The US could up­end bio­phar­ma man­u­fac­tur­ing. WuXi ri­vals have an open­ing

In Con­gress, in­flu­en­tial law­mak­ers see a Chi­nese gov­ern­ment threat to the US biotech sec­tor. In the com­pet­i­tive world of bio­phar­ma man­u­fac­tur­ing, com­pa­nies see an op­por­tu­ni­ty.

Over the past sev­er­al months, as WuXi AppTec, WuXi Bi­o­log­ics and BGI Group have been tar­get­ed by law­mak­ers with pro­posed leg­is­la­tion and sanc­tions, their ri­vals have qui­et­ly — and not so qui­et­ly — used the mo­ment to try and gain mar­ket share.

The scruti­ny on WuXi is com­ing at an op­por­tune time for the Ger­man com­pa­ny Evotec. In re­cent years, Evotec has built out its bi­o­log­ics man­u­fac­tur­ing and drug dis­cov­ery ser­vices in the US mar­ket. Evotec is try­ing to walk a fine line be­tween high­light­ing its ca­pac­i­ty but not ap­pear­ing op­por­tunis­tic.

“I want to stay re­al­ly on the high ground,” Evotec’s chief busi­ness of­fi­cer Matthias Evers said. “Know­ing ex­ec­u­tives at WuXi and what they do, I will al­ways take them as a re­spect­ed com­pa­ny. At the same time, we will al­so be here to serve our part­ners and cus­tomers.”

With the US and Chi­na pulling apart, it’s cre­at­ing risks — and op­por­tu­ni­ties. WuXi AppTec’s US busi­ness brought in $3.6 bil­lion last year, which was 65% of its to­tal rev­enue, and could be up for grabs if the com­pa­ny pulls back or ex­its the coun­try.

As chron­i­cled by End­points News, drug­mak­ers are tak­ing a hard look at their sup­ply chains fol­low­ing pro­posed fed­er­al leg­is­la­tion called the BIOSE­CURE Act that aims to cut out Chi­nese com­pa­nies.

In­di­an man­u­fac­tur­ers have been es­pe­cial­ly vo­cal about how they could fill the void. En­zene Bio­sciences, a com­pa­ny with a foot­print in In­dia and the US, be­lieves it’s well-po­si­tioned to ab­sorb some of WuXi’s bi­o­log­ics and chem­istry man­u­fac­tur­ing.

“Geopo­lit­i­cal­ly, it’s very tur­bu­lent right now … and some­times in that tur­bu­lence, there are op­por­tu­ni­ties if you’re po­si­tioned right­ly,” En­zene Bio­sciences CEO Hi­man­shu Gadg­il said. “I think there are def­i­nite­ly folks who are con­cerned and are look­ing for a fall­back op­tion right now, in case this does not go well for them. So def­i­nite­ly we are see­ing a lot of that.”

Si­lence ver­sus ad­vo­ca­cy

The BIOSE­CURE Act al­leges that WuXi close­ly part­ners with the Chi­nese mil­i­tary. The com­pa­ny has de­nied the claims.

“Be­cause of our long-stand­ing and strict ad­her­ence to U.S. laws and reg­u­la­tions and re­spect­ed se­cu­ri­ty pro­to­cols, WuXi AppTec has earned its role as a val­ued and trust­ed con­trib­u­tor to the phar­ma­ceu­ti­cal and life sci­ences in­dus­tries and a trust­ed part­ner to cus­tomers in the U.S. and around the world,” the com­pa­ny said in a state­ment.

Some WuXi com­peti­tors are stay­ing qui­et, even though they stand to gain a fi­nan­cial wind­fall.

For ex­am­ple, the in­vest­ment firm Ever­core ISI ran the math and found that Charles Riv­er Lab­o­ra­to­ries is po­si­tioned to pick up as much as 30% of WuXi’s US busi­ness, rang­ing from lab analy­sis to chem­istry dis­cov­ery ser­vices.

Un­der the sce­nario, Charles Riv­er would see a $465 mil­lion in­crease in rev­enue, which would rep­re­sent 11% of the com­pa­ny’s to­tal sales last year.

“We think of the like­li­hood of this bill even­tu­al­ly get­ting passed as rather slim, how­ev­er, the un­cer­tain­ty around a po­ten­tial ban could still cre­ate a long-last­ing over­hang for WuXi AppTec con­sid­er­ing the risk averse na­ture of biotech/phar­ma clients,” Ever­core an­a­lysts said in a re­search note.

Charles Riv­er de­clined an in­ter­view re­quest and in a state­ment said it’s eval­u­at­ing “the po­ten­tial im­pact” of BIOSE­CURE.

Geopol­i­tics can cut both ways. Chi­na could im­pose re­tal­ia­to­ry sanc­tions on US man­u­fac­tur­ers, a threat to Charles Riv­er, which de­rived a chunk of its rev­enue from the Chi­nese mar­ket last year.

“US com­pa­nies are still ac­tive in the Chi­na mar­ket, and so they have to be cog­nizant of how they sup­port things do­mes­ti­cal­ly while al­so keep­ing in mind what is for most of them a fair­ly im­por­tant mar­ket in Chi­na,” said Sam Ide, a vice pres­i­dent at The Asia Group’s Chi­na prac­tice, where he ad­vis­es clients on nav­i­gat­ing pol­i­cy.

Com­pa­nies with­out op­er­a­tions in Chi­na are more open about how they could ben­e­fit from Chi­nese com­peti­tors be­ing un­der the mi­cro­scope. Some US firms are even speak­ing di­rect­ly about BIOSE­CURE, in con­trast to much of the in­dus­try that’s been silent on the leg­is­la­tion for fear of reper­cus­sions.

Twist Bio­science spe­cial­izes in DNA syn­the­sis, a bur­geon­ing field that aids in de­vel­op­ing new med­i­cines, and where in­tel­lec­tu­al prop­er­ty is close­ly held. Emi­ly Lep­roust, the com­pa­ny’s CEO, said BIOSE­CURE presents an op­por­tu­ni­ty to talk about the risks of do­ing busi­ness un­der a Chi­nese na­tion­al se­cu­ri­ty law that al­lows the gov­ern­ment to ac­cess da­ta from pri­vate com­pa­nies.

“If there’s op­por­tu­ni­ties to make sure peo­ple are aware or con­scious that they’re send­ing their im­por­tant IP to a for­eign ad­ver­sary, that may be a worth­while dis­cus­sion to have,” Lep­roust said.

Asked if the com­pa­ny’s com­ments could hurt Twist Bio­science’s hopes to ex­pand to Chi­na, Lep­roust said US-Chi­na com­pe­ti­tion can­not be ig­nored.

“The Chi­nese gov­ern­ment is try­ing to com­pete with us,” Lep­roust said. “And so I don’t think it should be a sur­prise to them that we want to com­pete as well.”

Ja­son Kel­ly, the CEO of Gink­go Bioworks, re­cent­ly said in tes­ti­mo­ny to US law­mak­ers that com­peti­tor BGI can­not be trust­ed when it comes to de­tect­ing bi­o­log­i­cal risks. BIOSE­CURE al­leges that BGI has fed sen­si­tive ge­net­ic da­ta to the Chi­nese gov­ern­ment, which BGI in a state­ment called “sim­ply false.”

In an in­ter­view, Kel­ly said he’s think­ing not just about his com­pa­ny, but wider US biose­cu­ri­ty.

“We’re in that busi­ness, don’t get me wrong. But I al­so think it’s im­por­tant that the US has in­fra­struc­ture it can trust,” Kel­ly said. “Both things can be true.”

An un­cer­tain op­por­tu­ni­ty

The fate of BIOSE­CURE re­mains un­cer­tain, as do po­ten­tial sanc­tions that would im­pose im­port con­trols on WuXi and oth­er firms. Adding un­cer­tain­ty, the bill’s lead spon­sor, Rep. Mike Gal­lagher (R-WI), re­cent­ly an­nounced he will leave Con­gress in April, with Rep. John Moole­naar (R-MI) slat­ed to take over as the next chair of the House’s Se­lect Com­mit­tee on the Chi­nese Com­mu­nist Par­ty.

Some com­peti­tors ex­pressed that it’s too ear­ly to say whether they’ll pick up much busi­ness.

No­var­tis has said there could be an op­por­tu­ni­ty for its con­tract de­vel­op­ment and man­u­fac­tur­ing or­ga­ni­za­tion if BIOSE­CURE pass­es. No­var­tis launched the unit dur­ing the pan­dem­ic and is rapid­ly boost­ing its bi­o­log­ics man­u­fac­tur­ing.

“For con­tract man­u­fac­tur­ing, giv­en that po­ten­tial leg­is­la­tion change, it ob­vi­ous­ly im­pacts our op­por­tu­ni­ties po­ten­tial­ly but has to be seen what it all means,” said Christoph Buer­ki, No­var­tis’ chief fi­nan­cial of­fi­cer of op­er­a­tions and con­tract man­u­fac­tur­ing or­ga­ni­za­tion head, as pre­vi­ous­ly re­port­ed by End­points. No­var­tis de­clined to com­ment fur­ther.

Asked dur­ing an in­vestor call last week about BIOSE­CURE, Jean-Christophe Hyvert — the pres­i­dent of bi­o­log­ics at Lon­za, one of the world’s largest health­care man­u­fac­tur­ers — said the com­pa­ny is “hav­ing very ac­tive dis­cus­sions with cus­tomers.” Lon­za de­clined to elab­o­rate on what these dis­cus­sions in­clude.

“We rec­og­nize from our North Amer­i­can cus­tomers that it is im­por­tant to be near them to sup­port their do­mes­tic man­u­fac­tur­ing needs,” a Lon­za spokesper­son said in an email.

Law­mak­ers have looked to mod­er­ate BIOSE­CURE by adding a pro­vi­sion that grand­fa­thers ex­ist­ing con­tracts. But for drug­mak­ers strik­ing new man­u­fac­tur­ing deals, WuXi can­not be read­i­ly re­placed in ar­eas like cell and gene ther­a­py, though South Ko­re­an ri­val Sam­sung Bi­o­log­ics could even­tu­al­ly pick up some of the slack.

“[Sam­sung Bi­o­log­ics has] thrown a lot of mon­ey at bio man­u­fac­tur­ing and cell cul­ture in par­tic­u­lar, and they have rea­son­able enough ca­pac­i­ty that the big phar­ma com­pa­nies will pay at­ten­tion to,” said Lee Kar­ras, the CEO of No­ram­co, who spe­cial­izes in man­u­fac­tur­ing ac­tive phar­ma­ceu­ti­cal in­gre­di­ents, or APIs.

Sam­sung Bi­o­log­ics did not re­spond to an in­ter­view re­quest. Oth­er man­u­fac­tur­ers that could stand to ben­e­fit, in­clud­ing Catal­ent, Boehringer In­gel­heim, Fu­ji­film Diosynth, Ther­mo Fish­er and Re­ci­pharm, de­clined in­ter­view re­quests and some sent mut­ed state­ments.

Un­like 2022 fed­er­al leg­is­la­tion that set aside $53 bil­lion to boost do­mes­tic man­u­fac­tur­ing of semi­con­duc­tors, BIOSE­CURE wouldn’t pro­vide fed­er­al fund­ing to ease sup­ply chain crunch­es.

But com­pa­nies like Na­tion­al Re­silience have re­ceived US fund­ing as part of a push to shore up the biotech sup­ply chain, which ac­cel­er­at­ed un­der a Biden ad­min­is­tra­tion di­rec­tive in 2022.

“The BIOSE­CURE Act brings to light the im­por­tance of a ro­bust biotech/bio­phar­ma ecosys­tem in the Unit­ed States,” Na­tion­al Re­silience said in a state­ment.

– Max Gel­man con­tributed re­port­ing.