Understanding The Proposed BIOSECURE Act And What It Means For U.S. Life Sciences Companies

The U.S. Congress is currently considering legislation to prevent the governments of foreign adversaries¹ from siphoning data and information from U.S. companies in order to advance their own capabilities in the biotechnology field.

Both the House of Representatives and Senate have drafted bills (collectively referred to as the “BIOSECURE Act” or the “Act”) that would prevent U.S. government agencies, as well as private companies contracting with them, from obtaining goods or services from “Biotechnology Companies of Concern,” which are currently identified in the pending legislation as the following companies based in the People's Republic of China (PRC): BGI, MGI, Complete Genomics, Wuxi Apptec and any of their respective subsidiaries, parent affiliates or successors.

Although this legislation is still in the early stages, it is garnering strong bipartisan support in light of the U.S. government's concern that the PRC “seeks to dominate biotech as an industry of the future”², potentially at the expense of the U.S. and other countries. On this basis, it is quite likely that some form of the BIOSECURE Act will eventually become law.

Potential Downside of the BIOSECURE Act

Although the reach of the proposed legislation is still unclear, what is clear is the impact that the Act will have on the U.S. biotechnology industry, including those biotech and pharma companies that are not affiliated with the U.S. government, and therefore, not directly impacted by the Act's prohibition on contracting with the Biotechnology Companies of Concern (hereafter referred to as “BCCs”).

Since many of these private companies rely on BCCs to provide products and services (such as research and development services, manufacturing of commercial products including FDA-approved medications, and clinical-stage products for on-going clinical trials), they will likely encounter fulfillment difficulties should BCCs reduce capacity in response to the loss of revenue from U.S. government contracts. For example, it will likely be harder to obtain slots for manufacturing runs of medicinal products at BCCs, causing disruption to supply chains and the potential increase in drug prices. Moreover, the entire U.S. biotechnology industry (government and private entities alike) could be forced to spend resources on finding alternative vendors at the expense of valuable innovative initiatives.

Likewise, it is possible that the Act could impact non-profit organizations receiving federal funding, including universities and academic medical centers that perform basic research and clinical trials sponsored by biotech and pharma companies. If this should happen, biotech and pharma companies would lose access to the clinical and research expertise of academic institutions, severely limiting their drug development programs. In addition, non-profit organizations would lose a valuable source of funding.

These factors represent a serious counterpoint to the obvious national security threat that adversarial governments like the PRC pose, particularly if they succeed in obtaining U.S. proprietary technology, genetic data of U.S. citizens, or other proprietary information that could be used to further interests that are clearly not aligned with those of the U.S.

Next Steps for U.S. Biotech Companies

As Congress weighs national security interests against the likely impact this legislation will have on the U.S. biotech industry, U.S. biotech companies may wish to prepare for the possible implementation of some form of the BIOSECURE Act by taking the following cautionary steps:

1. Follow the Act as it winds its way through the legislative process, with a particular awareness of the political and practical positions being discussed and any timetables for finalization and enactment, as well as the rationale behind the Biotechnology Industry Organization's endorsement of the Act.
2. Assess your company's current and planned use of BCCs and other foreign companies that might be added to the list of BCCs. Also, consider adding protective provisions to contracts with BCCs, such as strong termination and technology transfer provisions in contract development and manufacturing (CDMO) agreements; comprehensive data protection clauses in commercial contracts; and choice of law provisions that do not use Chinese law or the law of the applicable BCCs as the governing law in those contracts.
3. Investigate and qualify alternative vendors for services provided by BCCs. For example, since data analysis services, particularly those involving the transfer of genetic data to BCCs, are seen as a serious national security risk, it is essential for companies to begin identifying less risky providers of these services.
4. Monitor policy statements from academic institutions and other potential sites for clinical studies and plan clinical research accordingly.

Since the final version of the BIOSECURE Act is not yet known, it is hard to predict how regulatory compliance issues will be impacted. That said, once the Act becomes law, we plan to explore its provisions and requirements from a regulatory and operational perspective in a future post. In the meantime, please feel free to contact Elizabeth Smith at esmith@outsidegc.com if you would like to discuss this legislation in the context of your organization.

Footnotes

1. Currently defined as China; Cuba; Iran; North Korea; Russia; and Venezuelan politician Nicolás Maduro (Maduro Regime) 15 CFR §7.4

2. H.R 7085 § 2(a)(1)

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