House Rules Committee Excludes BIOSECURE Act from Amendments to Defense Spending Bill

Legislative Update on the BIOSECURE Act

On June 12, 2024, the House Rules Committee narrowed the list of potential amendments to include in the National Defense Authorization Act (“NDAA”) from about 1,400 to 350.¹ The BIOSECURE Act did not make the cut.² Representative Brad Wenstrup, the key House sponsor of the bill, said that this move was not a surprise, and that there are alternative strategies to getting the bill passed, including submitting it as a standalone measure.³

Despite Rep. Wenstrup’s optimism, analysts have speculated that this was a blow to the bill’s likelihood of success. Some believe the bill is not as likely to pass as a standalone measure.⁴ The omission could also prove significant because the bill is not likely to be raised again until the lame duck session after the November election,⁵ and Rep. Wenstrup has already announced that he will retire at the end of this term.⁶

The capital markets also appear to have viewed this sleight from the Rules Committee to diminish the likelihood of passage: the day after the Committee’s decision, WuXi Biologics’s stock jumped 14% and WuXi AppTec’s jumped 7%.⁷

As previously reported in our March 1 alert, our March 7 alert, and our May 17 alert, among other things, the BIOSECURE Act (the “Act”) would prohibit executive agencies from contracting with any entity where the biotechnology equipment or services of a “biotechnology company of concern” would be used in the performance of that contract. Generally speaking, a “biotechnology company of concern” is a biotechnology company that is headquartered in or subject to the jurisdiction of a foreign adversary’s government and poses a threat to national security.

Both the House’s and Senate’s version of the bills name WuXi Apptec, MGI, BGI, and Complete Genomics as biotechnology companies of concern. The House’s version of the bill, as amended on May 15, (the “May House bill”) also names WuXi Biologics. Recently, two BIOSECURE sponsors, Representatives Raja Krishnamoorthi and John Moolenaar, requested an intelligence briefing on GenScript, due to alleged “tight links” between the Contract Development and Manufacturing Organization (“CDMO”) and the Peoples Republic of China.⁸ The letter, sent May 30, 2024, requested a response to arrange a briefing with the Select Committee on the Chinese Communist Party by June 28, 2024.⁹

Throughout the legislative process, amendments to the House and Senate bills have generally seemed intended to assuage concerns of supply chain disruption, by adding in a grandfathering clause and a safe harbor provision and clarifying the types of contracts to which the Act would apply.

A Recap of the Language in the May 15 House Bill and its Potential Impact

The May House bill’s substituted language contained a handful of key revisions, some of which match the Senate’s version of the bill, as amended on March 6 (the “March Senate bill”),¹⁰ and some of which add additional elements. Below, find a recap from our May 17 alert.

1. Companies are given an eight-year grandfathering window. Aligning with the March Senate bill, the May House bill offers a grandfathering clause for contracts that entities enter into with biotechnology companies of concern prior to the effectiveness of the Act. However, where the March Senate bill gives no end date for grandfathered contracts, the May House bill would apply to any grandfathered contract that was still in place by January 1, 2032.¹¹
2. A safe harbor provision is added. The May House bill offers a “safe harbor” provision which clarifies that “biotechnology equipment or services” will not include those that “were formerly, but no longer, produced or provided by biotechnology companies of concern.”¹² The March Senate bill does not contain such a provision.

3. “Contract” is defined using the Federal Acquisition Regulation. The May House bill amendment provides a definition for “contract,” which was a previously undefined term in the May House and March Senate bills. The definition states that “contract” means “any contract subject to the Federal Acquisition Regulation issued under section 1303(a)(1) of title 41, United States Code.”¹³

   The Federal Acquisition Regulation, or the “FAR,”¹⁴ is the primary regulation used by executive agencies when they are acquiring supplies and services with government funds.¹⁵ The FAR broadly defines “acquisition” as “the acquiring by contract with appropriated funds of supplies or services (including construction) by and for the use of the Federal Government through purchase or lease.”¹⁶

   This is an important clarification, as Medicaid national drug rebate agreements and Medicare Part D manufacturer discount agreements are not FAR-based contracts, as they do not provide for federal government procurement of goods or services. However, FAR applies to nearly all government contracts for the procurement of goods and services, including potentially supply agreements with the Department of Veterans Affairs (“VA”)¹⁷ and certain contracts with the Centers for Disease Control and Prevention (“CDC”).¹⁸

4. The Operative Scope of the Prohibition Was Clarified. The May House bill makes it clear that executive agencies may not enter into a contract with an entity in situations where the equipment or services of a biotechnology company of concern will be used in the performance of that contract with the executive agency. This was not entirely clear in the House’s January version of the bill, and the new language makes the May House bill and March Senate bill substantively consistent. In particular, Section 2(a) of the May House bill now reads as follows:

   “The head of an executive agency may not … (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 with the executive agency; or (B) enters into any contract the performance of which such entity knows or has reason to believe will require, in performance of the contract with the executive agency, the use of biotechnology equipment or services produced or provided by a biotechnology company of concern...”.¹⁹

5. WuXi Biologics is named a biotechnology company of concern. The May House bill adds WuXi Biologics as a named entity of concern, along with the previously named WuXi Apptec, MGI, BGI, and Complete Genomics.²⁰ WuXi Biologics is not named in the March Senate bill, though it was potentially already implicated by the bill as being an affiliate of WuXi Apptec.

In sum, the language of the most recent May House bill was clearly meant to mitigate its impact on biotechnology and pharmaceutical companies that are reliant on biotechnology companies of concern for equipment and services and to avoid shocks to the supply chain for life sciences products and services. When the bill was originally introduced in January, some commentators feared it could have a dramatic impact on the industry and even potentially lead to drug shortages or delays in launching innovative drugs in the United States.

The grandfathering clause, safe harbor provision, and the new definition of “contract” all seem to be intended to lessen the impact of the bill by giving companies time to transition away from dependencies on the services and equipment of biotechnology companies of concern. Nonetheless, the May House bill is still intended to incentivize companies to transition their business to alternative equipment and service providers, and, given the scale of the biotechnology companies of concern, one would expect that in and of itself to have a sizable impact, both on the individual biotechnology companies of concern and on the biotechnology ecosystem generally. That said, the exact size and nature of that impact is still uncertain, as much would depend on how the Act is interpreted by the implementing federal agencies. Both the House bill and Senate bill would require the Office of Management and Budget, in coordination with other agencies, to establish guidance as necessary to implement the Act within 120 days of its enactment.²¹