U.S. BIOSECURE Act: Key legal considerations for biotechnology companies

While the landscape continues to evolve rapidly, there are steps that life sciences companies – particularly cell, tissue, and gene therapy (CTGT) and other companies engaged in complex biotechnology manufacturing – should consider taking now to avoid unintended and potentially serious consequences if (/when) the pending legislation is enacted.

Legislative developments

As we have described in our analyses of prior versions of the House bill as well as the Senate bill, the “Safeguarding American Genetic Data Act of 2023”, both bills aim to restrict funding and genetic data use by foreign adversaries by placing restrictions on the use of “biotechnology equipment and services” supplied by foreign “companies of concern”. Specifically, both bills would restrict the U.S. Government (USG) and its contractors, grantees, and subcontractors by prohibiting supply of “biotechnology equipment or services” from “companies of concern” to the USG “in performance of [USG] contract[s]”.

The current House bill (H.R. 8333), as amended, includes revisions compared to the text introduced last week by Rep. Brad Wenstrup (R-OH) meant to address industry concerns that the proposal would disrupt supply chains and cause drug shortages. The House bill now exempts existing USG contracts and grants from the prohibitions on supply from companies of concern by imposing a “grandfathering,” or phase-in, period of approximately seven years, expiring on January 31, 2032. The Senate bill includes an open-ended grandfathering provision. Grandfathering under both bills applies to ongoing contracts and priced options but not to renewals and extensions. The House bill also includes a “safe harbor” for biotechnology equipment and services provided from a business unit that was “formerly” part of a company of concern, but that has been divested. Finally, both bills also include a limited waiver process.

Impact on complex manufacturing

In an important and welcome development for industry, a broad commercial contracts ban included in the original House bill has been removed from the current version. Even with this narrower focus, many in industry remain concerned that the USG contract restrictions under  the pending bills would be particularly disruptive to the biologics industry as a whole, given the relatively small number of biotechnology laboratories that handle complex manufacturing. In a connected global economy, Chinese-based specialty contract development and/or manufacturing organizations (CDMOs/CMOs) have increasingly been viewed as important partners to cell, tissue, and gene therapy focused manufacturers.

In addition, the express inclusion of “subcontractors” in both bills reflects Congress’s ambition to reach further down the supply chain to keep biotechnology equipment or services of companies of concern from being supplied under USG contract. This, coupled with the extremely broad definition of “biotechnology equipment or service” means that companies that hold USG contracts or that are exploring working with the USG under grant or contract will need to dig deep into their preclinical and clinical services supply chains to ensure compliance.

From a practical point of view, with complex technologies, swapping to an alternative manufacturer or supplier is not an easy process, even with a potential seven-year ramp under the current House update. Overall, there is simply not enough manufacturing and distribution capability to meet current product demand and the very nature of cell, tissue, and gene therapy products themselves often limit the available options.

Moreover, even if an attractive alternative partner can be identified, the process for qualification and validation is complex, costly, and will, at a minimum, likely trigger reporting requirements to the U.S. Food and Drug Administration (FDA) for changes that will impact manufacturing specifications. The qualification process can include

• site audits, including evaluating existing Current Good Manufacturing Practice (cGMP) status;
• evaluating potential impact of the change on a product; and
• validation studies,

Timing is also a key consideration. Preparing for pre-approval inspections by FDA requires sufficient time to accomplish any necessary transfers of technology, data, and/or intellectual property; internal adjustments to equipment and systems for manufacturing, assessing or updating standard operating procedures, and training staff; as well as time to negotiate an adequate agreement defining quality measures and allowing for robust auditing rights. FDA’s advance approval is required for any change that has substantial potential to have an adverse effect on product quality.

How can companies prepare?

If BIOSECURE becomes law, pharmaceutical, biotechnology, and medical device companies – as well as the general public – may face unintended but potentially serious consequences. These could well include shortages of medicines, cost increases, overall slowdowns in development and manufacture of their innovative medicines, or even barriers that potentially could block a development program altogether. Companies that do business with any of the companies of concern (or their affiliates) or are considering doing so would be well-served (1) to collect and review outstanding contracts with these companies to assess termination rights and linkage to USG agreements, (2) to consider all existing and potential future contracts and grants with the USG, and (3) to assess alternative sourcing arrangements.

Given how quickly these bills are moving, even in an otherwise divided Congress, the time to act is now.

Next steps

Our team is addressing how companies can mitigate risk in addressing the government contracts, trade, regulatory, and commercial implications of the BIOSECURE proposals.

Please contact the authors or the Hogan Lovells attorneys with whom you regularly work to discuss how the law may impact your company, how you can engage in ongoing legislative advocacy activities, or how we can support assessment of existing agreements, and/or assist with alternative sourcing efforts and approaches to attempt to influence this pending legislation.

Authored by Mike Druckman, Cybil Roehrenbeck, Joy Sturm, Timothy Bergreen, and Ajay Kuntamukkala.