The BIOSECURE Act: Reshaping the Biotech Landscape
The genesis of the BIOSECURE Act is rooted in growing concerns over the People's Republic of China's (PRC) strategy known as "military-civil fusion," which aims to merge public and private industries to bolster the military modernization of the People’s Liberation Army (PLA). The PRC's 14th Five-Year Plan underscores the importance of leveraging artificial intelligence for biological discovery and accelerating biotechnology development, highlighting the strategic significance of biotechnology in the PRC's national agenda.
The Act explicitly targets companies with ties to foreign adversaries' military, internal security forces, or intelligence agencies and those that could potentially facilitate the transfer of U.S. persons' genetic data to foreign governments. Among the entities explicitly named in the legislation are major Chinese biotech firms such as BGI Genomics, MGI, Complete Genomics, and WuXi AppTec, which are accused of posing a national security threat to the United States.
Key Dates
Late May 2024 – House leadership is considering scheduling a floor vote on the BIOSECURE Act, indicating they may aim to move the bill quickly through the House after the committee markup.
No specific date was given, but the Senate Homeland Security Committee voted in March 2024 to advance their counterpart version of the bill to the full Senate floor, so a Senate floor vote could potentially happen in the coming months.
Potential Affected Parties
The implications of the BIOSECURE Act extend across a broad spectrum of stakeholders within the biotechnology and pharmaceutical sectors, including:
Specific Companies: U.S., U.K., and European biopharmaceutical companies like AstraZeneca, Amgen, Pfizer, and Eli Lilly could face restrictions on conducting business with significant drug development and contract manufacturing partners identified in the legislation, such as WuXi AppTec and BGI Group. This could force companies to sever ties with these entities, potentially disrupting their research pipelines and slowing down clinical trials, drug approvals, and drug availability.
OF UPCOMING IMPORTANCE
- 120 days after enactment – The Director of the Office of Management and Budget (OMB) must publish a list of entities that constitute "biotechnology companies of concern" as defined in the Act, in consultation with other agencies.
- 180 days after OMB publishes guidance, restrictions related to biotechnology companies added to OMB's list (besides the initially named firms like BGI and WuXi) will take effect.
- 1 year after OMB guidance – The Federal Acquisition Regulatory Council must revise the Federal Acquisition Regulation to implement the BIOSECURE Act's requirements.
Private Equity and Capital Markets: The Act could chill private equity investments and capital market activities related to the biotechnology sector. Companies named in the legislation have already experienced significant market capitalization losses, and the bill's passage could further deter international investment, affecting the valuation and fundraising capabilities of biotech firms with exposure to the named entities.
Supply Chain and Manufacturing: The legislation's focus on prohibiting U.S. government agencies and contractors from using biotechnology equipment or services from companies of concern could necessitate reevaluating supply chain strategies. Companies may need to diversify their supply chains and find alternative vendors, which could lead to increased costs and operational complexities.
Plocamium Holdings can help investors understand the implications of the BIOCESURE Act through strategic investment analysis, market mapping of affected biotech firms, advising on operational excellence to mitigate impacts, developing tailored investment strategies, and organizing educational workshops on the legislation's specifics.
Financial Market Impact
The BIOSECURE Act's potential to reshape the landscape of the biotechnology sector has significant implications for the financial markets. The immediate impact was felt in the stock performance of the named Chinese biotech companies, which saw substantial declines in their market valuations following the bill's introduction. The legislation introduces a layer of geopolitical risk that could affect investment decisions, stock valuations, and strategic partnerships for investors and companies in the biotechnology and pharmaceutical sectors.
Moreover, the Act could accelerate a trend toward the domestication of biopharmaceutical supply chains, potentially benefiting U.S.-based contract development and manufacturing organizations (CDMOs) as companies seek to mitigate risks associated with foreign adversaries. This shift could open up new investment opportunities in domestic biotech manufacturing, attracting capital from investors looking to capitalize on the increased demand for secure and resilient supply chains.
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The BIOSECURE Act represents a critical juncture in the intersection of national security, biotechnology, and financial markets. The legislation aims to protect the U.S. biotechnology sector from potential threats by targeting companies with ties to foreign adversaries. However, its broad implications for specific companies, private equity, capital markets, and the global biopharmaceutical supply chain underscore the complex interplay between geopolitics and the financial markets. As the Act progresses through the legislative process, stakeholders across the biotechnology and financial sectors will closely monitor its impact on investment trends, company valuations, and the broader market landscape.
Timeline and Insights
December 20, 2023: A pivotal moment as the Senate introduces an original bill (S. 3558), which, despite its lack of a title, is closely associated with the House's BIOSECURE Act due to their strikingly similar texts2.
January 25, 2024: Rep. Mike Gallagher and a bipartisan co-sponsors introduced the BIOSECURE Act (H.R. 7085) in the House of Representatives. It is referred to the House Committee on Oversight and Accountability.
February 16, 2024: A significant development as Arnold & Porter, a renowned legal advisor, publishes an advisory discussing the implications of the BIOSECURE Act for U.S.-China biopharmaceutical collaboration and national security, underlining the bill's potential to restrict U.S. biopharmaceutical companies' ability to collaborate with certain Chinese entities4.
February 28, 2024: The Biden administration issues an Executive Order to limit the distribution of specific government-related data and bulk sensitive personal data, including human genomic data, to countries of national security concern.
March 5, 2024: A critical analysis by Goodwin Procter on the BIOSECURE Act, bringing to light its potential implications for pharmaceutical and biotechnology companies, particularly those receiving U.S. federal funding or having procurement contracts with the U.S. government.
March 6, 2024: The Senate Committee on Homeland Security and Governmental Affairs votes 11-1 to report S. 3558the Senate's draft of the BIOSECURE Actto the Senate floor.
March 18, 2024: Lowenstein Sandler publishes a client alert discussing the BIOSECURE Act's proposed new legislation and its potential effects on U.S. companies' plans to contract with Chinese biotechnology companies.
March 28, 2024: Foley Hoag LLP publishes an alert on planning for the BIOSECURE Act, noting that restrictions related to other biotechnology companies of concern on the OMB list would take effect 180 days after OMB publishes the same.
May 10, 2024: Fierce Pharma reports on an updated draft of the House version of the BIOSECURE Act, which sets a 2032 deadline for the separation mandate concerning the industry’s work with WuXi and other Chinese CDMOs.
-written by James Tannahill, President of Plocamium Holdings LLC and contributor to Plocamium Global Insights.