Biotech Bill Threatens U.S. Drug Costs, Chinese Stocks Plunge

Key Takeaway

• Proposed U.S. legislation aims to blacklist Chinese biotech firms like BGI, impacting drug development costs and supply chains.
• WuXi AppTec, crucial for U.S. drug companies, faces a 50% stock drop amid fears of being affected by the bill.
• The bill could inadvertently raise drug-development costs and provoke Chinese retaliation against U.S.-based R&D operations in China.

Biotech Bill Targets Chinese Firms

The U.S. Congress is considering legislation, known as the Biosecure Act, aimed at restricting business with certain Chinese biotech companies, including BGI and WuXi AppTec, to protect Americans' health information from foreign adversaries. This move, reflecting bipartisan efforts to address supply-chain vulnerabilities, contrasts sharply with the substantial support provided to the semiconductor industry. Chris Meekins, a Washington analyst at Raymond James, highlighted the high likelihood of the bill's passage, emphasizing biotechnology as a critical national security concern.

Impact on U.S. Companies and Drug Supply

The proposed legislation could have significant unintended consequences for U.S. companies reliant on Chinese contract manufacturing and research services. WuXi AppTec, a key player in the drug development and manufacturing sector, generates a significant portion of its revenue from the U.S. The company's shares have plummeted nearly 50% this year amid concerns over the bill. Discussions in Congress suggest potential amendments to soften the bill's impact, such as allowing existing contracts with WuXi to continue, to prevent sudden drug shortages.

Threat to Weight Loss and Diabetes Drugs

Eli Lilly & Co.'s popular weight loss and diabetes medications, Zepbound and Mounjaro, rely on active ingredients produced by WuXi AppTec. The Biosecure Act's restrictions could exacerbate existing drug shortages, affecting not only blockbuster GLP-1 agonists but also advanced cancer treatments. WuXi AppTec's significant role in the global pharmaceutical supply chain, including its work with the world's 20 largest pharmaceutical companies, underscores the potential widespread disruption of drug production.

US Drug Supply Chain Vulnerabilities

A bipartisan report has highlighted the United States' alarming dependency on foreign sources, notably China, for essential medicines. Over 25% of U.S.-designated essential medicines are at "very high risk" due to this reliance. The report, leveraging Defense Department data, reveals vulnerabilities within the military's drug supply chain and the broader implications for national security. The proposed PREPARE Act aims to address these concerns by creating an emergency pharmaceutical reserve and encouraging domestic production.

Street Views

• Chris Meekins, Raymond James (Neutral on the Biosecure Act):

  "What good is it to have all the missiles and semiconductor chips if the soldiers are sick because you can’t get them the medication."

• Elizabeth Anderson, Evercore ISI (Neutral on potential revenue shift due to Biosecure Act):

  "Elizabeth Anderson, an analyst at Evercore ISI, estimates that roughly $300 million in annual revenue could flow to Charles River if a ban goes ahead. But there is hardly a glut in capacity in that space."

• Eric Coldwell, Baird (Cautiously Optimistic about safeguarding drug supply chain without harming U.S. companies):

  "Let’s not forget many non-China based R&D companies have China operations."