Drugmakers race to find alternative suppliers as US cracks down on Chinese biotech

Western pharmaceutical companies are in talks with alternative suppliers in response to draft US legislation seeking to restrict an important Chinese drug developer and manufacturer over national security concerns.

The Biosecure Act would prohibit US companies receiving federal grant money from working with four Chinese biotech companies, including WuXi AppTec and its sister company WuXi Biologics, which produce active pharmaceutical ingredients (API) for hundreds of US and European drugmakers.

Companies, including US-based Eli Lilly, Vertex Pharmaceuticals and BeiGene in Switzerland, have been talking with rival contract manufacturers to diversify production away from WuXi companies, according to several people familiar with discussions.

“Everyone is reaching out to alternative [contract development manufacturing organisations] right now,” said an executive at a US-based drug outsourcer, which competes with WuXi. “The companies’ management teams have an obligation to ask if the Biosecure Act gets approved what is their plan B?”

BeiGene said it was “finalising a second source of API outside of China” as part of a process that began in 2019. Eli Lilly and Vertex declined to comment on the talks.

Biotechnology has become one of Washington’s national security priorities, as the Biden administration works to onshore manufacturing capacity as well as slow China’s access to sophisticated technology, including semiconductors.

The bill labels Shanghai-based WuXi AppTec “a biotechnology company of concern”, which is described as any entity posing a risk to the US by engaging in joint research with a foreign adversary’s military, providing data obtained through equipment, and obtaining human data through equipment and services without informed consent.

In response to the bill, introduced in the US Congress in January, shares of WuXi AppTec and WuXi Biologics have fallen about 50 per cent so far this year in Hong Kong, wiping out more than HK$200bn (US$26bn) in their combined market value.

“Our business and customer relationships remain strong. Our executive leadership team has been regularly in touch with customers to address questions on the legislation and provide relevant updates,” said WuXi AppTec.

WuXi companies had rapidly expanded their market share of global contract manufacturing outside China to more than 12 per cent this year by offering ingredients priced at competitive rates and produced quickly at high volumes, said Naresh Chouhan, an analyst at Intron Health.

WuXi AppTec, which provides research and development services, earned 66 per cent of its Rmb18.9bn ($2.6bn) in 2023 revenues from the US, according to its annual report released in August. WuXi Biologics, which focuses on medicines made from living cells known as biologics, generated 46 per cent of its revenue from the US.

Vertex’s blockbuster cystic fibrosis drug Trikafta and BeiGene’s blood cancer drug Brukinsa are both produced in part at WuXi facilities, according to GlobalData, an analytics firm.

Tirzepatide — the active ingredient behind Eli Lilly’s diabetes treatment Mounjaro and weight loss drug Zepbound — is also produced by WuXi Biologics, according to two people familiar with the matter.

While the bill was not expected to be passed until after the presidential election in November, the uncertainty caused by mounting US-China tensions was forcing companies to draft contingency plans, said experts.

In total, 23 US biotechs have flagged their reliance on WuXi production facilities in annual reports since the start of March, according to data from AlphaSense. Five of the companies, including ArriVent Biopharma and Dianthus Therapeutics, informed investors that they were exploring alternative manufacturing options to WuXi.

An amended US Senate version of the bill says it will allow existing contracts to be grandfathered to avoid interrupting the supply of medicines, but it is unclear how this carve-out will work in practice.

Rival contract manufacturers stand to benefit from the bill. “We are seeing an increase in engagement,” said Mario Polywka, interim chief executive of Evotec, a German drug outsourcer that focuses on early drug development.

Fujifilm Diosynth, another contract manufacturer, said it had received “exploratory inquiries” about “potential supply chain resiliency challenges”, following talks over the Biosecure Act and the acquisition in February of major contract manufacturer Catalent by Novo Holdings, the parent company of Novo Nordisk.

WuXi has been coming under increasing pressure in the US. In March, the Biotechnology Innovation Organization (Bio), a US-based trade body that represents more than 1,200 biotechs worldwide, came out in support of the bill and cut ties with WuXi companies, after US lawmakers asked the US justice department to investigate Bio’s advocacy for WuXi.

John Crowley, Bio’s newly appointed chief executive who used WuXi’s services when he ran Amicus Therapeutics, said the US pharmaceutical sector would “take years to extract ourselves from China, as it is going to with the semiconductor industry”.

Pharma groups and biotechs can be locked into contracts with WuXi for up to five years into the future, said Crowley.