Confronting biopharma sanctions from US Biosecure Act

In the context of global economic recovery, the pharmaceutical industry is undergoing unprecedented change. With strong national policy support, rapid technological advancement, expanding market demand and expansive globalisation strategy, China’s pharmaceutical industry is on an upward trajectory.

As the world’s second-largest medical market, China is playing an increasingly important role in the global pharmaceutical supply chain, from raw material supply to high-end biotechnology research and development.

However, the path to development is paved with obstacles, and never smooth. In the past year, more than 10 senior executives from listed pharmaceutical companies have been investigated amid a heightened anti-corruption campaign.

Geopolitical repercussions are also intensifying; most notably via multiple versions of the Biosecure Act proposed in the US House of Representatives and Senate since December 2023.

Zhang He
Senior Partner
Tiantai Law Firm
Tel: +86 139 0103 8769
E-mail:
zhanghe@tiantailaw.com

The Biosecure Act

The core purpose of the Biosecure Act is to prohibit the US government and its controlled entities from contracting with specific enterprises within the biopharmaceutical supply chain, including biotechnology firms.

This represents a new round of US sanctions targeting China’s biopharmaceutical industry, following hot on the heels of punitive action against Chinese telecoms equipment and services under the Defending US Government Communications Act.

On 15 May 2024, the US House of Representatives’ Committee on Oversight and Accountability passed the Biosecure Act almost unanimously, with a vote of 40 to one. The act will now move on to the US Senate for similar review. Once both chambers of the US Congress pass the act, it will be sent to the president for signing into law.

The challenges

The introduction of the Biosecure Act is not without precedent. Since 2018, the US has imposed severe sanctions on China’s emerging technology industries, citing national security concerns. These sanctions have extended from manufacturing to communications, new energy, biotechnology and other sectors.

The threatened impact of the Biosecure Act on Chinese companies primarily lies in its restrictions on US government procurement of equipment and services produced or provided by specified biotechnology firms, and its limitations on the scope of loans and grants.

Chinese firms such as BGI Genomics and WuXi AppTec, which are listed on the specific biotechnology companies list, will face greater import and export trade risk, and more stringent due diligence.

The effects would manifest in specific areas.

1. Hindered international co-operation. The act may limit co-operation between Chinese pharmaceutical companies and foreign enterprises. If implemented, its impact could extend beyond China, affecting companies globally and prompting other countries to adopt similar measures.
2. Stricter regulatory environment. Chinese companies listed or deemed risky will face a series of challenges including stricter compliance reviews, information disclosure obligations, and complex regulatory risks. These measures could significantly impact their international strategies and market expansion plans.
3. Restricted technological R&D. The act may limit Chinese companies’ collaboration with US institutions in joint research, technology exchange and academic discussions. This restriction could negatively affect their participation in international R&D projects, and corresponding ability to innovate and acquire knowledge.
4. Increased financing difficulty. The act may lead foreign investors to reassess their investment decisions in China’s pharmaceutical industry, considering the impact of political factors on investment returns. This could weaken their confidence in Chinese pharmaceutical companies, thereby increasing the financing challenges for those reliant on foreign capital. In turn, this could affect research and development investment, market expansion and other critical business activities.

Some countermeasures

Despite the challenges and pressures brought by the Biosecure Act, it also presents new opportunities and development momentum for Chinese biopharmaceutical companies.

To counter the looming measures, they should adjust their strategies, accelerating their internationalisation by:

1. Seeking diversified markets. In the face of increased uncertainty in the US market, Chinese biopharmaceutical companies can expand into overseas markets, thereby reducing dependence on a single market, diversifying risk and seizing new business opportunities.
2. Enhancing independent innovation. By accelerating their internationalisation, Chinese biopharmaceutical companies can collaborate with more international partners, gaining more opportunities for technological exchange and promoting independent R&D and innovation.
3. Obtaining policy support. The central government encourages enterprises to go global. Companies should leverage government support policies for the pharmaceutical industry to enhance overall strength of the domestic pharmaceutical supply chain, providing a stable foundation for their international expansion.

The takeaway

Confronted with mounting challenges, Chinese pharmaceutical companies are intensifying their push overseas, keenly penetrating international markets and bolstering their capacities for independent innovation. Such strategic moves are aimed at sharpening their competitive edge globally and securing sustainable growth.

Zhang He is a senior partner at Tiantai Law Firm. He can be contacted by +139 0103 8769 or by email at zhanghe@tiantailaw.com

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