The U.S. biotech sector has seen significant growth in 2024, while China’s biotech index has declined. This shift is partly attributed to the proposed BIOSECURE Act, introduced in January 2024, which aims to distance the U.S. from Chinese companies in the biotech industry, according to an aticle in Bioscpace
The BIOSECURE Act would block federal funding for U.S. companies doing business with certain Chinese service companies or contract development and manufacturing organizations (CDMOs). It will also prevent U.S. government entities from procuring equipment or services from such U.S. companies. Although not yet law, the bill has already impacted investor confidence and business strategies.
A survey revealed that 79% of U.S. biotech companies have contracts with or purchase products from China-based CDMOs. However, many firms are now considering shifting their supply sourcing away from China due to the potential implications of the BIOSECURE Act. U.S.-based life science companies report 30% to 50% less confidence in collaborating with Chinese counterparts.
China has become a major supplier of pharmaceuticals for the U.S. However, concerns about national security and supply chain risks have prompted the U.S. government to seek ways to reduce dependence on Chinese suppliers.
The potential impact on Chinese biopharma companies is significant. Companies such as WuXi AppTec, which generates 65% of its revenue from U.S. contracts, are considering moving business units outside the U.S. The Chinese biotech sector is also facing dampened investor confidence and financial difficulties for startups.
India’s role in this situation is noteworthy. As the third-largest player in the pharmaceutical CDMO market, India is poised to potentially benefit from the shifting landscape. India Ratings and Research (Ind-Ra) predicts that India might see an increase in orders from U.S. pharma companies in the next 12 to 18 months. Analysis of data from 15 Indian pharma companies over the last year revealed that over 60% of those listed saw an increase in inquiries about new business.
Indian companies, in anticipation, have incurred significant capex over the past two years, resulting in elevated leverage ratios. Ind-Ra expects the ratio to moderate with the benefits of operating leverage feeding into margins and cash flows. While capex requirements will remain high, leverage levels will remain consistent with the revised ratings,” says Vivek Jain, director, Corporate Ratings, Ind-Ra.
The long-term implications of the BIOSECURE Act could lead to a significant restructuring of the global biotech ecosystem. Some experts predict a potential “seismic shift” that could result in the East and West developing separate biopharma ecosystems for research and development, operating under their own regulatory frameworks.
As the situation evolves, companies may need to explore alternative funding sources, diversify their supplier networks, and adapt to a changing global landscape in the biotech and pharmaceutical sectors.
