinese contract manufacturers stems from limited access to affordable manufacturing resources and the high costs of transitioning to different partners.[viii] While some companies have started reviewing their contractual relationships and exploring manufacturing alternatives outside of China, biotech firms are apprehensive about a potential industry-wide shift back to U.S. manufacturing. They are particularly concerned about the likelihood of higher drug prices being a significant drawback. For instance, Ultragenyx noted in a securities filing that “significant increases in business at our single source suppliers resulting from such activities could adversely limit capacity at such suppliers to manufacture our products or result in price increases, interruptions, or delays of our products.”[ix] This highlights a broader concern that severing ties with established partners may lead to unintended consequences, including supply chain disruptions that could stifle innovation and drive up costs.
On the other hand, some rival contract manufacturers may benefit from the situation as pharmaceutical companies look to diversify their supply chains.[x] Major U.S. life science suppliers and contract manufacturers have expressed optimism about potential business opportunities and partnerships that could arise as companies seek alternatives. For instance, Thermo Fisher has highlighted the advantages of localizing supply chains and noted an increase in client inquiries following the introduction of the proposed legislation.[xi]
Nevertheless, another substantial concern remains: stagnation. Drug development in the biotech industry could slow due to the abrupt severing of ties with these Chinese companies and the necessity of sourcing alternative manufacturers. Smaller biotech firms that rely exclusively on these partnerships may be driven out of business due to the high costs associated with transitioning to new manufacturing services. Critics of the bill stress potential delays and shortages in drug production as companies transition to different manufacturers.[xii]
In response to the Biosecure Act, U.S. companies must conduct thorough audits of their supply chains to mitigate the risk of disruption. Recommended actions include: (1) determining whether any aspects of their supply chains rely upon biotechnology equipment or services from BGI, MGI, Complete Genomics, WuXi AppTec, and WuXi Biologics, as well as their subsidiaries and related companies; (2) assessing reliance on any other biotechnology companies located in North Korea, China, Russia, or Iran, and evaluating whether those entities may be designated as “biotechnology companies of concern;” (3) exploring substitutes for the equipment or services provided by biotechnology companies at risk of being designated as “of concern” to minimize business disruptions; and (4) evaluating termination provisions in contracts with biotechnology companies that may be affected by the legislation, as the costs associated with early termination could outweigh the risks of losing a supply chain partner abruptly.[xiii]
Ultimately, while many within the pharmaceutical industry may see negative consequences from the Biosecure Act, the overall impact raises critical questions about the U.S. biotechnology sector’s capacity to maintain innovation and manufacturing capabilities domestically. Transitioning to alternative partners may prove challenging, particularly given the potential shortfall of necessary resources to effectively replace the established relationships currently in place with Chinese manufacturers. Without a clear pathway to ensure continued access and a thoughtful approach to decoupling from China, the potential loss of access to approved medicines or stalled research and development could affect millions of patients.
[i] See Daniel Wilson, House Oks Bill to Bar Contracts with Chinese Biotech Cos., L. 360 (Sept. 9, 2024, 8:45 PM), https://www.law360.com/internationaltrade/articles/1877881/house-oks-bill-to-bar-contracts-with-chinese-biotech-cos.
[ii] Biosecure Act, H.R. 8333, 118th Cong. (2024).
[iii] See Wilson, supra note i.
[iv] See Frasier Kansteiner, After Biosecure Act Passes in House, Targeted Chinese Companies Say They’re ‘Deeply’ Concerned, Fierce Pharma (Sept. 10, 2024, 10:40 AM), https://www.fiercepharma.com/pharma/bavarian-nordic-inks-unicef-agreement-1m-mpox-vaccines-boosts-revenue-outlook-after-several.
[v] See Trade Association Survey Shows 79% of US Biotech Companies Contract with Chinese Firms, Reuters (May 8, 2024, 7:33 PM), https://www.reuters.com/business/healthcare-pharmaceuticals/trade-association-survey-shows-79-us-biotech-companies-contract-with-chinese.
[vi] See Cyrus Fan, The US Biosecure Act Threatens to Destabilise the Pharmaceutical Industry, Pharm. Tech. (July 17, 2024), https://www.pharmaceutical-technology.com/analyst-comment/us-biosecure-act-destabilise-pharmaceutical-industry.
[vii] See Christina Jewett, Chinese Company Under Congressional Scrutiny Makes Key U.S. Drugs, N.Y. Times (Apr. 15, 2024), https://www.nytimes.com/2024/04/15/health/wuxi-us-drugs-congress.html.
[viii] See Trade Association Survey Shows 79% of US Biotech Companies Contract with Chinese Firms, supra note v.
[ix] Jonathan Gardner, House Backs Bill Restricting China Role in US Biotech, Biopharmadive (Sept. 10, 2024), https://www.biopharmadive.com/news/biosecure-pass-house-vote-wuxi-china-biotech.
[x] See Impact of the US Biosecure Act on Biopharmas, Contract Services and Investors, LEK (July 2, 2024), https://www.lek.com/insights/hea/global/ar/impact-us-biosecure-act-biopharmas-contract-services-and-investors.
[xi] See Fan, supra note vi.
[xii] See id.
[xiii] See Janine Little, U.S. House of Representatives Passes the Biosecure Act During “China Week”, Glob. supply chain blog (Sept. 13, 2024), https://www.globalsupplychainlawblog.com/supply-chain/u-s-house-of-representatives-passes-the-biosecure-act-during-china-week/.
