US looks to 2032 as cut-off from Chinese biomanufacturing reliance

In January, the bipartisan Select Committee on the Chinese Communist Party introduced the BIOSECURE act in the US House of Representatives in an effort to “ensure foreign adversary biotech companies of US national security concern do not gain access to US taxpayer dollars.”

The Act is expected to be discussed and voted on this Wednesday. However, notable revisions made last Friday could be integrated. Most critically of these, after 60 days of the Act passing US firms would be unable to “procure, obtain, or use any biotechnology equipment or services produced or provided by a biotechnology company of concern,” or extend or renew a contract with one of the named companies. However, ongoing contracts would now be able to continue until January 1, 2032, the revised Act states, alleviating some concerns surrounding supply chain disruption.

The major concern for biopharma has been how embedded Western drugmakers are with WuXi Apptec and WuXi Biologics. Despite the name, the latter is a separate contract development and manufacturing organization (CDMO) that spun-out from WuXi PharmaTech (the former name for WuXi AppTec) in 2017. The BIOSECURE Act has associated the two companies together, but in this latest revision, WuXi Bio is named as its own entity, along with BGI, MGI, Complete Genomics, and WuXi AppTec as a “biotechnology company of concern.”

The CDMO is involved in 698 integrated projects, 75 of which are late-phase or commercial, and has a biologics capacity that stretches beyond 430,000 L. Thus, WuXi Bio’s global capabilities infiltrate all aspects of biopharma’s supply chain and a legal requirement for the US to sever ties could cause major drug shortages. Already there have been reports of many US-based firms (including Eli Lilly and Vertex Pharmaceuticals) of talking to alternative suppliers to ensure capacity for their programs.

The revisions were welcomed by John Crowley, CEO of biopharma advocacy group BIO, who said the Act now “highlights a key vulnerability in our global supply chain and importantly provides a reasonable timeframe for companies to decouple their reliance on China-based biomanufacturing. It ensures during this transition that important biomedical research will not be slowed and that patients will have unimpeded access to life saving medicines.”

BIO, which took a U-turn in its stance and cut ties with WuXi Apptec earlier this year, “applauds this work and supports this BIOSECURE legislation,” Crowley said. He also thanked the bill sponsors and the Committees for “taking into consideration the findings of our recently released survey on key elements of the global supply chain.”

What’s next for WuXi Bio?

So with restrictions imminent, what does the future look like for WuXi Bio? According to Christopher Lui, an equity research analyst at Jefferies, the least favorable scenario could even be a boon for the CDMO as it would look to follow one of several strategies:

Firstly, WuXi Bio could undertake a share buyback over the next year or two “while rethinking its strategy as the bill is implemented for a clearer readout.” He also noted a second scenario where without US customers, “much less capex will be required going forward, resulting in a Wuxi Bio with even stronger free cash flow.”

Then there is the option to privatize the firm, or potentially sell up Lui wrote. The former “is harder given its dispersed shareholders and that most are non-domestic investors,” while the latter “could be a viable option for turning itself into a non-China company or becoming in-house.”