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What the China biotech crackdown means for deals

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Illustration: Natalie Peeples/Axios

Congress is plowing ahead with plans to ban trade with big Chinese biotech firms, in what could bring seismic changes for R&D and drug development.

Is this burst of activity chilling interest in biotech firms that contract with mainstays like WuXi App Tec or BGI?

  • Short answer: "Definitely," executives and attorneys say.
  • "There's a reputational risk associated with being partners in any capacity with any of those firms now," says Dave Latshaw, CEO of AI drug development BioPhy.
  • The Biosecure Act could endanger companies' eligibility to be considered for federals contracts and grants — "which are often the lifeblood of the industry," Latshaw adds.
  • "There'll be more self-initiated serious investigations into these kinds of transactions," Foley & Lardner partner Christopher Swift predicts.
  • One player named in the bill — life sciences firm Complete Genomics, formerly a part of BGI — argues it shouldn't be targeted.
  • "We don't believe we belong in the bill," Complete Genomics' vice president of marketing and product Rob Tarbox tells Axios, disputing the premise that CG presents data security risks.

Should the government compensate firms that suffer losses from a ban the way it did with the CHIPS Act?

  • Companies shouldn't hold their breath, with no legal precedence for such a move that's more reactive than proactive.
  • "I think it would be hard pressed to find a majority in Congress that would say we should give money to Chinese parties," says Foley & Lardner partner Christopher Swift.
  • Even if compensation were on the table, "You can pay back money but you can't pay back time," says Tarbox.
  • Tarbox adds that a ban could significantly slow R&D for cell and gene therapies — especially for those designed for rare diseases like Duchenne muscular dystrophy.
  • "There's been a grandfathering in of existing contracts that's set to expire Jan. 1, 2032, so companies are being given about eight years to make this happen," Latshaw says.
  • "If there are these companies that are being named directly in this act, and those partnerships are allowed to persist for up to eight years, what happens in that interim period of time?" Latshaw adds.

The Biden administration also is putting a focus on reviewing foreign investment deals that involve biotech. Appropriate or overreach?

  • Dealmakers say the focus makes sense, given the sensitive patient data potentially at stake.
  • "The transfer of U.S. information, about U.S. citizens, to Chinese parties, especially health care information ... that is a major concern," Swift says.
  • "You've got to weigh two sides of the coin here. It's either the foreign investment dollars that could enable research here in the U.S. on one side, or, the risk of, effectively IP leakage to foreign countries."
  • "The risk of losing that IP to foreign countries is greater than the benefit we would gain from those foreign investment dollars," he says.
  • While Trump's administration was similarly wary of foreign investment, particularly Chinese, "in some ways the Biden administration has been even more rigorous than the Trump administration. Because they're focusing on specific risks" Swift says.

More drug giants are cutting deals with Chinese firms to develop and commercialize cancer drugs and other therapies. Do the out-licensing deals continue in this climate?

  • Outlicensing will slow, dealmakers tell Axios.
  • "If I had to think about the risk of a partner for commercial manufacturing or outlicensing IP, the latter might be riskier," Latshaw says.
  • With a heightened focus on data security, "if human clinical trial data is involved in those deals, Uncle Sam is going to have an interest in knowing about it," Swift says.
  • "In the cases that I've defended, Chinese access to Phase 3 and Phase 4 clinical data ... has been a major focus of attention," Swift adds.
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