While the US market is on the rise this year with the biotech sector gaining 53.3% of emissions in the first half of 2024 compared to the previous six months, the Chinese market has seen a Decrease of 34.73% in its biotech index over the past year. It is unclear whether this overall drop is due to the BIOSECURE Act, but in February 2024 shares of WuXi AppTec and its sister company WuXi Biologics, both now named in the BIOSECURE Act, lost approximately $17 billion due to investor apprehension over the potential US law, as reported by Bloomberg.
More than three quarters Twenty percent of US biotech companies outsource preclinical and clinical services to Chinese companies, and 30% of respondents also rely on China-linked companies for manufacturing of approved drugs. The survey also found that many life sciences companies are already seeking to shift their sourcing away from China as a result of the BIOSECURE Act, legislation introduced in January 2024 to distance the US from foreign companies of concern.
The BIOSECURE Act introduced in the U.S. House of Representatives aims to block federal funding, such as grants, for U.S.-based companies that do business with certain Chinese service companies or Chinese contract development and manufacturing organizations (CDMOs). It would also prevent U.S. government entities from purchasing equipment and services or entering into contracts with such U.S. companies.
The bill has not yet been voted on in Congress, but if it becomes law, it could have a significant impact on both Chinese contractors and U.S.-based biotech companies. A June 2024 global survey by LEK Consulting A study conducted in the United States found that life sciences companies based in the United States are 30% to 50% less confident in collaborating with their Chinese counterparts in light of the BIOSECURE Act. About one in four life sciences companies are aiming to move their sourcing out of China. And nearly 70% of companies surveyed reported that they had implemented precautionary measures, such as conducting thorough background checks on existing partners, diversifying supplier networks, and increasing their legal compliance efforts.
The tangled web of drug production between China and the United States
Over the past decade, China has become one of the largest suppliers of pharmaceutical products to the United States. In 2023 alone, companies such as Merck, GSK and AstraZeneca invested more than $44.1 billion in biotech licensing deals with Chinese drugmakers. Pharmaceutical imports from China have increased 485% in two yearsfrom $2.1 billion in 2020 to $10.3 billion in 2022.
May 2024 survey A study by the Biotechnology Innovation Organization (BIO) found that 79% of 124 responding companies have at least one contract with or purchase a product from a China-owned or -based CDMO/CMO. Kathleen Jaeger of the Center for Resilience in American Medicine said she finds these numbers concerning. “Last year’s report from 2023 ASPÍ“The China Critical Technology Report, sponsored by the U.S. Department of State, found that China leads the U.S. in science and technology in 37 out of 44 technology sectors, including defense, space, and biotechnology,” he wrote in an email to BioSpace. “In addition, (the PRC) has a strong desire to become the world’s leading biopharmaceutical sector, making rapid and substantial investments in Made in China 2025.”
The White House stated in a 2021 statement executive order which considers pharmaceuticals to be critically important, similar to batteries and semiconductors, and called for a report on supply chain risks and recommendations for addressing them. Some senators and representatives have focused on developing strategies to ensure that active pharmaceutical ingredients (JOBsNewsIs) — chemicals that impart desired properties to drugs — are not used as leverage in the U.S.-China trade war, wrote Niels Graham, former associate director of the Center for Geoeconomics, in a 2023 paper. Atlantic Council history.
On the last Review of the BIOSECURE BillIn the BIOSECURE bill, introduced on May 9, 2024 in the House of Representatives, US lawmakers set a deadline of 2032 for US pharmaceutical and biotechnology companies to cut ties with the Chinese companies included in the bill. Chinese companies named in the BIOSECURE bill include WuXi AppTec, Complete Genomics, Beijing Genomics Institute, and MGI.
The bill received bipartisan support in the House and Senate, but there were mixed reactions from experts. For example, Jaeger said she is hopeful that the BIOSECURE Act will not only address what she considers a major national security issue, but will also bring skilled jobs back to the United States or to trusted allies and strengthen U.S. competitiveness in this sector.
But Chris Pereira, founder and CEO of impactwho has led multiple projects with Chinese clients in the biotech industry, has a different take. While he agrees that the bill can improve the security and reliability of the American pharmaceutical supply chain, he argued that it could also prevent the United States from working with the best research partners and stifle the opportunity to welcome strong competition into the American market.
“The United States would benefit most from a diversified approach that includes strengthening domestic production capacity and seeking collaborative opportunities with a broader range of international partners, including China,” he wrote in an email to BioSpace. “Preventing competition through laws like the BIOSECURE Act will only weaken the United States in the long run.”
What the BIOSECURE Act could mean for China’s biopharmaceutical industry
Total foreign direct investment in China has already been declining since June 2023, and heightened geopolitical tensions between China and the United States in the wake of the BIOSECURE Act could worsen the current situation in China, according to Chia Lin, JOBsNewsAC analyst with GlobalData’s Health Economics and Market Access Team. “Following the announcement of the Act, several companies such as Eli Lilly and Vertex have discussed strategies to diversify production beyond the Chinese manufacturers named in the Act,” Lin wrote in an email to BioSpace. “Chinese manufacturer WuXi has also discussed moving its business units out of the United States.” In 2023, WuXi Apptec generated around $26.13 billion in contracts in the US, representing 65% of its total revenue.
According to a Intelligence of Mordor According to a market analysis for 2024-2029, China held the world’s second-largest share in the global pharmaceutical CDMO market, with revenue of $27.12 billion in 2023 (US CDMOs earned $54.21 billion that year). The analysis also predicted a compound annual growth rate of 9.63% by 2028.
The BIOSECURE Act may affect the accuracy of that prediction. For example, Indian Ratings and Research (Ind-Ra) Ind-Ra predicts that India, which has the third-largest share in the pharma CDMO market, could see a surge in orders from US pharma companies over the next 12 to 18 months. Ind-Ra’s analysis of data collected from 15 Indian pharma companies over the past 12 months has revealed that over 60% of those listed saw an increase in the number of enquiries for new business.
Yicai Global Chinese biopharmaceutical companies operating in the country are also reportedly suffering from a loss of investor confidence. Several emerging Chinese biopharmaceutical companies whose products are still in the early stages of research are grappling with financial difficulties due to the prolonged crisis in the sector, raising concerns among investors.
What does this mean for US-based biopharmaceutical companies?
The bill will primarily impact startups that rely on China-based Contract Research Organizations (CROs) and CDMOs. As the landscape evolves, restrictions on access to such CROs and CDMOs could require a gradual transition to new vendors, who will need to be vetted, potentially delaying startups and requiring additional funding, said Cody Powers, principal and leader of the portfolio and business development practice at ZS Associates.
“This could unlock a new wave of CRO and CDMO investment in the West to try to fill that gap,” Powers said.
Looking further ahead, there is a possibility that subsequent legislation will impose further restrictions and produce a “sea change,” he said, with East and West each cultivating their own biopharmaceutical ecosystems for research and development, operating under their own regulatory frameworks and dictating the scope of innovation sharing.
If that were to happen, we would see “increasingly isolated discoveries” that would “at least limit, if not undo, several decades of closer global integration and cooperation,” Powers said.
Fady Boctor, president and chief commercial officer of Petros Pharmaceuticals, also believes that passage of the bill could lead to significant changes in the US biopharmaceutical industry. He sees two different possible outcomes for the industry. The first is that more biotech companies will begin to explore alternative funding sources to US federal grants; for that to happen, “the value of doing so will have to outweigh the burden of relying less or entirely on federal funding programs,” Boctor said.
The second scenario is that new emerging players, both domestically and among acceptable entities abroad, will begin to meet changing demands, thereby changing the degree of dependence on restricted entities identified by the US government.
Pereira predicts that the implementation of the BIOSECURE Act could spur increased investment in the U.S. biotech and pharmaceutical sectors as companies work to improve domestic production capabilities. However, he noted that the global biotech ecosystem is highly interconnected and said engagement and collaboration between U.S. and Chinese companies could bridge gaps in both markets.
“While the initial backlash has led to increased investor interest in the United States, we should not overlook the resilience and adaptability of the Chinese biotech sector,” Pereira said. “Over time, I believe there will be a rebalancing as Chinese startups continue to innovate and seek new markets and investors.”
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