BIOSECURE Act ‘Poses Substantial Challenges’ to U.S. Biotech, Pharma Industries

As U.S. tensions with China rise, federal legislation is proposing limiting federal agencies’ contracting with certain biotech companies. But the efforts have the potential to affect a large swath of the U.S. biotech and pharmaceutical industries, say experts, who recommend that firms should start assessing their potential exposure in order to mitigate any impact on their operations.

On Dec. 20, 2023, Sen. Gary Peters (D-Mich.) introduced S. 3558; on Jan. 25, Rep. Mike Gallagher (R-Wis.) introduced the House version, H.R. 7085. Known as the BIOSECURE Act, the legislation would ban federal contracting with a “biotechnology company of concern,” and it specifically mentioned Chinese companies BGI (formerly known as Beijing Genomics Institute), MGI, Complete Genomics, WuXi AppTec and any of their patent companies, subsidiaries or successor of these entities. It also includes any entity that:

• “is subject to the jurisdiction, direction, control, or operates on behalf of the government of a foreign adversary;
• “is involved in the manufacturing, distribution, provision, or procurement of a biotechnology equipment or service; and
• “poses a risk to U.S. national security based on specified activities.”

The U.S.’s current foreign adversaries per the U.S. Code are China, Cuba, Iran, North Korea and Russia.

The legislation would apply to federal agencies such as the Department of Defense, Department of Energy, Department of Veterans Affairs (VA) and HHS, including the Centers for Disease Control and Prevention (CDC), the National Institutes of Health and the FDA.

A broad amount of biotech services and products would be impacted, explained attorneys from Ropes & Gray, “encompassing any instrument or service in ‘research, development, production, or analysis’ related to ‘biological materials.’ This includes software, data storage, consulting services, support services, and disease detection.”

The bill called for two enforcement timelines. The specific companies it mentioned would be off-limits for federal contracting either 120 days after the act was enacted or 60 days after the Office of Management and Budget (OMB) issues implementing guidance, whichever is first. Other biotech companies of concern would be restricted 180 days after OMB guidance. The legislation called for OMB to publish a list of these companies 120 days after it was enacted.

The House legislation was referred to the House Committee on Oversight and Accountability. The Senate bill was referred to the Committee on Homeland Security and Governmental Affairs, which approved the bill 11-1 and reported it to the Senate floor on March 6.

According to the Ropes & Gray attorneys, “Given the scale of BGI, MGI, Complete Genomics, and WuXi [AppTec], in particular, and their many commercial relationships with life sciences companies of all sizes, if the bill is enacted, one would expect it would have a sizable impact on the industry, as it would require companies that have (or would seek to obtain) contracts with the U.S. government to make significant and often complex changes to their operations and would increase demand for substitute equipment and services.”

Bill Called Out China, PLA, CCP

China “seeks to dominate” the biotech industry, said the House bill, and Chinese biotech firms “have repeatedly collaborated with PLA [People’s Liberation Army] entities.” Chinese law “requires companies that are controlled by a PRC [People’s Republic of China] entity, like BGI, to comply with PRC national security laws, which provide the Chinese Communist Party (CCP) with the power to compel Chinese companies to turn over their data.” In addition, it claimed, BGI “is engaged in a global campaign” to collect genetic data. The company also owns MGI and Complete Genomics, it said.

WuXi AppTec poses “a national security threat” to the U.S., according to the House bill. The company has sponsored military-civil events in China and given awards to PLA researchers, among other actions, it claims. And WuXi Biologics’ CEO, Chris Chen, has served as an adjunct professor at the PLA’s Academy of Military Medical Sciences, it said.

The bill said its goals are to stop U.S. tax dollars from going to “foreign adversary biotech companies” with ties to the PLA and to prevent U.S. taxpayers from purchasing “biotech equipment from foreign adversaries that facilitate the transfer of” citizens’ genetic information to “a foreign adversary.”

Peters and Gallagher also reached out to the secretaries of the departments of Commerce, Defense and Treasury about their concerns. In a Feb. 12 letter, they, along with Rep. Raja Krishnamoorthi (D-Ill.) — one of the original sponsors of the House bill — and Sen. Bill Hagerty (R-Tenn.) — one of the original Senate bill sponsors — claimed that WuXi AppTec is “closely affiliated” with the PLA, “has public ties” to the CCP and “has been involved in perpetrating the CCP’s genocide against the Uyghurs in Xinjiang.…WuXi AppTec and WuXi Biologics are rapidly becoming a global pharmaceutical and research-services giant that threatens U.S. intellectual property and national security. Both companies have close ties to the CCP and have worked at its behest, in multiple instances.” They urged the departments to include the company and its subsidiaries in their respective control lists.

Targeted Companies Push Back

On Feb. 3, WuXi AppTec posted an open letter to its customers calling the legislation a “misguided…initiative to target our company without a fair and transparent review of the facts. We are equally concerned by the serious impact the unwarranted allegations and harmful actions would have on patients who rely on the life-saving and innovative work our customers perform in the United States and around the world.” The company, its leaders claimed, “does not pose a national security risk to any country,” and “has a strong track record of upholding the highest intellectual property, data and privacy protection standards, as well as maintaining the trust of our customers.”

On July 31, Stat published a First Opinion article by Radoje Drmanac, Complete Genomics’ founder and chief science officer. He also called the BIOSECURE Act “misguided” and “flawed” and claimed that his company does not have access to Americans’ DNA data. He pointed to an FTI Consulting, Inc. assessment that “found no vulnerabilities” with the company’s flagship sequencer.

He also disputed the bill’s claim that his company is a subsidiary of BGI. While BGI did acquire Complete Genomics in 2013, Complete Genomics’ parent company, MGI, completed an initial public offering (IPO) in September 2022 and is an independent, publicly traded company on the Shanghai Stock Exchange, said Drmanac.

“Today, Complete Genomics is 100% owned by MGI. MGI and Complete Genomics have their own management, employees, and assets, and neither is any longer a subsidiary of BGI,” he wrote. “We have made multiple attempts to inform policymakers about these facts — and make the case that my company does not belong in the bill — but to date Congress has not made the appropriate changes.”

Drmanac also maintained that the legislation would put American genome researchers at a disadvantage and allow “many companies with large volumes of DNA data sell or transfer this data without any legal protections.”

Other companies defended themselves as well.

On March 13, John F. Crowley, the president and CEO of the Biotechnology Innovation Organization (BIO), issued a statement of support for the BIOSECURE Act and said his group would “work with Congress as this legislation progresses.…BIO will work with policymakers on both sides of the aisle to ensure that we have the biomanufacturing and distribution capacity and capabilities so that no patient ever goes without the medicines they need. Biomanufacturing resiliency is a strategic imperative that is essential for long-term U.S. leadership and security.”

The following day that statement was updated to note that BIO member WuXi AppTec had ended its membership with the organization.

BIO Survey Shows Dependence on Companies

BIO, however, proceeded to conduct a survey on the biopharma supply chain to determine how dependent U.S. companies are on Chinese contract development and manufacturing organizations (CDMOs) and contract research organizations (CROs), collectively known as CxOs. Out of 134 people at 124 biopharma and biotech firms that the group polled, 79% have at least one contract or product with a China-based or China-owned CxO. Nine percent said they have more than 25 contracts.

In addition, 85% said that changing vendors for preclinical and clinical work would take anywhere from six months to six years. When it came to changing vendors for the production of marketed products, 52% of respondents said that could take two years to eight years.

Eighteen percent of respondents said that a disturbance in the services fulfilled by Chinese CxOs would impact more than half a million patients, while 20% estimated between 100,000 and 500,000 people would be affected. Sixteen percent of respondents were focused on rare diseases only.

“We must continue to advance biotechnology as a national security asset for the United States,” asserted Crowley when unveiling the findings. “As we advance toward strengthening the resilience of our biomanufacturing industry in the United States, we need as well to ensure an uninterrupted pathway to patient access to life-saving therapies for the millions of patients impacted. As we redomicile manufacturing in this country, we will work closely with Congress to pursue a comprehensive set of policies and long-term commitments to increase state-of-the-art domestic biomanufacturing capacity and capabilities nationwide and retain our position as the medicine chest to the world.”

Legislation Was Amended in May

Shortly after those survey results were made public, on May 10, Rep. Brad Wenstrup (R-Ohio) introduced an updated version of the BIOSECURE Act, H.R.8333. Among the changes are grandfathering contracts with biotech companies of concern so that deals executed before the legislation’s effective date are valid until 2032 and excluding Medicare and Medicaid agreements. Agreements with other executive agencies, including the VA and certain CDC contracts, are still impacted, explained Ropes & Gray attorneys.

The bill also added WuXi Biologics to the list of companies of concern.

On May 15, the House Oversight Committee approved the amended version 40-1.

“The grandfathering clause, safe harbor provision, and the new definition of ‘contract’ all seem to be intended to lessen the impact of the bill, by giving companies time to transition away from dependencies on the services and equipment of biotechnology companies of concern,” wrote the attorneys. “Nonetheless, the House bill is still intended to incentivize companies to transition their business to alternative equipment and service providers, and, given the scale of the biotechnology companies of concern, one would expect that in-and-of-itself to have a sizable impact, both on the individual biotechnology companies of concern and on the biotechnology ecosystem generally.”

In 2023, 65% of WuXi AppTec’s revenue was from commercial projects in the U.S. The same year, almost half — 47.4% — of WuXi Biologics’ revenues were from North American projects. The latter entity has worked with the top 20 global pharma companies.

WuXi AppTec also has a hand in the production of some important drugs. Its subsidiary WuXi Advanced Therapies is involved in the manufacturing of the first FDA-approved tumor-infiltrating lymphocyte (TIL) therapy, Iovance Biotherapeutics, Inc.’s Amtagvi (lifileucel). The company also helps manufacture Eli Lilly & Co.’s tirzepatide, the active ingredient in its very popular drugs Zepbound and Mounjaro.

“Regional or single source dependencies may in some cases accentuate risks related to manufacturing and supply,” said Lilly in a Form 10-K filed with the U.S. Securities and Exchange Commission on Feb. 21. “For example, we, and the pharmaceutical industry generally, depend on China-based partners for integral chemical synthesis, reagents, starting materials, and ingredients. Finding alternative suppliers if and as necessary due to geopolitical developments or otherwise may not be feasible or could take a significant amount of time and involve significant expense due to the nature of our products and the need to obtain regulatory approvals which would cause disruptions to patients and detrimentally impact our business.”

Bills Have Bipartisan Support

Industry experts have stated that while Congress is unlikely to take any action on the bills before the presidential election, the legislation does have broad bipartisan support.

“We will vote on the BIOSECURE Act,” declared House Speaker Mike Johnson (R-La.) during a July 8 event at the Hudson Institute. “Our goal is to have a significant package of China-related legislation signed into law by the end of this year in this Congress featuring these priorities and many more, and we'll work aggressively toward that package.”

Amidst the heightened scrutiny, some companies already are taking action. During an April 23 media call, Novartis AG Chief Financial Officer Harry Kirsch said the company has “a little bit of connections” to Chinese contractors, but the impact is “very manageable.”

“By the time this [legislation] comes into effect, we will have no exposure from our planning,” he declared. Novartis is considering modifying its contracting relationships with Chinese companies so it will be “fully aligned” with possible U.S. regulations, he said.

From May 24 to June 7, L.E.K. Consulting LLC conducted a survey of global life sciences companies on the impact of the BIOSECURE Act. It received 73 responses, 52% of them from U.S. firms. Among those U.S. respondents, the confidence level on working with Chinese CROs was down 32% since the introduction of the legislation, 49% on working with Chinese CDMOs and 36% on working with Chinese biopharmas.

Twelve percent of U.S. respondents said the act has no impact on their current operations, 24% said they are waiting to see how others respond before they act, and 16% said some discussions about the bill’s possible impact are happening.

But almost one-third — 32% — said they have begun to assess their options to move away from their Chinese partners, while 16% are considering only companies not named in the bills for new projects, and another 16% are considering only non-Chinese firms to work with for new projects. Four percent of those U.S. respondents have begun unwinding relationships with the companies named in the legislation.

In addition, 68% of both U.S. respondents and all respondents have made some kind of strategic adjustment in response to the bill, including expanding legal and compliance requirements for Chinese partners and conducting background checks on current partners.

According to L.E.K., industry next-step deliberations include the following:

• “Biopharmas: Do you need to change your services/supply chain? Can you still continue to commercialize in the ‘risky’ markets, Chinese or otherwise? What are the increased costs and lost opportunities from any quick decisions you make?
• “Contract services: How should you position yourself? Are there areas of opportunity to explore?
• “Investors: Where are the sweet spots in this period of uncertainty? How do you help your portfolio companies?”

In addition to contemplating alternative companies to work with, Mantell Associates recommends that impacted companies perform “risk-based mapping and due diligence on Chinese suppliers” and develop plans to deal with possible disruptions to the supply chain.

While the BIOSECURE Act “aims to enhance national security by curbing reliance on foreign biotech entities with potential government ties, it also poses substantial challenges to the U.S. pharmaceutical and biotechnology sectors, with possible ramifications including drug shortages, higher costs, and slowed innovation,” asserts the company. “As the legislation progresses, companies will need to closely monitor developments and prepare for a potentially transformative shift in their operational landscapes.”