What is the BIOSECURE Act?
The BIOSECURE (Biomanufacturing, Innovation, Security, and Competition Utilizing American Resources and Enterprises) Act represents a significant shift in US pharmaceutical policy, aiming to restrict federal agencies from procuring biotechnology equipment or services from companies connected to foreign adversaries. At its core, the legislation specifically names five Chinese companies — BGI, MGI, Complete Genomics, WuXi AppTec, and WuXi Biologics — as “biotechnology companies of concern,” while establishing a framework to designate additional companies.
The Act’s scope is comprehensive, encompassing everything from genetic sequencers and PCR machines to research services and biological data storage. Crucially, it not only prohibits direct procurement but also prevents US federal contractors from using these companies’ services and federal grant recipients from spending funds on their products or services.
The House passed the Act with strong bipartisan support (306–81 vote) in September 2024 and given its broad backing and the administration’s stance on China competition, it’s likely to become law by year-end. The legislation includes a transition period until January 2032 for existing contracts with named companies, providing a structured timeline for supply chain reorganization.
Background and Chinese Dominance in the CDMO Market
1. Biologics as a therapeutic class is growing rapidly
Biologics are expected to lead the way for therapeutic innovations going forward — There’s a clear trend emerging — the share of Biologicals in newly approved drugs by the USFDA is rising. Biologicals are expected to account for 40–50% of all new drug approvals by the year 2029. Biologicals market size is slated to grow in excess of 9% for the next 5 years as compares to a ~4.5% for Small MoleculeSource — Frost & Sullivan’s ReportSource — Frost & Sullivan’s ReportChina has become a dominant force in Contract Research & Development Globally with high reliance of US companies on China. Chinese CDMOs currently account for approximately 21% of the global CDMO market, (about ~$42 billion in 2023), creating significant dependency risksThe overall global R&D spend on outsourcing has been steadily rising and is expected to rise to ~47% by 2028This dependency is particularly evident in the operational relationships between US and Chinese firms — WuXi AppTec derives 65% of its revenue from US customers, while ~75% of biotech companies currently have contracts or products supported by Chinese CDMOs. This level of interdependence raises concerns about supply chain security and strategic autonomy in critical pharmaceutical manufacturing
Why is working with Chinese CDMOs a National Security Risk to the USA?
1. Biologicals Development Outsourcing involve sharing a lot of Sensitive Data
The complexity of biological manufacturing means that extensive genetic and cellular data must be shared with the CDMO for successful production. This includes detailed information about cell behavior, protein expression patterns, post-translational modifications, and cellular responses during the production process. CDMOs need access to proprietary cell lines, genetic constructs, and complete sequence information of the biological product. With small molecules, while the chemical structure and synthesis route might be sensitive, they don’t carry the same level of biological and genetic information.
Additionally, biological products often require patient-specific genetic information during development and clinical trials to understand treatment responses, immunogenicity, and efficacy in different genetic populations. This creates another layer of genetic data exposure that isn’t typically present in small molecule development. The combination of product-related genetic information, manufacturing process data, and patient response information makes biologicals particularly vulnerable to genetic data risks when outsourcing to Chinese CDMOs.
2. What’s the challenge if Chinese CDMOs get access to this information?
The most immediate risk of Chinese CDMOs having access to biological manufacturing and genetic information lies in their ability to reverse engineer complex biologics. With access to complete genetic sequences, cell lines, and detailed manufacturing processes, these facilities could potentially develop biosimilars or competing products faster than through traditional R&D. This isn’t just about copying existing products — it’s about gaining deep understanding of critical quality attributes, production parameters, and biological mechanisms that could enable rapid development of new, competing therapeutics.
A more concerning strategic and security risk emerges from the potential military and national security implications. Access to detailed genetic data, immune response information, and population-specific biological responses could, in theory, be used to understand biological vulnerabilities or develop targeted agents. When combined with sophisticated manufacturing capabilities and expertise in biological production, this creates significant security concerns. The ability to rapidly scale up biological production while having access to detailed genetic and manufacturing data presents a unique strategic challenge that goes beyond typical industrial espionage concerns.
The commercial and economic implications are equally significant. Chinese CDMOs could leverage their accumulated knowledge to build dominant positions in biological manufacturing, potentially controlling critical steps in production chains. This could lead to early market entry of biosimilars, optimized manufacturing processes, and the ability to predict and exploit patent expirations with ready-to-go manufacturing capabilities. Moreover, this accumulated expertise could allow them to influence pricing and availability of critical biologics, creating both market advantages and potential healthcare security risks for other nations.
Perhaps most critically, the combination of manufacturing expertise and genetic data creates a compounding risk effect. Each new biological product manufactured provides additional data points and insights, contributing to a growing knowledge base that becomes increasingly valuable and potentially dangerous. This isn’t just about individual products or processes, but about building comprehensive biological manufacturing capabilities that could be used for various purposes — both commercial and strategic — while potentially giving China significant leverage in the global biotechnology sector.
Impact of the Legislation on USA Biopharma Outsourcing Supply Chains
Confidence in working with Chinese CDMOs has dropped by 49% among US companies, yet the complexity of supply chain transitions is evident in the fact that only 2% have taken actual steps to unwind existing relationships, despite 26% actively evaluating alternatives (* As per a survey by LEK)The impact varies significantly based on company size and type. Large pharmaceutical companies, with their diverse manufacturing networks and substantial resources, are better positioned to manage transitions. However, small and mid-sized biotechs, which often rely heavily on Chinese CDMOs for cost-effective manufacturing, face more significant challengesStrategic de-coupling will now be a likely response over the next 5 years, with Top US Pharma firms likely to focus on developing alternative CDMO partnerships. The two top Alternative Options that Emerge are India and Europe.
Impact on Chinese Firms and Their Mitigation Strategies
For Chinese firms, particularly the named companies, the Act presents an existential challenge to their US business. The impact is most acute for market leaders like WuXi AppTec, which derives 65% of its revenue from US customers. Chinese CDMOs have grown at a CAGR of ~11% between 2018–2023, but this trajectory faces significant disruption.
Chinese firms are likely to take key actions on a few fronts –
Market Diversification: Increasing focus on European and Asian markets and establishing a more robust presence
Ex — Asymchem, a Chinese CDMO has acquired a former Pfizer site in Sandwich, UK in May 2024
Ex — Pharmaron is investing further in its Cramlington site in the UKEnhanced Compliance: Strengthening data security and quality systemsCorporate Restructuring: Exploring options including separate entities for US operations
The long-term implications extend beyond the named companies. The broader Chinese CDMO sector, which has built substantial capabilities in both research services and manufacturing, faces uncertainty about future designations as “companies of concern.”
Why this is an Opportunity for the Indian CDMO Industry
India’s CDMO industry stands at an inflection point, projected to grow at a CAGR of 14.0% between 2023–2028, reaching USD 14.1 billion by 2028. This growth trajectory could accelerate significantly as companies seek alternatives to Chinese manufacturers.
Indian Industry is Well Positioned with the right levers in place
1. Discovery Services (~11% CAGR) — Sophisticated capabilities in medicinal chemistry and biology, Deep pool of scientific talent with 24,000+ annual PhDs, Growing expertise in complex molecule research and an established track record with global innovation programs
2. Development Services (~14% CAGR): Comprehensive process development capabilities, Strong analytical method development expertise, Scale-up experience across multiple modalities and Regulatory filing support capabilities
3. Commercial Manufacturing (13% CAGR): Extensive FDA-approved manufacturing network, Cost-effective large-scale production capabilities, Quality systems aligned with global standards and Robust supply chain infrastructure
4. India’s competitive position is strengthened by several factors:
Quality and Compliance: Robust quality systems aligned with global standards, Strong IP protection framework, Top-ranked among major economies in IP filings (2022), Extensive experience with global regulatory requirementsCost Advantage — 40–50% lower manufacturing costs compared to US, Significant operational scale efficiencies, Access to skilled workforce at competitive costs, Well-developed supplier ecosystemTechnical Capabilities: Growing sophistication in complex molecules, Strong process innovation capabilities, Expertise in challenging chemical synthesis, Emerging capabilities in new modalities
Key Steps for Indian Players to Capitalize on this Massive Tailwind
Infrastructure Modernization & Quality Excellence
The immediate focus for Indian CDMOs should be bridging the infrastructure gap with Chinese competitors like WuXi. While India maintains a substantial cost advantage ($60–70K/FTE versus China’s $130K+) for specialized services, there’s an urgent need to upgrade plant and equipment quality to match global standards, particularly in development capabilities where the return on investment is quicker. This modernization isn’t just about physical infrastructure — it extends to quality systems, GMP compliance, and process efficiency to match the speed and reliability expectations of global clients
2. Building Biologics Expertise & Talent Development
The talent gap, particularly in biologics, represents perhaps the most fundamental challenge for Indian CDMOs. While China has built massive expertise (WuXi alone has ~14k FTEs while the top 5–6 companies in India ), India lacks specialized talent in critical areas of Biological manufacturing like upstream processes, cell culture creation, and bioprocess engineering. This requires a comprehensive approach including strategic hiring from global markets, establishing industry-academia partnerships, and developing intensive training programs. The focus should be on building deep expertise not just in technical processes but also in disease-level understanding, like what Chinese CDMOs have achieved
3. Strategic Market Positioning & Growth
The current geopolitical environment presents a unique opportunity as companies seek to diversify from China. Indian CDMOs should position themselves as reliable risk mitigation partners, particularly for small and mid-size biotechs, while leveraging their strong ESG compliance as a key differentiator. The initial focus should be on late-stage development where India already has some strengths, while gradually building specialized capabilities in high-growth areas where competition is limited. This strategic positioning, combined with infrastructure and talent development, would allow Indian CDMOs to capture the current market opportunity while building sustainable long-term advantages
Indian CDMOs have seen seen an increased influx of enquiries from US Biotech — this is an early sign of increasing inbound interest.
With WuXi embedded in a large share of U.S. development projects and the significant technology gap between Chinese and alternative CDMOs, particularly in biologics, any immediate shift could significantly disrupt global bio-pharma supply chains. Whether this legislation proves to be a watershed moment in reshaping global bio-pharma manufacturing or merely adds compliance complexity will depend on the industry’s ability to build viable alternatives while balancing national security with innovation needs.
LoEstro Advisors is an investment banking firm specializing in sell-side fundraise and M&A advisory, along with a strong consulting arm.
Over the last four years, we have grown to be one of India’s largest (in terms of M&A transactions) homegrown boutique investment banks, with $1billion + worth of combined deals closed across education, healthcare, consumer, and technology sectors.
