Industry braces for Biosecure Act impact

Eighteen years ago, Seattle-based Sound Pharmaceuticals hired WuXi AppTec, a Chinese drug services firm, to make small quantities of an active ingredient for preclinical studies of its drug candidate for hearing loss.

The relationship between the two companies strengthened over time, and WuXi now handles all of Sound’s drug manufacturing—from preclinical to clinical stages. “WuXi has done a lot of projects for us,” says Jonathan Kil, Sound’s CEO and chief scientific officer. “They started with making kilo batches of our drug substance; now they make 100 kg for precommercial use.”

Kil became worried when he heard in January that Congress was considering a bill that could prevent companies like his from doing business with WuXi. The Biosecure Act, introduced in the House of Representatives, sought to stop US businesses that receive federal funds from working with WuXi and three Chinese genomics companies. It claims that the firms have ties to the Chinese government—and potentially dangerous access to the genetic data of US citizens.

The bill’s latest iteration includes WuXi’s sister company, WuXi Biologics, and gives US drug developers until 2032 to cut ties with the five firms. A similar bill was introduced in the Senate.

Sound—which has received multiple federal grants, including from the Department of Defense and the National Institutes of Health—is just one of many US firms that rely on WuXi and are concerned about the impact of the proposed law.

While China has a number of contract development and manufacturing organizations (CDMOs), WuXi is arguably the most important to US pharmaceutical companies. Its clients range from up-and-coming biotechnology firms to industry giants like Eli Lilly and Company.

Founded in 2000, WuXi generated 65% of its revenue from the US in 2023. According to Kil, the company was involved in developing and producing a quarter of the new drugs approved by the US Food and Drug Administration last year.

“Some reports suggest they work with 19 of the 20 biggest manufacturers,” says Daniel Kracov, chair of the global life sciences industry practice at the law firm Arnold & Porter.

Experts say that the bill has strong bipartisan support so is reasonably likely to become law. “About 160 bills involving China were introduced in Congress, and most are not going anywhere. But this one is closer than anything else,” says Doreen Edelman, global trade and national security partner at the law firm Lowenstein Sandler. Some experts wonder if other Chinese firms could later be added to the list.

WuXi and the other companies listed in the bill have repeatedly denied the allegations. “To be clear, WuXi AppTec does not have a human genomics business, and we do not collect human genetic data,” a spokesperson says in an email. “Like many across the industry, we have concerns about the bill’s broader impact on U.S. leadership in biotechnology innovation, drug development, and patient care.”

Indeed, disassociating from Chinese drug services providers would be difficult and potentially damaging, given US pharmaceutical and biotech firms’ heavy dependence on them. That dependence was made clear during the COVID-19 pandemic, when halts in production in China led to shortages of several critical drugs in the US.

But while that reminder of US reliance sparked conversations about diversifying out of China, very little changed. According to the think tank Atlantic Council, US imports of Chinese pharmaceuticals and related products grew from $2.1 billion in 2020 to $10.3 billion in 2022—an increase of 485%.

Rajiv Gangurde, vice president of technical operations for cell and gene therapy at the clinical research organization Parexel, says the US pharmaceutical industry hires CDMOs so it can focus on innovation rather than repetitive work. “If non-US CDMOs, for example those based in China, can assure quality at reasonable costs, it is not surprising that US pharma and biotech companies choose to work with them,” Gangurde says.

The Biotechnology Innovation Organization, a trade group, released a survey in May highlighting the strong dependence of US drug and biotech companies on Chinese CDMOs and warning about breaking ties too soon. It found that over 100 of the 134 US companies surveyed had at least one contract or product agreement with a China-based or Chinese-owned manufacturer. The report says millions of people depend on Chinese drug manufacturing firms.

Several US biotech companies have disclosed in financial documents how the Biosecure Act might affect their business. For instance, Iovance Biotherapeutics, which recently won FDA approval for an adoptive cell therapy to treat metastatic melanoma, has hired WuXi to produce commercial-scale therapies. Iovance said in a recent Securities and Exchange Commission filing that the act would impact its drug production.

Another firm, Cabaletta Bio, which is developing a line of chimeric antigen receptor T-cell products and has hired WuXi, says in a filing that the firm’s termination or failure to perform would disrupt Cabaletta’s operations. “We intend to continue to rely on other third parties for our future manufacturing needs before establishing our own manufacturing facility,” Cabaletta says.

Some experts point out that the cost of drug development could spike if US biotech firms are forced to switch to European or US CDMOs. “One can say with some certainty that it will increase the cost of doing biomedical research, at least in the short run,” says Scott Moore, director of China programs and strategic initiatives at the University of Pennsylvania. “Contract research and manufacturing services that Chinese firms provide are the lowest cost and have good margins.”

Harvey Berger is CEO of Kojin Therapeutics, a Boston-based biotech firm cofounded by Harvard University’s Stuart L. Schreiber. Berger, who has worked with various Chinese CDMOs over the past 30 years, says Kojin’s budget for drug development would quadruple if the company had to work with US services firms.

“If the venture capital community would like to fund us at double the levels, we could probably afford to hire US CDMOs, but that is unrealistic,” Berger says.

He adds that the bill is ambiguous about who can and cannot work with the Chinese firms. While Kojin hasn’t received any federal funding, it licenses technologies from institutions—such as Harvard—that often receive hefty federal grants. “Does it mean that we can’t hire the mentioned Chinese firms? We are not sure.”

According to Berger, China’s CDMO industry has evolved to a point that no other country comes close to. “Tens of thousands of people work in the CDMO industry in China, which is more than the rest of the world combined,” he says.

Meanwhile, Sound’s Kil says he has worked with five CDMOs over the past 15 years and is sure he wouldn’t return to three of them. The two that he finds acceptable are WuXi and a European firm.

“When we asked the European CDMO about their capacity to make commercial-stage quantities, they told us they would have to outsource it to India,” Kil says. WuXi, on the other hand, is able to deliver large quantities very quickly. “It would be terrible for anyone to restrict our ability to work with WuXi AppTec.”

In recognition of the US drug sector’s dependence on China, the amended bill gives companies an 8-year grace period to dissociate from Chinese firms, but industry experts are divided on whether that’s long enough for such a transition.

Bikash Chatterjee, president of Pharmatech Associates, a company that helps drug and biotech firms connect with CDMOs, says the amended bill provides ample time for companies to diversify out of China. “I think 8 years is enough for folks to put in place a pivot strategy.”

But Berger says 8 years is insufficient for companies to find “in-budget” replacements that can offer quality work. “But it is certainly better than 2 years or immediate dissociation from the Chinese firms, which could have been catastrophic,” he says.

For Kil, the amended bill was a relief. Although he doesn’t want to stop working with WuXi, he has started conversations with US CDMOs in case the door closes.

Sound’s drug for Ménière’s disease, a chronic disorder that affects balance and hearing, is in Phase 3 clinical trials; the firm expects a decision from the FDA later this year. If the drug is approved, 50,000 patients would be eligible, and 10,000 kg of active substance would be needed to meet the demand. “Not many people can make the quantity needed for commercial scale,” Kil says.

In the present political climate, many lawyers are counseling their life sciences clients to use the utmost caution when signing contracts with Chinese CDMOs. Kracov says companies must be wary of doing business with Chinese firms—at least the ones mentioned in the bill. “I think there are plenty of other Chinese companies to work with,” he says. “The big question is whether those companies are likely to get on this list at a later date.”

Edelman is asking her life sciences clients to include exit strategies in their agreements with Chinese companies. “I tell them to ensure that contracts give them alternatives and ways to terminate if needed,” she says.