BIOSECURE Act: Potential Supply Chain Hits And Pharma’s Path Ahead
Executive Summary
With BIOSECURE's legislative progress on pause until after the election, a Pink Sheet infographic looks back on the Capitol Hill progress to date and looks ahead to the potential impact if it is enacted, using Evaluate Pharma data to highlight the likely holes in pharma’s supply chain.
With the BIOSECURE Act’s legislative progress on pause until after the election, the Pink Sheet is offering a look back on the Capitol Hill progress to date and a look ahead to the potential impact if it is enacted.
The proposed Act prohibits federal contracts with WuXi AppTec Inc., WuXi Biologics, Complete Genomics Inc., BGI and MGI, which have been specifically named, and other companies that meet criteria of a "biotechnology company of concern" as defined in the Act. It also prohibit recipients of federal funds from using the funds to purchase biotechnology equipment or services from such firms.
The full US Senate will not have the opportunity to vote on the bill until after the November elections, making inclusion in the defense funding bill still possible. Another route is the must-pass government funding bill that must be enacted by 20 December. Capital Alpha Partners still has 70+% odds on a version being enacted this year.
However, consensus in all quarters is that predicting is difficult with the outcome of the November elections uncertain. (Also see "Who Will Reap The BIOSECURE Spoils? US Industry Boost Not Guaranteed" - Pink Sheet, 13 Sep, 2024.)
Though the bill applies to federal contracts, the overarching purpose of blocking access of the Chinese government or affiliated companies to US-based genetic data or funds suggests a much wider impact.
Below are infographics outlining the chronology of events related to the BIOSECURE Act, as well as potential drug supply chain gaps that would need to be filled if the legislation was enacted. The data is primarily curated from an Evaluate Pharma dataset on the contract development and/or manufacturing organization (CDMO) industry. The infographics are largely designed by Kosh Naran of the Citeline design team.
Since the bill emerged on Capitol Hill, stakeholders have warned it could spur supply chain and other problems. (Also see "Proposed US BIOSECURE Act - Do Lonza, Other CDMOs Gain And How Soon?" - Scrip, 27 Mar, 2024.)
A Biotechnology Innovation Organization survey of 124 biopharmaceutical and biotechnology companies found that 79% have at least one contract or product with a China-based or China-owned contract development and/or manufacturing organization. (Also see "BIO Seeks ‘Substantial Runway’ To Shift Away From China As Momentum For Manfacturing Bill Grows" - Pink Sheet, 9 May, 2024.)
Juxtaposing graphics on the count of US facilities (R&D centers, manufacturing units) and CDMO headquarters with global CDMO revenue helps illustrate the bill’s potential to cause a significant shift in the industry landscape if its execution matches intent.
The proposed BIOSECURE Act does not name WuXi STA, WuXi XDC, WuXi Advance Therapies and WuXi Vaccines, which are other firms of the same group, but the definition of a "biotechnology company of concern" includes any subsidiary, parent, affiliate, or successor of entities listed as a company of concern provided they are subject to the administrative governance structure, direction, control, or operates on behalf of the government of a foreign adversary.
As seen below, about one-third of the total 2023 revenues of the global top 10 CDMOs went to WuXi STA, described as “an integral part of WuXi AppTec,” Wuxi Biologics, and Wuxi AppTec, showing that these three companies are major industry players.
Data on BGI, MGI and Complete Genomics was not available.
Most analysts expect Indian, non-WuXi Chinese, and Korean contract development and manufacturing organizations (CDMOs) to help fill the void. However, many of these firms also source products from the WuXi group, suggesting uncertainty over their supply chains being impacted by the legislation.
Apart from the five companies named, the bill defines companies of concern as any entity that
(i) is subject to the administrative governance structure, direction, control, or operates on behalf of the government of a foreign adversary;
(ii) is to any extent involved in the manufacturing, distribution, provision, or procurement of a biotechnology equipment or service; and
(iii) poses a risk to the national security of the United States
As mentioned earlier, any subsidiary, parent, affiliate, or successor of such entities is also covered by the Act subject to provisions.
Interestingly, “foreign adversary” means “covered nation” in section 4872(d) of title 10, United States Code, which names the People's Republic of China, the Democratic People's Republic of North Korea, the Russian Federation, and the Islamic Republic of Iran, giving the Act very wide scope in theory.
However, given the increasing focus on drug prices, the US government is likely to restrict interpretation and execution in a manner that limits damage to the industry. If other CDMOs are included, it could adversely impact drug prices by forcing US-based companies to use more expensive suppliers, implying the government's stance is likely to be more flexible. (Also see "US FDA Asked To Tighten China Risk Control By Legislators As Markup Looms" - Pink Sheet, 10 May, 2024.)
Based on current trends, McKinsey sees a significant geographical redistribution of outsourcing activities over the coming years. North America, which accounted for about 40-45% of CDMO work across geographies in 2023, could see its share decline to about 25-30% in 2033. (Also see "Geopolitics, US BIOSECURE: Pharma Looks To Redistribute CDMO Footprint" - Pink Sheet, 16 Sep, 2024.)
Even with the BIOSECURE overhang, China’s share could increase to about 25% in 2033 from 15-20% in 2023. India’s share could rise to about 8-10% from 5-7%, while Europe could see its share dip to around 20-25% in the same period from 25-30%.
Predicted dynamics could change if more CDMOs are caught in the BIOSECURE Act net going forward, particularly if more Chinese companies fall within the scope of 'Companies of Concern'. The present CDMO landscape in China is shown below. (Also see "Can BIOSECURE Maintain Its Virality In The TikTok Era?" - Pink Sheet, 1 Jul, 2024.)
Wuxi AppTec and Wuxi Biologics have been part of major pharma supply chains, including Eli Lilly’s tirzepatide, sold both as Mounjaro for type-2 diabetes treatment and Zepbound for obesity treatment, to Pfizer’s hit COVID-19 drug Paxlovid (nirmatrelvir and ritonavir). The graphic below lists several of the biggest products for which sourcing shifts could be imminent.
The list is not exhaustive as is limited by publicly available information.
Akhil Ravi, CEO at Aurigene Pharmaceutical Services, a subsidiary of India-based Dr. Reddy’s told the Pink Sheet that technological expertise, cost competitiveness, quality assurance and proximity to market play a major role in selecting outsourcing partners.
“The CRO/CDMO selection process is quite rigorous and can take six to 12 months based on the complexity of operations,” he said.
Long drug development cycles and laborious technology transfer processes could mean any changeover may be long.
The Evaluate Pharma data lists 28 modalities mapped to CDMOs. As seen below, a client with a smaller number of CDMOs available for modalities like gene-modified cell therapy, genome editing and plasma-derived therapy, could find more difficulties with suppliers commanding premium pricing and favorable terms.
However, a wide field exists for monoclonal antibodies, peptides, recombinant proteins and small molecules, depending on the required capacities, expertise and track records.
For brevity, a few products where sourcing gaps could arise are shown above, based on company disclosures and other publicly available information. But many more products are being developed or manufactured by the WuXi group or firms linked to it.
The group also is linked to several biotechs on the cusp of breakthrough discoveries. According to Bernstein, emerging biopharma-sponsored pipelines increased their overall CDMO industry share to 64% in 2022, compared to 50% in 2017.