Welcome everyone to another edition of my China Tech Law Newsletter. Today’s post is a short one on a proposed law which just recently passed in the US House. It has not been getting much attention yet, but it will have a big potential impact on pharmaceutical companies, drug development, and pricing – all with US-China relations in the middle of it.

While many people involved in the pharmaceutical industry certainly know, most people aren’t aware how intertwined US pharmaceutical companies are with Contract Research Organizations (CROs) and Contract Development and Manufacturing Organizations (CDMOs) in China. It turns out that the tendency for China to be good at both outsourced R&D and high-end contract manufacturing applies in the pharma area as well.

The US had already declared pharmaceuticals to be a critical industry in a 2021 Biden executive order, and perhaps the writing has been on the wall since then.

Not surprising then, the new BioSecure Act which was first presented in May, would be a bipartisan congressional effort to prohibit US government funding to and contracts with pharma companies that themselves contract for biotechnology equipment or services from companies on a specific US government blacklist. The 5 initial blacklisted companies - which are said to be “subject to the jurisdiction, direction, control, or that operate on behalf of the government of a foreign adversary” - are BGI (Beijing Genomics Institute), MGI, Complete Genomics, Wuxi Apptec, and Wuxi Biologics. These are some of the companies with the most outsourced CRO/CDMO business from US pharma companies. Wuxi Apptec purportedly getting 2/3s of its revenue, or $27 billion from US companies alone last year. The list will surely expand in the future.

By 2032, ties with these companies will have to be severed completely. The date is in recognition that many existing drug pipelines with ongoing clinical trials would be disrupted otherwise, and that it takes substantial time to also find new partners to work with such as those in India.

The reality is that even before this bill is passed (and the assumption is it will be passed perhaps by year end, certainly after the election), companies are already moving towards other suppliers in other countries in anticipation of restrictions getting more difficult.

What should US companies do? Begin with a supplier or partner audit, something becoming more familiar to other US companies with exposure to supply chains impacted by the Uighur Forced Labor Protection Act (UFLPA) and similar legislation. Alternative sources with capacity and competitive pricing are not likely to be found here at home in the US, so the search for alternative partners abroad is likely already underway.

In the meantime, expect that drug prices will increase here in the US.

And while it is tempting to think that having Chinese companies build more capacity in the US will overcome the perceived US government concerns, this does not seem to be an “overcapacity” issue or a chance to promote reshoring for US jobs. Overcapacity on EVs is one thing, it’s hard to argue we don’t like overcapacity leading to cheaper drug prices. Nor again are jobs likely to return here given the higher costs.

This seems to be more about national security. Aiding the development of industry players in China that the government thinks may eventually challenge our own. Coupled with the perceived risk of health data being sent to China, especially for genomics.

Whether the threat is real or just perceived, this law like other China-related trade sanctions seems destined to pass. Considering the potential impact on drug prices, it’s surprising it hasn’t gotten more press than it has so far.

*This blog may be considered attorney advertising. It is for informational purposes only and does not constitute legal advice.