Is BIOSECURE working?
The Act is slowly rewiring global pharma manufacturing. But the real contest is over genomics and drug development.
Why this matters: BIOSECURE targets five big firms (two CDMOs, three genomics firms), and it is shifting global demand away from those two CDMOs. BUT, the supply chains for alternate CDMOs (say based in the US), still likely rely on inputs from China.
Moreover, CDMOs are just the beginning. China is now leading in some areas of next-gen genomics and has 100s of innovative drugs going through clinical trials. A new set of US vulnerabilities are growing on the horizon. All this is led by small agile Chinese firms that are not targeted by the Act. So, if BIOSECURE’s goal is genuinely to reduce reliance on China, then it will need to be constantly beefed up.
Article: Is BIOSECURE working?
The BIOSECURE Act prohibits entities that receive federal funds - such as hospitals and research entities - to “procure, obtain, or use any biotechnology equipment or services produced or provided by a biotechnology company of concern.” Two Chinese contract development and manufacturing organisations (CDMOs) - WuXi AppTec and WuXi Biologics - and three Chinese genomics firms - BGI, MGI, and Complete Genomics - are directly named as companies of concern.
As I read it, US concerns around CDMOs and genomics are different.
US drug development and manufacturing relies on high-quality, low-cost Chinese CDMOs. There is the oft-repeated Biotechnology Innovation Organisation survey which found 79% of their members (US biotechs) had at least one contract or product with a China-based or China-owned CDMO/CMO. The survey was US pharma’s attempt to stop BIOSECURE but it actually proved the point of US lawmakers.
Chinese genomics firms, on the other hand, are not essential to US health care. There are US or global alternatives for most products, albeit often more expensive. The concern for genomics firms is that US genetic data will end up in China being used to develop new biotech products (or worse).
Hence, the biggest CDMOs and genomics firms were directly listed in the act. There are provisions to add more companies to BIOSECURE, if they do at least one of:
a) Research with China’s security, intelligence or military apparatus
b) Provide patient data to the Chinese government
c) Collect US patient data without consent
These provisions are reasonable. But they will be difficult to disprove for any Chinese firm given the opacity of China.
This is creating different market dynamics in various parts of human-focused biotech:
US firms are slowly turning to CDMOs based outside of China. I suspect (but do not have proof) that many of the inputs for CDMOs in the US still come from China.
BGI and MGI (the genomics firms) are less affected by BIOSECURE. They have global markets that are much less concentrated in the US than Pharma.
Small agile Chinese firms are leading in much of next-gen genomics, so this will become a future point of contention for US-China relations.
Small agile Chinese firms are creating many first in class drugs, so this will become a future point of contention for US-China relations.
So let’s walk through the market dynamics in CDMOs, genomics firms and drug development.
CDMOs
WuXi AppTec (药明康德) and WuXi Biologics(药明生物) are both named in BIOSECURE. Around 60% of their business is in the US (according to their own annual reports). It is unclear in the documentation. But, I suspect much of that is US contract work being done in facilities located in mainland China.
Wuxi AppTec Source: https://officialsite-static.wuxiapptec.com/upload/WXAT_2024_Third_Quarterly_Results_Presentation_20241028_07dc146991.pdf (pg 8)
Wuxi Biologics Source: https://www.wuxibiologics.com/wp-content/uploads/int-2.pdf (pg 13)
The path forward to maintain their business is unclear because the legislation identifies “companies of concern” not where their projects are located.
A contradictory pattern is emerging. There is an assumption that WuXi Biologics’ and WuXi Apptec’s US business is dead (with the exception of pre-existing contracts which have an eight year waiver). Yet, they both (p8 and pg13) continue to increase revenue in the US and build new capacity. This is probably explained by the strong overall growth of CDMOs in the US. Everyone is making money.
Companies are "making choices based on lowering risks of relying on a single country or a couple of countries," said Kymera Therapeutics Chief Executive Nello Mainolfi. The WSJ writes his company relies on Chinese firms for manufacturing but has begun to do more of that work in Europe, India and the U.S.
But, WuXi Biologics has built four facilities since 2020 in North America (2 x manufacturing - one still under construction , 1x research and 1x lab space).
WuXi AppTec already has 12 facilities in the US. WuXi AppTec's order backlogs climbed (paywalled) by one-quarter at the end of September compared with the end of last year, according to the company. This is possibly companies signing contracts before the Act is passed to get access to the eight-year waver.
Additionally, a number of other China-launched CDMOs have established themselves as “global companies”, such as BeiGene and GenScript’s subsidiary ProBio, have built US manufacturing facilities. I suspect other Chinese CDMOs will follow suit.
Sequencers and synthesisers
MGI, BGI and Complete Genomics are directly named on BIOSECURE.
BGI is a big genomics company. They collect, analyse and store genetic data (for many organisms). Their work includes diagnostic tests which require DNA sequencing, genetic testing for consumers, population-wide DNA testing or work on lab samples. They also run China’s National Gene Bank.
MGI focuses on manufacturing high-throughput life sciences research equipment, such as gene sequencers, DNA synthesisers, reagent manufacturing, basically all the tools that are needed to successfully conduct highly-automated large scale life science research. These tools might seem wonky and technical, but they are rapidly changing what is possible in research. They are the backbone of the biotech revolution. Complete Genomics is a US-headquartered subsidiary of MGI.
The table below shows BGI and MGI are not as reliant on the US as Chinese CDMOs. Their customers are global. Each individual test or sequencing service is quite small. So it is a high volume business. Sequencing firms have millions of customers (or at least end-users). And their market is more globally distributed.
MGI source: https://www.sse.com.cn/disclosure/listedinfo/announcement/c/new/2024-08-24/688114_20240824_1YIZ.pdf （pg 212)
BGI source: https://vip.stock.finance.sina.com.cn/corp/view/vCB_AllBulletinDetail.php?stockid=300676&id=10407009
At this stage, BGI, MGI continue to de-Chinafy (they used the word localise) their operations in the US, even though one would suspect that BIOSECURE will kill their US business.
MGI constructed a gene sequencer manufacturing facility (pg 48) in California in 2024, to serve the broader Americas. It plans to expand the facility to include reagent manufacturing in 2025. The company opened a customer service centre in Boston this year. And MGI in its 2024 half-annual report, stated that these facilities were part of a localisation strategy which had seen profit grow 13% compared to H1 2023.
MGI and BGI are direct competitors of Thermo Fisher and Illumina. BIOSECURE is designed to steer American companies (and foreign companies that target the US) away from MGI, BGI and Complete Genomics.
BGI and MGI are just the tip of the iceberg. Because gene sequencing, synthesis, analysis and general high throughput laboratory work is changing so rapidly. There are dozens, probably hundreds, of Chinese firms working on breakthroughs in lab equipment and genomic work. None of those firms are directly listed on BIOSECURE.
To take one example, nanopore genome sequence is the fourth generation of gene sequencing. It is used in a wide range of applications due its speed and ability to read long fragments of genetic material. Numerous Chinese firms, led by Qitan Tech, have genuine innovation in this technology (and quite likely in subsequent generations of gene sequencing equipment).
The PRC companies argue they cannot access data from organisations using their sequencers. But the US government may not accept that. Furthermore most of the smaller cutting-edge firms manufacture in China, creating a US vulnerability.
Drug-developers
As I wrote last week, Chinese drug developers have not been the focus of BIOSECURE, but that could change as they speed up the development ladder. There are hundreds of small Chinese pharma firms with innovative drugs in clinical trials. Eventually, the US government will take notice. A reminder that the US drug market is 44% of total global pharma sales.
The solution until recently has been to sell or out-licence the Chinese-developed drug to US or global firms. In the out-licence case, the company usually retains the right to sell the drug in China.
Simultaneously, there has been an increase in straight acquisitions. Just last week Germany’s BioNTech purchased China’s Biotheus for an oncology drug candidate. Straight purchasing makes a lot of sense for both sides. It kills the concerns around BIOSECURE, it gets Chinese companies a financial out during a period of intense competition in China.
But the Chinese government is not going to allow US and global firms to hoover up - at a significant discount - China’s most promising tech companies forever. At some point China will put restrictions on acquisitions, probably at the same time the US starts to get serious about BIOSECURE for Chinese drug developers. There is a real fight brewing over Chinese drug developers and the US market.
So the long term fight is not over pharmaceutical manufacturing, but rather the IP of genomics technology and drug development. It could be quite a bumpy ride.