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Tackling Drug Supply Chain Reliance on China: The US Moves to Restrict Biotech Partnerships

In a strategic bid to diminish the country's dependence on Chinese biotechnology, US lawmakers are entwined in discussions concerning a piece of legislation with far-reaching implications for popular medical treatments. Medications well regarded for the management of weight loss and diabetes, such as Eli Lilly & Co.'s Zepbound and Mounjaro, find themselves at the heart of this dialogue. The primary component of these medicines traces its production back to WuXi AppTec Co., which stands directly in the line of fire of the Biosecure Act, presently under consideration in the US Congress. Individuals privy to WuXi AppTec's proceedings have highlighted the firm's integral role in manufacturing these active ingredients.

WuXi AppTec's influence extends beyond the confines of Eli Lilly's supply chain. The company boasts of affiliations with the top 20 pharmaceutical enterprises around the globe, as revealed in its public filings. This existing rapport with pharmaceutical magnates enhances the potential impact of the Biosecure Act. Should it be enacted in its current form, the legislation threatens to exacerbate the scarcity of GLP-1 agonists, a mainstay in blockbuster diabetes therapies, and could disrupt the production of advanced cancer treatments.

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WuXi's credentials include recognition by US regulators, acknowledging the company's manufacturing facilities as compliant with rigorous standards. This approval is not easily replicated, and any prospective suppliers would face the daunting task of navigating a similarly thorough vetting process. WuXi AppTec, along with its sister entity WuXi Biologics (Cayman) Inc., is not just a source of raw materials; the organizations conduct extensive research and development that transcends basic manufacturing duties.

The expansive role of contract research, development, and manufacturing organizations (CRDMOs) like WuXi AppTec cannot be understated, as pointed out by Nick Shipley, the chief advocacy officer of BIO, a potent industry lobbying group. BIO counts WuXi AppTec among its members and underscores the complexity inherent in these relationships. "It’s not just about where you’re sourcing API or biologic material; these CRDMOs do a lot more than that," Shipley elucidates. The prospect of moving these activities is not trivial—Shipley warns that such a supply chain disruption could lead to drug shortages, placing patient care at risk.

With the potential ramifications in mind, lawmakers are diligently working to mitigate the initial adverse effects on the US drug supply that could emanate from the proposed legislation. In pursuit of enactment, the bill must gain approval from both congressional houses and receive the president's signature. The overarching intent is to restrict American genetic and healthcare information accessibility for biotech companies considered to be "of concern," particularly those with suspected ties to foreign adversaries.

Senator Gary Peters from Michigan, a key proponent of the bill and the ranking member of the Senate Homeland Security and Governmental Affairs Committee, is contemplating amendments. One of the possible concessions involves permitting existing contracts to remain operational. These revisions are under consideration even as the committee prepares for a legislative hearing on the topic shortly.

The Web of Supply Chain Interdependencies

The financial stakes for WuXi AppTec hinge on American revenues, which constitute roughly two-thirds of its turnover. When news of the impending legislation broke earlier this year, it caused a significant dive in the company's share value. WuXi Biologics experienced a similar, if not as pronounced, decline in market price. Both entities have outright denied any affiliation with the Chinese Communist Party.

In a formal statement, WuXi AppTec vehemently opposed what it described as misleading accusations and gave assurance that its practices do not pose a threat to national security. The company remains dedicated to rectifying misconceptions about its operations and staunchly advocates for a fair assessment by US policymakers.

The potential risk to WuXi's continued operation is evident, yet there's insufficient dialogue around the impacts this would have on American businesses and patients. According to a report by legal experts at Ropes & Gray, the proposed legislation will compel organizations with US government contracts to undertake significant, often complicated revisions to their operational structures. This law firm has considerable experience advising the pharmaceutical industry, both within China and globally.

Reliance on China: A Fragile Pharmaceutical Backbone

The US pharmaceutical industry's fragility is further highlighted by its dependency on Chinese and Indian manufacturing sources. Both nations have previously faced challenges surrounding the quality of medical products. The effort to wean off reliance on Chinese firms now encroaches upon the biotech sector, including more prestigious suppliers.

Eli Lilly, in a submission to the US Securities and Exchange Commission, acknowledged the crucial role of China-based collaborators in their production processes. In addition to synthesizing chemicals, these partners provide essential reagents and materials. Changes spurred by geopolitical forces may not easily be counteracted; any transition to alternative suppliers can cause considerable delays and negatively impact business continuity and patient care.

The Biosecure Act lays down a critical mandate: any pharmaceutical entity engaged with a biotech company deemed concerning would be disqualified from attaining US government contracts. This encompasses agreements with the Department of Health & Human Services and the Department of Defense, potentially limiting medication sales to key demographics including veterans and potentially impacting the national stockpile along with Medicare and Medicaid beneficiaries.

This legislation evolves within the broader context of the US administration's effort to curb national security threats posed by China's rapidly advancing biotechnology sector. Under President Xi Jinping's directive, China aims to emerge as a global leader in the bioeconomy. There have been previous suggestions claiming that Chinese firms invested in the US healthcare system to access sensitive data intentionally.

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Pharmaceutical companies theoretically could segregate their supply networks from Chinese entities, at least for US government contracts. However, extricating these established ties could prove to be an arduous and cost-ineffective venture.

Rarely do WuXi AppTec and its partners disclose collaborative efforts publicly. Yet, according to a session at a significant healthcare event earlier this year, the Shanghai-based biotech revealed that it had generated revenues of $2.7 billion in the US and an additional $460 million from Europe in just the first nine months of 2023. The company also played a pivotal role in the production of more than half of the small molecule drugs approved by the US Food and Drug Administration in the initial period of the year.

Eli Lilly at a Crossroads

The situation assumes heightened severity for companies like Eli Lilly. Amidst stiff competition in the weight loss drug marketplace, notably from Novo Nordisk A/S, strategic moves are afoot. Novo Nordisk has recently acquired a set of manufacturing plants from Catalent Inc., which are specialists in complex drug production processes. These facilities are pivotal for manufacturing on behalf of Eli Lilly, among others. As described by Anat Ashkenazi, Lilly's chief financial officer, the company is undertaking an unprecedented expansion to sustain its medicines' production capabilities. Unfortunately, Lilly chose not to provide statements for this narrative.

According to BIO's Shipley, the industry is currently witnessing a stark reduction in manufacturing capacity. This phenomenon is particularly pronounced in competitive drug classes. The legislative transformations paired with the Catalent acquisition could spawn a tightening within the supply chain. Such an eventuality would spell concern for those looking to ensure capacity in a volatile market.

This emergent scenario spells out the acute risk for smaller and mid-size pharmaceutical firms. Iovance Biotherapeutics Inc., for instance, has recently achieved the first US sanction for a T-cell therapy for melanoma. This therapy will be produced at a WuXi facility located in Philadelphia. Similarly, Structure Therapeutics, an evolving weight-loss drug company, relies on WuXi for critical raw materials and drug production, as per a US regulatory disclosure. Disruption in their supplies, the company concedes, could gravely impact business operations.

Preemptive Revisions to Minimize Disruption

As a revised version of the bill, which may preserve existing contracts, moves toward potential passage, industry analysts like Yang Huang at JPMorgan in Hong Kong speculate on the consequences. While amendments might assuage some concerns, the threat to the stability of the drug supply remains potent, a sentiment echoed by Bobby McMillin, Managing Director at Arnold & Porter, a law firm based in Washington, DC.

Despite the looming impact on pharmaceutical provisions, some in congress hold a steadfast view that curtailing connections with China is imperative for national security. "Some people are thinking about shortages first and others are thinking about national security first," McMillin notes. "How do we reconcile those things when they are in tension?" remains a prevailing question amongst policymakers.

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With additional reporting by Riley Griffin and Lulu Shen.

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