BIOSECURE Act Passed in the House of Representatives with a 306-81 Vote

Legislative Update on the BIOSECURE Act

On September 9, 2024, the House of Representatives passed HR 8333,¹ commonly known as the BIOSECURE Act.² The bill passed 306-81, far exceeding the two thirds vote required to pass. The text of this bill was unamended from the version approved by the House Committee on Oversight and Accountability in May (the “House bill”).³

The House bill was introduced for a vote under “suspension of the rules” which means that it was not eligible for amendment and required a two-thirds vote to pass, rather than a simple majority.⁴ A suspension vote is typically reserved for noncontroversial measures, according to legislative analysts.⁵ To that end, the passed bill was sent to the Senate Committee on Homeland Security and Governmental Affairs, the same Committee that approved the Senate version of the bill (the “Senate bill”) 11-1 in March.⁶

If the Senate Committee reacts similarly to this House bill as it did to the Senate bill in March, it will vote to report the bill favorably to the Senate with or without amendment. If the Senate amends the House bill before it goes to vote, and the bill passes, those differences would have to be resolved by the two chambers before the bill could be sent for the President’s signature. Additionally, analysts have said the bill is unlikely to pass as a standalone measure, meaning it would need the right bill to be tacked onto.⁷ It is predicted that later this year it will be added to the Senate version of the annual defense bill, the National Defense Authorization Act (“NDAA”), despite its exclusion from the House version of the NDAA in June.⁸

As previously reported in our March 1 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 bill and Senate bill name WuXi Apptec, MGI, BGI, and Complete Genomics as biotechnology companies of concern. The House bill also names WuXi Biologics.

Chairman James Comer said in his remarks preceding the House vote that the five companies have “direct ties” to the Chinese Communist Party, which deems them biotechnology companies of concern.⁹ Meanwhile, critics of the bill have said that the evidence of these ties is illusory. Some of the named biotechnology companies of concern have stated the lack of publicly disclosed rationale for naming those five companies in particular violates the companies’ constitutional rights to due process.¹⁰ This opinion was echoed by Congressman Jim McGovern, who said prior to the vote it’s “wrong to call out specific companies without any formal investigation or interagency process.”¹¹ McGovern also said that this structure allows companies to simply change their name and evade the prohibition.¹²

Other opposers to the bill expressed concern that the Act could cause supply chain issues, due to industry reliance on these biotechnology companies of concern and a lack of practical alternatives.¹³ With or without the bill’s enactment, an L.E.K. Consulting survey reported that 68% of respondents, all of whom represent U.S.-based life sciences companies, were already adjusting their operations with Chinese partners, diversifying the geolocation of their partnerships, and adding background checks for partners.¹⁴ Only 2% of respondents have actually begun an unwinding process with Chinese suppliers.¹⁵

Mitigating Provisions of the Bill, as Passed

The language in the House bill contains some mitigating provisions compared to the version of the bill first introduced in January. Some of these revisions match the Senate bill,¹⁶ and some add additional mitigating elements. Below, find a recap from our May 17 Alert discussing these provisions:

1. Companies are given an eight-year grandfathering window. Aligning with the Senate bill, the House bill offers a grandfathering clause for contracts that entities enter into with biotechnology companies of concern prior to the “effective date” of the Act, which is the date that is 60 days after the promulgation of enabling regulations. However, where the Senate bill gives no end date for grandfathered contracts, the grandfathering protection under the House bill would apply only until January 1, 2032.¹⁷
2. A safe harbor provision is added. The House bill offers a “safe harbor” provision that clarifies that “biotechnology equipment or services” will not include those that “were formerly, but no longer, produced or provided by biotechnology companies of concern.”¹⁸ The Senate bill does not contain such a provision.

3. “Contract” is defined using the Federal Acquisition Regulation. The House bill amendment provides a definition for “contract,” which was a previously undefined term in the House and 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.”¹⁹

   The Federal Acquisition Regulation, or the “FAR,”²⁰ is the primary regulation used by executive agencies when they are acquiring supplies and services with government funds.²¹ 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.”²²

   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”)²³ and certain contracts with the Centers for Disease Control and Prevention (“CDC”).²⁴

4. The operative scope of the prohibition is clarified. The 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 House bill and Senate bill substantively consistent. In particular, Section 2(a) of the 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...”.²⁵

5. A waiver program is introduced. The head of an executive agency may waive the operative prohibitions of the Act, with approval from the Office of Management and Budget (“OMB”).²⁶ The duration of a waiver is a year, with an option for a one-time 180-day extension.²⁷

How to Benefit from the Grandfathering Clause

At present, companies negotiating with named biotechnology companies of concern should consider entering into the agreement prior to the Act’s effective date, to be sure to benefit from the eight-year grandfathering window offered in the House bill. The “effective date” can be no sooner than 60 days and no later than 545 days after the date of enactment of the Act and must be no earlier than 60 days after the date of promulgation of enabling regulations.

Two events need to happen to trigger the effective date: 1) the OMB must “establish guidance as necessary to implement the requirements of this section,” and has no more than 120 days to do so²⁸ and 2) the FAR Council must “revise the FAR as necessary,” and has no more than a year to do so.²⁹ Therefore, while 60 days is the conservative lower bound, companies will likely have a fair amount of time to enter into contracts with biotechnology companies of concern and still benefit from the grandfathering clause, as we would not expect the OMB’s guidance or revision of the FAR to be immediately achieved.

Assessing the Impact and Timing of the BIOSECURE Act

The current language of the House bill was clearly meant to mitigate its impact on the biotechnology industry and companies that rely on biotechnology companies of concern to operate. The grandfathering clause, safe harbor provision, and the new definition of “contract” are seemingly 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 House bill does incentivize companies to transition their businesses 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 are still uncertain, as much will depend on how the Act is interpreted by the implementing federal agencies.