The BIOSECURE Act: How relevant is it for Swiss biotechnology companies?

12 June 2024

The conflict between the USA and China continues to escalate and will probably also have an impact on the biotechnology sector. Biotechnology companies that are selling their products to the U.S. Government are facing challenges if they collaborate with certain Chinese companies. The U.S. Senate and House of Representatives are pushing through bipartisan legislation known as the "BIOSECURE Act" that may also have an impact on Swiss biotechnology companies.

The first bills for the BIOSECURE Act were introduced in the Senate on December 20, 2023, and in the House or Representatives on January 25, 2024. On March 6, 2024 the Senate Committee on Homeland Security and on May 15, 2024 the House Oversight Committee approved the BIOSECURE Act. The BIOSECURE Act is widely supported by both the Democrats and Republicans so there is some momentum to the legislation and the chances are high that the BIOSECURE Act will become a law in one form or the other.

What is the BIOSECURE Act about?

The purpose of the BIOSECURE Act is to ban the collaboration with Chinese biotechnology companies that pose a threat to national security of the USA.

US executive agencies would not be permitted to:

1. procure or obtain any biotechnology equipment or service produced or provided produced by a "biotechnology company of concern";
2. enter into, extend or renew a contract with any entity that:
   • uses biotechnology equipment or services from a "biotechnology company of concern" and acquired after the applicable effective date (as defined in the BIOSECURE Act) in performance of the contract; or
   • enters into any contract (with a third party) if such entity knows or has reason to believe that the performance of the contract with the executive agency will require the use of biotechnology equipment or services from a "biotechnology company of concern" and acquired after the applicable effective date (as defined in the BIOSECURE Act);
3. give a loan or grant funds to procure, obtain, or use any biotechnology equipment or services produced or provided by a "biotechnology company of concern".

What is a "biotechnology company of concern"?

There are two categories of "biotechnology companies of concern".

The first category consists of specific companies listed in the BIOSECURE Act (currently BGI, MGI, Complete Genomics, Wuxi Apptech, Wuxi Biologics, and their subsidiaries, parent, or successors).

The second category is comprised of additional entities (and their subsidiaries, parent, or successors) that will be determined after the enactment of the BIOSECURE Act based on the following criteria:

• the entity is subject to the administrative governance structure, direction, control, or operates on behalf of the government of China (as well as Russia, Iran, or North Korea, which are also considered as foreign adversaries, whereas the focus of the BIOSECURE Act lies on China);
• the entity is to any extent involved in the manufacturing, distribution, provision or procurement of a biotechnology equipment or service; and
• the entity poses a risk to the national security of the US based on (i) engaging in joint research with, being supported by, or being affiliated with China's military, internal security forces, or intelligence agencies; (ii) providing multiomic data obtained via biotechnology equipment or services to the Chinese government; or (iii) obtaining human multiomic data via the biotechnology equipment or services without express and informed consent.

What can Swiss biotechnology companies do now?

There is a high probability that this law will come into force in one form or another. The versions before the Senate and House of Representatives still have some differences, but they have moved closer.

In particular, the lawmakers will have to agree on the specific set of rules regarding the question when the ban on collaboration with the "biotechnology companies of concern" will become effective.

In addition, both drafts provide for a grandfathering clause. The current version before the House of Representatives stipulates that prior to January 1, 2032, the prohibitions shall not apply to existing agreements, including already negotiated contract option years, with regard to the listed Chinese companies. Regarding the additional entities, the ban will start five years after they have been identified as a "biotechnology company of concern".

Even if the BIOSECURE Act provides a grandfathering clause that gives biotechnology companies some lead time to change contractual arrangements with Chinese biotechnology companies, such as contract development and manufacturing organizations ("CDMO"), contract research organizations ("CRO") and contract manufacturing organizations ("CMO"), Swiss biotechnology companies should not wait but rather assess their potential exposure to the BIOSECURE Act now.

In particular, the following questions should be answered:

• Are we contracting with any of the US executive agencies?
• Are we contracting with any of the listed "biotechnology companies of concern"?
• Are we contracting with any Chinese CDMO, CRO, CMO, or other company that may qualify as a "biotechnology company of concern"?
• How much lead time is required to adjust the supply chain and contractual arrangements with a "biotechnology company of concern"?
• Do already concluded agreements with a Chinese CDMO, CRO, CMO or other Chinese biotechnology company provide for adequate termination rights?
• If contracts are to be concluded with a Chinese CDMO, CRO, CMO, or any other biotechnology company, which termination rights should be included to ensure the collaboration can, if necessary, be terminated in good time to comply with the BIOSECURE Act?

Author: Lukas Züst