U.S. Drugmakers Are Breaking Up With Their Chinese Supply-Chain Partners

As geopolitical tensions rise, U.S. drug manufacturers and biotech firms are reassessing their reliance on Chinese partners for manufacturing, research, and essential ingredients. Companies ranging from significant players like AstraZeneca to smaller firms like Amicus Therapeutics are evaluating alternatives to mitigate risks associated with dependency on China. This shift may result in delayed drug rollouts and increased costs for American patients due to the time and financial investment required to transition supply chains.

For years, U.S. and European pharmaceutical companies have depended on China for basic chemistry services and pharmaceutical ingredients. However, ongoing disputes between the U.S. and China concerning trade and military issues have unsettled the industry. Executives, including Kymera Therapeutics Chief Executive Nello Mainolfi, note that the cost for high-quality services in China has traditionally been lower than in the West. Now, however, companies are reassessing their operational strategies to minimize risks by diversifying their supply chain partners.

Legislative Changes Prompt Action

Key to this transition is the Biosecure Act, which passed the House in September with overwhelming bipartisan support. This legislation would prohibit companies that receive government funding or contracts from engaging with a targeted list of Chinese firms deemed to pose a security risk—most notably, WuXi AppTec and WuXi Biologics. In a response to the proposed legislation, WuXi AppTec denounced the listing as “a pre-emptive and unjustified designation without due process.” Both companies assert that they do not pose a security risk to the U.S. or any other nation.

While the fate of the Biosecure Act in the Senate remains uncertain, its mere prospect has already begun to impact relationships between companies and Chinese suppliers. Steve Abrams, co-head of the life sciences practice at Hogan Lovells, reflects that the act has had a “chilling effect” on companies contemplating partnerships with WuXi or other Chinese firms.

Continuing Interest in China

Despite the push towards reducing reliance on China, U.S. and European drugmakers still recognize the potential benefits of entering the Chinese market, which ranks as the second-largest drug market globally and has a rapidly aging population. Chinese biotechnology firms have inked billions of dollars in licensing deals aimed at transitioning medicines developed in China to the global market.

An example of a company pivoting away from China is Vir Biotechnology, based in San Francisco. The firm has ceased manufacturing at WuXi Biologics in favor of utilizing U.S. manufacturing partners while focusing on in-house development. Other companies, including AstraZeneca, are proactively seeking to establish supply chains that can operate independently of China.

The Need for Alternatives

Amicus Therapeutics relies on WuXi Biologics in China for its treatment of Pompe disease, while also sourcing raw materials from Chinese suppliers. Although the company remains willing to work with WuXi based on the current Biosecure Act, it is prioritizing finding a non-Chinese supplier for these materials. Amicus CEO Bradley Campbell stated that the legislation prompted the company to critically evaluate its supply chain dependencies concerning Chinese partners.

WuXi is taking proactive steps to help its clients diversify their supply chains by establishing a plant in Ireland, which is expected to provide commercial medicines by late next year.

The Broader Impact on Supply Chains

According to a recent survey conducted by the Biotechnology Innovation Organization, almost 80% of U.S. biotechnology companies engage with at least one Chinese firm. However, transitioning away from established relationships with these organizations does not happen instantaneously. Biotech businesses looking for alternative manufacturing options are often competing for a limited pool of contractors, leading to possible spikes in costs and slowed drug development processes as resources are diverted from critical research efforts to realigning supply chains.

Former Alnylam Pharmaceuticals CEO John Maraganore emphasized the need for U.S. legislation to incentivize domestic manufacturing to alleviate the difficulties introduced by the Biosecure Act, remarking that the industry could benefit from “more carrots and less sticks.”

Future for the WuXi Companies

On the other hand, there are indications that WuXi’s businesses are managing through these challenging circumstances. The company’s order backlog reportedly increased by 25% at the end of September compared to the previous year, demonstrating continued demand for their services.

Marc Elia, Chairman of Invivyd, noted that while his company previously relied on WuXi Biologics for research and production of a Covid-19 therapy, it plans to shift manufacturing to alternative locations outside China. This pivot is possible due to Invivyd’s cyclical approach to manufacturing, allowing for adjustments in their supply chain without significant disruptions.

Furthermore, venture capitalists are advising startups to actively manage supplier risk, prompting a reevaluation of funding implications for companies that continue to partner with Chinese contractors.

In summary, while the relationship between U.S. drugmakers and Chinese suppliers remains complex, the current geopolitical environment is pushing many companies to rethink and restructure their supply chains, ensuring they are equipped to meet future challenges effectively.