The BIOSECURE Act: implications for the pharma supply chain

On September 9, 2024, the US House of Representatives voted to pass the bill titled the BIOSECURE Act (the Act), which lists several Chinese companies in the pharmaceutical supply chain. The Act will prohibit American companies from contracting or doing business with certain listed biotechnology providers as a means of ‘protecting American personal health and genetic information’, as well as securing the US pharmaceutical supply chain [1]. 

The Act 

The BIOSECURE Act, first introduced to the House of Representatives January 25, 2024, outlines several findings and proposals regarding the use of health data by biotechnology companies based in China, including: 

• The Government of the People’s Republic of China (PRC) seeks to dominate biotechnology as an industry of the future [2] 

• PRC biotechnology companies have repeatedly collaborated with [the People’s Liberation Army] entities [2] 

• Pursuant to the PRC’s laws, the PRC can require a company headquartered in the PRC to surrender all its data to the Government of the PRC, making it an espionage tool of the CCP [2] 

among other statements levelled against the Chinese government and Chinese biotechnology companies [2]. Furthermore, the bill lists several clauses prohibiting the procurement of services or products from certain biotechnology providers. These companies, listed as “biotechnology compan[ies] of concern”, is defined as any entity that is under the jurisdiction of ‘foreign adversaries’ (listed as China, Cuba, Iran, North Korea, and Russia) and poses a risk to US national security by either engaging in research supported/affiliated with a nation’s military, intelligence, or security forces, or the provision of multiomic data to these governments [3]. 

Additional companies of concern will be further listed by the Office of Management and Budget (OBM) as required by the Act [3]. Should the BIOSECURE Act pass into legislation, the OBM have 1 year from the Act’s enactment to publish the list of companies, with annual reviews in consultation with other federal departments [3]. 

The state of B2B pharma relationships and operations 

In our 2024 Outsourcing Forecast report, we found that outsourcing pharmaceutical operations has become an integral part of the industry [4]. With drug development and ingredient procurement costs skyrocketing in recent years, as well as increasingly complex manufacturing requirements, biopharmaceutical sponsors must at some point consider their options for manufacturing partners [5]. 

For biopharma, market fluctuations and changing business priorities are the main drivers for outsourcing activities [5]. With a booming biologics market facing a patent cliff and potential market slump, biopharmaceutical companies are contending with a highly dynamic market and investment priorities [5]. These changing priorities and demands drive much of the outsourcing activity in the past few decades [5]. 

Part of the CDMO/CRO discussions include bringing manufacturing back from long-distance outsourcing practices and into local regions and consumer markets [6]. Spurred by the COVID-19 pandemic’s impact on import/export activities and a perceived overreliance on certain regions for sourcing, development, and manufacturing of drug ingredients and products [6]. 

With these conversations surrounding the state of CDMO/CRO collaborations with biopharma and biotechs, the BIOSECURE Act presents a provocative situation for the global CDMO/CRO sector in pharma.  For clients, the Act sets a precedence for other institutions such as academia and federally-funded research institutes in partnership with China-based collaborators [3]. This could limit the capabilities on offer should a highly specific process be required but could also present opportunities for others to come and fill that gap [3]. However, the closing of this gap by other competitors could take years [3]. 

Companies such as WuXi also operate several facilities in the US, with nearly 12 facilities and almost 2000 employees [3]. While it would be expected that these facilities would be sold, WuXi may be at a crossroads of ultimately dismantling and relocating these facilities altogether [3]. Again, the filling of the capabilities gap, as well as the workforce blow this would deal could take years to close. Neil Kelly, CEO of Vector Talent and CPHI Online contributor on talent acquisition, explains that “The nature of the way that decision-making is now being driven, the demand for talent will soar in certain locations. Historically, places like India and China have been areas where you can access cost effective labour. We will start to see regions starting to level up over time when it comes to compensation structures. We were just involved in a project in Eastern Europe and asked ‘we want to pay Western salaries in Poland, what does this mean to us’? This is one example of how lower cost countries are reacting to competitiveness of talent.  We’ll see start to see the same in other regions over time, including India. US market salaries has steadily increased. Although I need to be clear, business decision making is often practical and simple reasons for organisations i.e. they want to business close to home. Although this decision making needs to be more thoughtful moving forward for organisations to stay competitive – is the workforce there and do you have the skills and cost base to deliver on your promises to customers?” 

In an interview with BioSpace, Rutger University professor of engineering Fernando Muzzio also commented that the Act is already revealing weaknesses in the US’ domestic workforce and manufacturing capabilities [7]. Decades of reliance on Chinese and Indian manufacturing may have resulted in the neglect of domestic manufacturing capacity and talent [7]. 

Supply chain safety and security 

As the targeted Chinese companies grapple with the blow to their businesses – Hong Kong shares of WuxiAppTec and WuXi Biologics are already slumping by as much as 11% - the Act might spell an opportunity for other global contract organisations [8]. 

“There’s two camps of companies at the moment,” comments Kelly. “There’s one camp that is jumping on the bandwagon of the Act and trying to maximise revenues for themselves. For example, Indian companies are already marketing and targeting towards alternatives to specific businesses – for US-based companies, India may be a great place to take their business moving forward." India’s CMDO sector currently holds 2.7% of the global market, while China’s CDMO sector boasts 8% [9]. Though the bill must still pass through the US Senate before being signed into legislation, some anticipate the Act to provide Indian contract organisations the perfect opportunity to expand their presence [9]. India’s CDMO market is already anticipated to reach a value of US$44.69 billion by 2029, with opportunities mainly in contract research and API manufacturing, along with growth in the small molecule domain [10]. With the Act underway, Indian CDMO/CRO’s can only serve to benefit from the increased proximity to the US markets.   

Kelly continues, “The other camp are those companies who play on the supply chain safety and efficacy, often leaning on that supply chain security. I think this will continue to be the start of a series of steps that we’re seeing towards maybe even localising manufacturing, production, and development of drugs.” For many experts, the future of the pharmaceutical supply chain remains the utmost priority. However, though companies will have until 2032 to phase out outsourced operations with the listed Chinese CMDOs should the Act come to pass legislation, experts are wary of further supply chain shortages for much-needed medicines. “Access to certain technologies if passed, could lead to an impact on innovation, although more so it could hamper the supply chain as it might be more difficult to access capacity. We’re already seeing supply chain issues for drugs today which are not linked to BIOSECURE Act, and we know this is on many decision makers minds, as you will remember from CEO interviews we did in 2023. This is only the beginning of supply chain pressures that we will have to face moving forward,” states Kelly. “There’s multiple impact points for this act on talent. This will almost certainly push more onto CDMOs to not only show but prove, how they are running their workforces around the world. Ensuring they have robust talent plans in place and those plans are ethically sourcing talent. Talent plans already feature high on CEOs top objectives for the largest organisations, although we will see this trickle down to all CDMOs having to get into shape fast..” Ultimately, though the listed Chinese companies will be seeing their business operations change and potentially fall into a slump, it could be patients that suffer the most adverse effects of drug shortages and supply chain disruptions. 

Additionally, some experts argue the Act could also disrupt the ability to carry out clinical trials, putting even more pressure on global supply chains [7]. Concerns also surround the regulations around production and transportation, something Kelly specifies as supply chain safety - after all, transporting unstable drug products across long distances presents its own challenges. Whether outsourcing of drug pipeline operations will be to other overseas markets or localised to Western regions, the race is on to target the biopharma companies affected and looking for new partners. 

Setting a precedence or more of the same? 

The full impact of the BIOSECURE Act remains to be seen, but many are adamant that it is not a matter of if, but a matter of when. A yet-to-be-published survey as part of the CPHI Annual Report and Survey highlights that, though the majority of the industry is not in favour of the BIOSECURE Act, 43% agree that despite WuXi’s contributions to the pharmaceutical industry, it is sensible for all to diversify their supply partners. Both innovator and generic pharmaceutical companies are now actively looking for supply chain customers and partners on a wider scale, but only time will tell as to whether one market will once again dominate or if the industry is genuine in their efforts to diversify. 

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