As the US marks another tumultuous presidential election, one aspect of the country’s politics is certain and clear – the bipartisan support of the BIOSECURE Act.
“The bipartisan nature of this is critical,” said Matt Wetzel, a life science and MedTech partner at Goodwin Law, to In Vivo ahead of the election. “It’s one of those few issues where Republicans and Democrats are coming together.”
In a nutshell, the BIOSECURE Act is a proposed legislation that would prohibit federal funding for companies that work with certain named Chinese entities, or a “biotechnology company of concern”, as they are referred to in the bill.
There are two versions of the act, one by the US House of Representatives and one by the Senate, but the former has progressed further, after it received a bipartisan vote of 306-81 in early September and is now awaiting the Senate’s decision.
The two versions have certain differences, for example, the Senate’s version does not include Wuxi Biologics as a biotechnology company of concern, and the House version has a wind-down provision that shields agreements with the named companies until 1 January 2032.
Still, the overall message is clear – the US pharmaceutical industry’s reliance on Chinese vendors has reached a critical point. So, how did we get here?
“For decades, these companies have been told to go work with their Chinese counterparts and take advantage of the cost savings and technical proficiency. Then in a fairly short period of time, probably the tail end of the Obama administration through to Trump to now, they have been told to get out,” explained John Strom, special counsel in the public policy and government relations practice group at Foley & Lardner.
This legislation will affect every company, no matter if it is still in development or already has products on the market. But while a lot of conversation is focused on big pharma and biotech firms, and what it means for them, one part of the industry is silently left in the corner – off-patent drug manufacturers.
Concerns Over Generic Drug Supply
Generics and biosimilars play a crucial role in the US healthcare system, representing 90% of all prescription drugs in 2023, according to off-patent industry trade group Association for Accessible Medicine’s US Generic & Biosimilar Medicines Savings Report.
Thanks to the Hatch-Waxman Act, which established generic drug regulation in 1984, millions of Americans can access cheaper medicines. However, it might have missed one piece of the puzzle.
“While Hatch-Waxman was brilliant in making sure that we can get these affordable products to market to patients, one thing it did not anticipate was countries aggressively acting to corner the market. That is what China and India have done,” said Jon Toomey, senior vice president of government relations at the bipartisan organization Coalition for a Prosperous America.
Indeed, the US has outsourced a significant portion of its pharmaceutical supply chain, including active pharmaceutical ingredients and regulatory starting materials, to those two countries.
According to a white paper by the National Institute for Pharmaceutical Technology and Education, India and China produced 62.1% and 22%, respectively, of API for all generic drugs in 2021. Additionally, nearly 80% of the RSM required for API synthesis in India came from China.
China was also the leading source of pharmaceutical imports measured by weight to the US in 2021, accounting for 190 million kilograms, the Coalition for a Prosperous America wrote on its website in 2023.
Moreover, the US grew more and more reliant on the import of widely used generics, with China importing 95% of ibuprofen, 91% of hydrocortisone, 70% of acetaminophen, 40%-45% of penicillin, and 40% of heparin, the organization said.
This begs the question – how will the BIOSECURE Act affect the off-patent industry?
“There’s nothing in the law that says you can’t work with these entities. Rather, it says, that if you do work with these entities, you won’t get federal government funding,” Wetzel explained. This also includes direct federal contracts, such as the Veterans Affairs Federal Supply Schedule, which is necessary to receive Medicaid reimbursement, a “significant piece of potential coverage and reimbursement for these products.”
Despite generic drugs being a cornerstone of the US healthcare system, they are very prone to shortages.
When the legislation was first introduced, one of the early concerns was about the potential of making this problem even more dire. Since then, the provision to include the 1 January 2032 deadline, which indicates when the government expects firms to end their contract with the Chinese entities, was introduced, potentially shielding the industry. Still, it might not be enough.
“We have a multi-year implementation process, but the generic drug supply chain is fragile enough and under such price stress that there’s a real possibility that if it’s not handled properly, both by industry and assisted by the government, the BIOSECURE Act could make it worse,” said Strom.
Biosimilars, which are off-patent versions of biologics, might also face similar difficulties. “Biosimilars always struggle with market uptake. If you make them any more expensive, they lose whatever competitive rationale they have even further,” Strom added.
However, David Sanders, executive director of the multi-industry coalition Securing America’s Medicines and Supply, said that many biosimilars are made in America or South Korea, so the impact on their production might be somewhat minimal.
‘Tremendous Opportunity For India Or Other Developing Countries’
The agnostic nature of the bill means that every part of the pharmaceutical industry is affected, but the effect may depend on whether they are innovators or off-patent firms.
“They’ll face different challenges. Pharma’s challenge now is that you’ve lost one of your major contract development manufacturing organizations. The generics have lost and, potentially, have greater exposure to additional risks, because of their reliance on Chinese manufacturing,” Strom explained.
As many companies might be inclined to leave China completely to retain the option of US federal funding, other countries might take this as a chance to fill that void.
“It’s a tremendous opportunity for India or other developing countries to attempt to take advantage of what’s ultimately going to be China’s loss of access to a huge consumer market,” Strom said.
However, companies that are less funded, which is often the case of generics firms compared to big pharma companies, might find themselves in a difficult position to find alternative vendors before the 1 January 2032 deadline.
To avoid being left with no vendor options, companies need to start thinking about what other CDMOs or contract research organizations could replace existing relationships, which are often built on technical and complex contract requirements to repeatedly produce a product according to narrow specifications.
“There’s a long line forming right now for other CDMOs or CROs that may not fall into these buckets. I do oftentimes encourage companies and other stakeholders that they should be thinking about where they can turn now to get in line because there will be a rush on services for those other CDMOs,” Wetzel said.
Sanders has already noticed that everybody is waking up to the fact that the industry was overly dependent on China, and some had begun to change their contracting. “The overall effect of the bill, even though it has not been passed into law yet, has already begun to be positive as companies are diversifying their supply chains,” he added.
A Chance To Bring ‘Made In America’ Label Back?
However, others see it as an opportunity to bring manufacturing back to America, and given the bipartisan consensus in Congress, it sends a message that it can be done to protect the country’s national security, health, and patient safety, said Toomey.
While it might be patriotic to bring back the “Made in America” label, currently, there are little to no incentives to encourage domestic manufacturing.
“Generic drug companies don’t have enough access to capital to think about long-term capital investments in America, especially without some policy changes that have sustainability to them,” said Sanders.
“In a way, we put the cart before the horse by passing the BIOSCURE Act out to the House without passing tax reform, grants, and other incentives including rebates,” he noted, adding that the federal government needs to follow the lead of Europe or India, who have incentivized their own domestic manufacturers.
Still, not all hope is lost because there have been some proposals introduced in Congress to help domestic production. For example, the Producing Incentives for Long-term production of Lifesaving Supply of Medicine Act, or the PILLS Act for short.
“It is a production-based tax credit approach, which looks at domestic production throughout the entire supply chain. There’s also an option of an investment tax credit, which would allow them to build new manufacturing capabilities,” Toomey explained.
Another proposal is the Essential Medicines Strategic Stockpile Act of 2023 (H.R.405), which would encourage distributors to hold a buffer of three to six months of a certain essential drug. “That is done by certain manufacturers already like Civica Rx. They’ve proven that they can overproduce and stabilize a market for their clients,” Sanders said.
“It could result in a couple of hundred thousand new manufacturing jobs on American soil, but also in allied partners around the globe”
Additionally, reshoring production would increase the domestic workforce, a rhetoric that was heard from both presidential candidates throughout their campaigns. Sanders, who is also a vice president of government affairs and policy at Coherus BioSciences, said his firm spent a bit more extra to create internal jobs, but “these are high-paying good American jobs, and that’s what we should be doing in this country right now, we should turn it around.”
“I view it as an opportunity here and abroad, and hopefully, it could result in a couple of hundred thousand new manufacturing jobs on American soil, but also in allied partners around the globe,” he added, talking about the BIOSECURE Act implementation and opportunities over the next decade.
What’s Next?
As the US comes down the election high and the newly elected government settles in, Congress will have to work on a missing piece of the BIOSECURE Act – creating a carrot, not just a stick.
“From a national security standpoint, it’s probably going to work as intended. But from a strengthening US innovation and leadership standpoint, we need that second part. We need the carrot that we just don’t have yet,” Strom said.
Wetzel is concerned that the government’s tendency to see this bill through a simplified lens will not take into account the fact that there is a significant volume of products in the generic and biosimilar space and the potential supply chain disruption.
“The last thing that we want to see happen is the industry taking all these steps to pivot and maneuver through this, only to find that the government is taking a very narrow or basic read on it, in a way that is not helpful for the industry. That guidance will be very key.”
While there have been several proposed bills that could incentivize domestic manufacturing, they need to be adopted before the 2032 deadline to help the off-patent industry navigate the new reality.
Sanders remains an eternal optimist that these policies will be put in place, given the bipartisan support. “I believe that in a new Congress and a new administration, whoever comes in and whatever the configuration of Congress, there is big momentum to do something positive in this space to de-risk against Chinese production,” he told In Vivo ahead of the election.
Toomey also said that next year will be a big tax year in Congress since the Tax Cuts and Jobs Act is expiring in 2025. “It is all going to be about the budget deficit and tax reauthorization. We can expect a large tax bill next year, regardless of the outcome of the election,” he said.
It is unclear yet when the bill will get passed. Some have speculated that it might happen during the Congress’ lame duck session, which occurs whenever one Congress meets after its successor is elected, but before the successor’s term begins.
Nevertheless, “even if it doesn’t pass this year, I do suspect that this will continue to be a topic of conversation next year as well,” Wetzel guessed.
