Anti-China bills portend massive blow to biotech: BioCentury survey

Overwhelming majority of biotechs expect pipeline setbacks; many oppose BIO’s reversal 

Brace for impact. Legislation targeting Chinese CDMOs and genomics companies that is making its way through Congress, if passed in its current form, will deal a massive blow to biotech companies, with consequences likely to be felt not only throughout the ecosystem, but also by patients. The responses to BioCentury’s survey signal deep concern, primarily for the ability to replace manufacturing capacity, with views split on the wisdom and rationale of the legislation’s goals per se.

BIO’s stance on the legislation, which it reversed last week to support the Biosecure Act, also has the community divided. Twice as many oppose the trade organization’s new position as agree with it, and many believe the organization has not explained its reasoning. 

There’s no lack of strong opinions regarding either the legislation or BIO’s latest response. 

And there is widespread uncertainty about how the legislation will be implemented or the kinds of changes that could be made prior to enactment.

The survey results indicate a potentially devastating headwind for the sector. The dominant concern is for lack of manufacturing capacity, with more than 90% of respondents expecting it would set back their pipelines. The implication is that cutting off access to China CDMOs and forcing companies to find alternatives would translate to slowdowns in clinical trials and, consequently, drug approvals.

Lawmakers, and BIO, have pledged to shore up domestic manufacturing in the U.S. and enable alternative routes, meaning any shortfall may not be lasting. The sector restarted programs halted during the pandemic, recovered from the Silicon Valley Bank crisis, and is now beginning to crawl out of the bear market. But this setback, like those, threatens small companies most of all. Many need to make decisions now, even before they know how this will play out. The timing of the legislation, and what will be included in its final form, could be existential for these companies.

The Biosecure Act (H.R. 7085) and a similar Senate bill, the Prohibiting Foreign Access to American Genetic Information Act of 2024 (S. 3558) aim to counter the perceived threat from China to U.S. interests. Beyond denying China the control of critical supply chain choke points, legislators have said the legislation is needed to prevent China from stealing proprietary data and misappropriating genetic information. Members of Congress also contend that payments to Chinese companies ultimately support the Communist Party of China and the People’s Liberation Army.

The bills would essentially decouple U.S. biotechs from China companies, including cutting off access to the manufacturing and other operations of WuXi AppTec Co. Ltd. (Shanghai:603259; HKEX:2359) and WuXi Biologics Inc. (HKEX:2269), two of the biopharma sector’s most significant CDMOs.

BioCentury surveyed biotechs, investors and other executives March 19-21, on their views about the legislation and its impact on their companies, as well as their views on how BIO is handling the issue. 

The responses make clear that to avoid disrupting ongoing drug development programs, it is essential that any legislation targeting Chinese CDMOs provide a lengthy, predictable period for companies to line up alternatives. The responses also highlight the need to build capacity in the U.S., an effort that will take years and substantial government support.

Elimination fallout

The survey results reflect how integrated China-based service companies have become in biotech.  Out of the 141 respondents, 75% (106) said they work with China-based CDMOs or genomics companies.  

WuXi AppTec’s own data reinforce its penetration of the U.S. market. Its 2023 annual report documents RMB26.1 billion ($3.7 billion) in revenue from U.S. businesses, excluding contribution from commercial COVID-19 projects, representing 65% of the company’s global revenues.  A further 12%, RMB4.7 billion, comes from work with European companies. 

“We should always keep in mind that we are here to produce safe and efficacious medicines for patients. A lot of companies are dependent on WuXi for their commercial production,” wrote one respondent.

Almost all companies that work with China-based CDMOs expect problems in finding a replacement. “A company like WuXi Biologics provides a service that is difficult to get at the same price and timelines,” wrote one biotech.

Another argued that the legislation is short-sighted and losing access to China CDMOs would put U.S. companies at a global disadvantage. The policy move, they wrote, would “severely undermine the ability of U.S. biotech companies to compete on the world stage as they will be unable to access efficient, high-quality and cost-effective services from Chinese companies.”

On the other hand, some respondents see the dominance of China CDMOs as a vulnerability that needs to be dealt with. “The U.S. industry is too dependent on WuXi. On-shoring and diversifying exposure to manufacturers is good practice regardless,” said one.

More than half (53%, 56/106) said it would be extremely difficult to replace the services, and 41% (43/106) said it would be somewhat challenging but manageable. 

Most troubling, perhaps, is the finding that almost two-thirds (64%, 67/105) say that switching services away from China-based CDMOs would substantially slow down drug development of their pipeline, and another 28% (29/105) say it would produce a minor slowdown. Only 9% (9/105) did not anticipate any slowdown (see first chart above).

Although finding an alternative is possible, smaller companies see themselves getting outcompeted in the rush.

“The challenge for us will not be finding the right non-Chinese CRO or CDMO, but rather if everyone has to do it at the same time. There won’t be sufficient non-Chinese capacity, which will ultimately impact small biotechs (like us) the most,” wrote one respondent.

In one regard, the impending legislation, or even the threat of it, is having one of its intended effects. Two-thirds of respondents (66%, 82/125) said they are unlikely to sign a new contract with a China-based CDMO given the uncertainty about passage and implementation of the bills. 

Insanity, misguided, overdue, badly needed: a spectrum of views

There’s much more sentiment against the legislation than in favor, but several commenters believe the execution rather than the idea behind it is mistaken. Others see incompetence or pure politics at play. But a vocal minority think the action is justified, and any hit to U.S. biotech is worth taking for the longer-term good.

Criticisms range from “literal insanity” to “totally misguided” to “a bit of an overreaction.” 

Among the more forgiving critics, there is agreement that China represents a threat to U.S. interests, but a sense that the politicians don’t understand the consequences of their approach.

“China is clearly mounting barriers to free trade in its own economy, so no problems with a response to try to level the playing field. The underlying intent seems solid/valid, but the execution seems deeply flawed/poorly considered,” wrote one survey participant.  

Another person argued the best way to create security and support a strong biopharma infrastructure is not to “squeeze” pharma and biotech in “inappropriate ways for political purposes.” Rather, the U.S. government “has to support activities that support investment.” 

Others put it down to election-year politics, ignorance, or worse.

“The Committee is putting forth foolish uninformed policy and the letter the Committee sent to the Administration (various Secretaries) was based on manufactured facts,” wrote one respondent. “I read every reference footnoted in the letter and it is clear junior staffers assembled this information, it actually contradicts what the letter concluded — disingenuous at best, outright lies and fraud in reality.”

Among the write-in comments, general opposition outnumbered support by 2:1 — 40%  vs. 18% of the 57 respondents who offered an opinion. Slightly fewer, 16%, straddled the groups, expressing support for the idea, but not the way it was being handled. The single biggest concern, mentioned by 18%, was about U.S. research and manufacturing capacity. 

Several supporters of the legislation agreed with the national security concerns. One contributor said the actions of the Chinese government regarding technology theft “leaves few options other than action by legislation such as the Biosecure Act.” 

Another thought it was overdue, and that U.S. biotech would recover from the impact. “The biopharma industry can adjust over time without issues as far is it’s not an immediate pullout. This should have happened a long time ago. We’re already late and shouldn’t delay it any longer,” they wrote. 

At least four commenters drew a distinction between the moves against genomics companies and CDMOs. However, they didn’t all see the risks the same way. 

“Building redundancy into the supply chain makes sense to avoid reliance on any particular country, but the concerns about genomics seem more like fearmongering by isolationist politicians,” said one.

Conversely, another wrote: “While certain parts of the act (e.g. limiting the sharing of genetic information of patients) may be legitimate, the blocking of WuXi as a biologics CDMO is pure protectionism.” 

Two contributors called out the lack of clarity in the legislation as it stands. “It is unclear if the company that is going to have a contract with the U.S. government for product A (let’s say Medicare/Medicaid for a commercial product) would be allowed to have a contract with a China-based CDMO for compound B (an early phase asset),” wrote one.

“The biggest unknown is the definition of “executive agencies,” wrote another. “Does this include Medicare and Medicaid? Does this mean that they will not pay for any treatment manufactured by, or using equipment that came from any of the companies?”

A test for BIO

This legislation is the latest sign of the distance that companies feel between the importance of their mission and the perception on Capitol Hill. The lack of consideration for the impacts on drug developers reinforces the widespread belief among biopharma executives that politicians do not understand how their industry works and do not appreciate how important it is for patients and the economy.

The bills, one person wrote, are “Motivated by politics with no understanding of or consideration given to the impact to U.S. biotechs on the forefront of addressing serious, high unmet need, human disease. 

That responsibility is center stage for BIO, under the leadership of new President and CEO John Crowley. This may turn out to be a defining moment for both him and the organization. 

BIO did a 180° turn after its initial response, in which it expressed strong opposition to the Biosecure Act. After the trade organization was attacked by Rep. Mike Gallagher (R-Wis.), who accused it of lobbying on behalf of the U.S.’s adversaries, Crowley reversed course and said BIO would work with Gallagher and other members of Congress as this legislation progresses. Gallagher is chair of the House Select Committee on the Strategic Competition Between the United States and the Chinese Communist Party.

BIO’s abrupt switch confused and alienated its constituency, according to survey responses. 

More than twice as many respondents (49%) disagreed with BIO’s stance as agreed with it (20%), among the 70 participants who commented on BIO’s position. (The question was an optional, write-in one; 31% contributed thoughts that took no stance on BIO’s position). 

Several participants accused BIO of pandering to politics — “Pathetic and disappointing,” wrote one; “It is sad to see BIO cave to political pressure,” wrote another; and “An extreme lack of spine,” wrote someone else. 

“BIO is free to express its own opinion, for sure, but I don’t appreciate it taking political-driven opinions, and presenting it as a position reflective of its individual members” said one respondent.

Supporters were sympathetic to what they saw as BIO’s precarious position, arguing that BIO may have needed to pick its battles, that it may be better informed [than the public] about the security threats from China, and that there are legitimate political concerns about political risk.

However, few of the supportive comments were unqualified — many said BIO needs to do a better job to protect U.S. interests. And across all the comments, supportive and critical, was a sentiment that BIO has not explained its reversal or its current position. 

“I am speechless in terms of BIO’s swift change of its position on this matter, particularly that BIO has offered no explanation other than the perceived political pressure from certain Congress members,” wrote one respondent. 

Others wanted to know what steps BIO would take to protect its member companies directly. “It needs to provide a clearer rationale for the switch, and it needs to figure out how it is going to support all of the companies who view WuXi as an integral partner in building important medicines for patients. On the surface, it appears that short-term appeasement won over long-term goals of bringing transformative medicines to patients,” wrote one participant.

BIO’s challenges on this front may not end here. A few contributors expressed concern that this was only the beginning, and that other companies, or countries, may be next.

“It’s hard to know where the hammer will fall next — if WuXi then no company in China is risk-free,” said one person.

Said another: “It’s bad policy to try to exclude competition. Which countries will be next?”

Director of Research Meredith Durkin Wolfe contributed to this report.

As a service to the biopharma community, BioCentury is pleased to provide these survey results outside our subscription-based platform. Looking for more insights and analysis on this topic? Please schedule a call with our team to take a free trial of the BioCentury platform.