Since the end of last year, the "Biosafety Act" incident in the United States has emerged one after another, becoming an indelible shadow over Chinese biotechnology enterprises.
At 10:00 a.m. on May 15 local time, the Committee on Oversight and Accountability of the US House of Representatives held a hearing on the newly revised draft of the "Biosafety Law" (No.: H.R.8333) to decide whether to move the bill to the next agenda. At the hearing, the committee members debated the bill items and proposed amendments. In the end, the draft was adopted by a vote of 40 to 1.
On March 6, the Homeland Security and Government Affairs Committee of the United States Senate passed the Senate version of the draft Biosafety Bill (S.3558) with a voting result of 11:1.
The biggest change between the new draft of the House of Representatives and other previous versions is the addition of an eight year buffer period clause, which explicitly requires American companies to end cooperation with WuXi AppTec, WuMing Biotech, Huada Group, Huada Intelligent Manufacturing and other Chinese biotechnology companies by January 2032.
In this regard, Zhao Heng, founder of medical strategy consulting company Latitude Health, told reporters of the 21st Century Business Herald that this draft gives a buffer period of eight years to Chinese biotechnology companies such as WuXi AppTec, which is relatively good. However, in the long run, its new business will be significantly affected. "The final results can only be determined by the final version passed by the House of Representatives and the Senate version later."
Significant changes in the new draft
In the past six months, under the influence of the draft of the US "Biosafety Act", the uncertainty of the international layout of Chinese biotechnology companies led by "Yaomingxi" has increased.
According to public information, the H.R.8333 Act will prohibit federal agencies from entering into contracts with biotechnology companies that are considered worthy of concern, as well as companies that use the equipment or services of these companies, just like the purpose of the previous old version of the Act. However, the new version of the bill was launched by Raja Krishnamourthi, a senior member of the China Special Committee of the House of Representatives, and Brad Wenstrup, a representative of the House of Representatives, on May 10 R. 7085 has some obvious changes.
The biggest change is H R. The 8333 Act sets an exemption period of nearly eight years, which allows the United States to end its cooperation with the Chinese biotechnology companies named in the Act before January 1, 2032. The companies named in the bill have added Yaoming Biotech, so the Chinese companies specifically named include Yaoming Biotech, Wuming Kant, Huada Group, Huada Intelligent Manufacturing and its subsidiary Complete Genomics.
Since being involved in the US "Biosafety Act" draft, many leading biotechnology listed companies have suffered from performance pressure, especially in the CXO sector. According to the report of the first quarter of 2024 disclosed by WuXi AppTec, during the reporting period, WuXi AppTec's operating revenue was 7.982 billion yuan, down 10.95% year on year. Excluding the commercialization project of Xinguan, the revenue fell 1.8% year on year; Net profit attributable to parent company was 1.942 billion yuan, down 10.42% year on year; Non net profit attributable to the parent company was 2.034 billion yuan, up 7.3% year on year. The adjusted non IFRS gross profit rate is 38.7%. This is the first time since the listing in 2018 that the company's revenue and net profit both declined in the first quarter. At the same time, the revenue in the first quarter of 2024 fell 26.09% month on month compared with the fourth quarter of 2023.
According to the financial report of Yaoming Biotech in 2023, the European market has become the fastest growing market of Yaoming Biotech. The revenue of non Xinguan increased by 172.4% year on year, and the European market accounted for 30.2% of the company's total revenue, ranking first; North America is the second largest market. The revenue of non new crown in the Chinese market dropped by 1.2% year on year, ranking the third.
Previously, according to BioCentury's survey, although the draft "Biosafety Act" has not yet been implemented, it has had adverse effects. Many interviewees from enterprises said that they might not sign new contracts with Chinese CDMO enterprises in view of the uncertainty of the bill's adoption and implementation. In this way, many people in the industry are worried about the development prospects of Yaoming Biology and other enterprises.
In addition, the industry is more worried that the draft "Biosafety Act" will bring more uncertainty to the international layout of Chinese biotechnology companies.
Response from the named enterprise
As for the impact of this new version of the "Biosafety Act", Deng Yong, a professor of health law at Beijing University of Traditional Chinese Medicine, also said in an interview with the 21st Century Business Herald that the adoption of the draft bill means that the US government will impose stricter restrictions and supervision on Chinese enterprises in the field of biotechnology.
"For Chinese biomedical enterprises, especially those explicitly listed in the restricted list, the adoption of this bill will have a significant impact." Deng Yong analyzed that, first of all, these enterprises may lose the opportunity to sign contracts with the U.S. government and its controlled enterprises, which will directly affect their business in the U.S. market. Secondly, since the draft bill also involves the signing of contracts with third-party enterprises that use or purchase the equipment or products of these Chinese enterprises, this may have an impact on the global business layout of enterprises, because American partners may reconsider their cooperation with these Chinese enterprises because of this bill.
"The draft bill introduces an eight year exemption period, which means that during the first phase of the exemption period after the bill takes effect, relevant Chinese enterprises can still receive new orders from American pharmaceutical enterprises. But after the end of the first phase of the exemption period, until 2032, these enterprises will no longer be allowed to receive new orders, but they can still continue to execute signed orders." Deng Yong said, This draft bill has not yet become a law, and it still needs further consideration and possible modification by the United States Congress. Therefore, Chinese enterprises should pay close attention to the progress of the draft bill and consider taking appropriate countermeasures to cope with possible changes in the law and business environment.
For the new version of the draft "Biosafety Act", WuXi AppTec announced in the morning of May 16 that the amendments to draft H.R.8333 include, but are not limited to, the removal of previous allegations against WuXi AppTec; And adding a non retroactive clause, that is, exemption from existing contracts signed before the proposed restrictive clause takes effect. However, although the United States government agencies have an assessment procedure for national security issues, the H.R.8333 draft still retains WuXi AppTec's company name in the definition of "biotechnology company to be concerned", and the company strongly opposes such a preset and unreasonable definition without due process.
On the same day, Huada Group also issued a statement pointing out that H.R.8333 attempted to intervene in the normal market order and impede fair competition by legislative means on the grounds of the national security of the United States. Since Huada has no access to personal data in the United States, it does not pose any threat to the national security of the United States. Therefore, the restriction of the draft on Huada in the United States market will not be conducive to the national security of the United States. In fact, it will only aggravate and expand the monopoly situation of American local companies in the field of gene sequencing.
The relevant person in charge of Huada Intelligent Manufacturing also said to the 21st Century Business Herald reporter, "We note that the bill proposes an eight year exemption, which reflects the awareness of American policymakers and stakeholders that the original bill will stifle competition, promote monopoly, and hinder the development of the global and American life science industry."
"We reiterate that we strictly abide by the laws and regulations of the country where we operate. We do not have access to data and do not involve any national security issues. At present, the company's global operations are normal. We still hope that the bill can be terminated in the follow-up process, and American legislators should not formulate policies conducive to a company." said Huada Intelligent Manufacturing.
Affected Biotech enterprises "going to sea"?
For this new version of the draft "Biosafety Act", many insiders believe that we should take a positive view of this issue. At least so far, the "Biosafety Act" incident in the United States is still targeted at individual cases, rather than the entire Chinese biomedical industry.
Lu Weipeng, legal adviser of a leading global medical technology enterprise in Greater China, said in an interview with the 21st Century Business Herald that the draft is still in the process of US legislation. If the President of the United States finally signs this bill, then in the market environment where China's pharmaceutical R&D and outsourcing service capabilities and investment are increasing, not only the currently named enterprises such as Huada and WuXi AppTec will be affected, but also the entire pharmaceutical R&D and production outsourcing market in China will be affected.
With regard to the content and possible development trend of the latest draft bill, Lu Weipeng pointed out that: first, the latest draft bill mainly prohibits federal agencies from cooperating with the biotechnology companies named, as well as companies using the equipment or services of these companies. That is to say, at present, cooperation with specific companies is mainly prohibited at the level of the U.S. government, but the final version of the bill is likely to directly prohibit cooperation between U.S. enterprises and specific companies;
Second, the eight year exemption period is a highlight of the draft bill, which requires that cooperation with some named companies be ended before 2032. This allows time for such companies to find new partners or adjust business. The eight year exemption period is a consideration of various factors, such as the implementation and termination of existing contracts, the balance of security and economic interests at the national level, and the research and development of biological medicine at the global level.
Third, the draft bill has set up a "grievance" channel for companies that may be included in the list. Companies can use this channel to put forward complaints and strive to be excluded from the list.
"From the perspective of the legislative process in the United States, although the draft bill has a long way to go to become law, and there are many uncertainties, it can be seen that there are already enterprises that have begun to make plans to cut off cooperation with specific companies to deal with the possible impact of the law. For Chinese enterprises that may be affected, they should continue to pay attention to the progress of the Act and law enforcement trends, explore legal remedies in advance, formulate response plans, adjust business strategies and layout, etc. " Wei Feng, senior partner of Shanghai Dehe Hantong Law Firm, also pointed out to the 21st Century Economic Reporter.
In response to this impact, executives of multinational CXO enterprises also gave feedback to reporters of 21st Century Business Herald that the introduction of the "Biosafety Act" in the United States will certainly bring some concerns in the future. "Whether Biotech enterprises will face the same problem or situation when they are ready to 'go to sea' remains to be seen It was also approved by the FDA for listing this year, and it was almost approved after the draft of the US' Biosafety Act 'came out. If there is really an innovative drug, it should be actively considered to accept only considering the US market, so the general direction is still very positive. "
At present, the "Biosafety Act" is still pending in the short term, and the legislative process is full of games and variables. Whether it can be finally implemented also needs to be judged by a long time line. But this is undoubtedly a big test for the companies and investors named Wuming Kant, Wuming Bio, Huada Intelligent Manufacturing, etc.
(Author: Ji Yuanyuan Editor: Xu Xu)
