Senate Committee Votes to Send the BIOSECURE Act to the Senate Floor

OVERVIEW

Legislative Update on the BIOSECURE Act

On March 6, 2024, the Senate Committee on Homeland Security and Governmental Affairs voted 11-1 to report S. 3558¹ —the Senate’s draft of the BIOSECURE Act (the “Act”)—to the Senate floor.² The bill’s primary sponsor, Senator Gary Peters, will present a final draft of the bill to the Senate, along with a favorable committee report.³

The Committee’s vote evidences the bill’s bipartisan support, which together with the fact that bipartisan cosponsors in the House have introduced their own, sister version of the bill,⁴ suggests that some form of the legislation stands a good chance of becoming law. That said, the bill is still in the early stages of the legislative process, and therefore, even if it does become law, it is difficult to predict its final language.

During the meeting, Senator Rand Paul, the only “nay” vote on the committee, expressed concerns about hidden anti-competition motivations behind the bill. “By banning certain companies, we’re advantaging certain other companies,” Senator Paul said. “People are taking advantage of anger towards China to do parochial, protectionist things for their particular state.” He was also apprehensive that the ramifications of the Act’s supply chain interruptions have not been fully studied. All other 11 votes were “yeas” with eight Democrats and six Republicans voting in favor of the bill.

Background

As previously reported in our March 1 alert, the BIOSECURE Act would prohibit executive agencies from contracting with or extending loans or grants to any company with current or future commercial arrangements with a “biotechnology company of concern.”⁵ Generally speaking, a “biotechnology company of concern” is a biotechnology company that is headquartered in or subject to the jurisdiction of a foreign adversary’s⁶ government and poses a threat to national security.⁷ The bill also specifically names certain companies related to the People’s Republic of China (“PRC”)—BGI, MGI, Complete Genomics, WuXi Apptec, and their affiliates—as companies of concern.⁸

The intent of the Act, as explained in the preamble to the House bill, as well as a February 12 letter⁹ from the Act’s cosponsors to the Secretaries of Commerce, Treasury and Defense rests with the cosponsors’ concern that the PRC’s military has invested in advancing their biotech and AI capabilities and, through business collaborations, the PRC has access to millions of Americans’ genetic data.¹⁰ The Act is meant to confront the concern that U.S. taxpayer money is fueling foreign adversaries’ hostile biotech pursuits¹¹ and sever any pipeline of American genomic data to the PRC government.¹² The House bill’s findings conclude by saying “the time has come to (1) stop United States taxpayer dollars from flowing to foreign adversary biotech companies … and (2) prevent United States taxpayers from buying biotech equipment from foreign adversaries that facilitate the transfer of United States persons[’] genetic data to a foreign adversary.”¹³

DETAILS OF THE BIOSECURE ACT

What exactly would be prohibited?

As currently drafted, Section 3(a) of the bill provides that an executive agency may not “(1) procure or obtain any biotechnology equipment or service produced or provided by a biotechnology company of concern; or (2) enter into a contract or extend or renew a contract with any entity that (A) uses biotechnology equipment or services produced or provided by a biotechnology company of concern … in performance of the contract, or (B) enters into any contract the performance of which will require the direct use of biotechnology equipment or services produced or provided by a biotechnology company of concern … .”¹⁴ Additionally, executive agencies may not extend loans or grant funds to procure biotechnology equipment or services produced or provided by a biotechnology company of concern.¹⁵

What is considered a “biotechnology company of concern”?

The initial draft of the bill defines a “biotechnology company of concern” with both precision and breadth. First, consistent with the bill’s introductory concerns with the PRC, four China-based companies are specifically named: BGI, MGI, Complete Genomics, and WuXi Apptec.¹⁶ This includes any subsidiary, parent affiliate, or successor of those companies.¹⁷ Second, the definition casts a wider net, encompassing any entity that is (i) “subject to the jurisdiction, direction, control, or operates on behalf of the government of a foreign adversary,” (ii) is involved in the manufacturing or distribution of a “biotechnology equipment or service” and (iii) poses a risk to U.S. security, either by engaging in joint research with or being supported by a foreign adversary’s military, or by providing genetic data to a foreign adversary’s government, or by obtaining multiomic data without express and informed consent.¹⁸ A “foreign adversary” is in turn defined as China, Russia, Iran, and North Korea.¹⁹

What is considered “biotechnology equipment or services”?

The definition of “biotechnology equipment or services” is also broad, encompassing any instrument or service in “research, development, production, or analysis” related to “biological materials.”²⁰ This includes software, data storage, consulting services, support services, and disease detection.²¹

What is an executive agency?

As drafted, the bill defines an executive agency as “an Executive department, a Government corporation, and an independent establishment.”²² A few examples of Executive departments are the Department of Defense, Department of Energy, Department of Transportation, and Department of Health & Human Services, including the Food and Drug Administration, the Center for Disease Control, and the National Institutes of Health.²³

If the bill were to pass, when would it go into effect?

As currently drafted, enforcement of this Act would happen in two waves. First, the four listed Chinese-based companies (BGI, MGI, Complete Genomics, and WuXi Apptec) would become restricted either 120 days after enactment of the Act, or 60 days after the Office of Management and Budget (“OMB”) issues an implementing guidance, whichever comes first.²⁴ All other biotechnology companies of concern will become restricted 180 days after OMB guidance.²⁵ The Act instructs the OMB to publish a list of entities that constitute biotechnology companies of concern 120 days after enactment of the Act.²⁶

Are there exceptions?

The bill offers only minimal exceptions. The executive may waive the bill’s restrictions on a case-by-case basis with OMB approval for no more than 365 days, with an option for the OMB to extend an additional 180 days.²⁷ There is also an exception for contracts or transactions for the provision of health care services overseas, as long as the service is necessary to support an executive mission.²⁸

REACTIONS, IMPACT, AND WHAT’S NEXT

Reactions

Predictably, market reaction to the bill’s introduction was swift. WuXi AppTec and Wuxi Biologics reportedly lost $20 billion from their market capitalizations,²⁹ and Chinese biotech stocks fell to their lowest values since early 2020.³⁰ As to the assertions of the bill’s cosponsors, WuXi has responded that neither the company, nor its CEO Zhisheng Chen, have any relationship to China’s military and do not pose a national security risk to any country.³¹ MGI Tech responded by saying that all data from its products are “collected, stored, processed and controlled by the customers themselves.”³² Privately owned BGI and Complete Genomics have also protested that they are in no way linked to the Chinese government or military and that they comply with all applicable data privacy laws.³³ They further argued that this Act will only stifle access to technologies and raise health care costs.³⁴ Other commentators have echoed the concerns of Senator Paul, asserting the Act would hinder competition, as well as interrupt treatment pipelines and inhibit medical advancements.³⁵

Possible Impact on U.S. Biopharmaceutical Industry

Because the Act would prohibit the U.S. government from entering into, extending, or renewing any contract with an entity that either (a) uses biotechnology equipment originating from, or services provided by, a “biotechnology company of concern,” in the performance of the contract or (b) has a contract that requires the direct use of services or equipment from a “biotechnology company of concern,” one would expect biopharmaceutical companies with U.S. government contracts to re-evaluate and potentially seek to restructure or transition away from their commercial arrangements with these companies. Given the scale of BGI, MGI, Complete Genomics, and WuXi AppTech, in particular, and their many commercial relationships with life sciences companies of all sizes, if the bill is enacted, one would expect it would have a sizable impact on the industry, as it would require companies that have (or would seek to obtain) contracts with the U.S. government to make significant and often complex changes to their operations and would increase demand for substitute equipment and services.

Looking Ahead

As noted above, the BIOSCECURE Act bill is still in the early stages of the legislative process, and therefore it is difficult to predict its final language or even whether it will become law. That said, because it may not always be apparent whether a company, other than WuXi, BGI, MGI and Complete Genomics, is a “biotechnology company of concern,” life sciences companies might consider whether they need to update (or implement) processes for screening of their potential contractual counterparties to ensure they identify potentially impacted entities prior to contracting. Where such a potential counterparty is identified, companies may want to evaluate the applicable trade restrictions (including the BIOSECURE Act) to determine whether the restrictions could affect their contract with the counterparty.

Finally, as reported in our March 1 alert, in addition to the Congressional activity that has resulted in the BIOSECURE Act, on February 28, 2024, the Biden administration issued an Executive Order to limit the distribution of certain government-related data and bulk sensitive personal data, including human genomic data, to countries of national security concern.³⁶ In addition, the Department of Justice published an Advance Notice of Proposed Rulemaking on February 29, 2024³⁷ seeking comments on a regulatory regime that would prohibit or restrict certain “covered data transactions” involving a “country of concern”—identified as the People’s Republic of China (including Hong Kong and Macau), Russia, Iran, North Korea, Cuba, and Venezuela.³⁸