Bipartisan legislation advancing in the U.S. Senate and the U.S. House of Representatives known as the “BIOSECURE Act” (“the Act”) has the potential to significantly restrict the ability of biotechnology companies to collaborate with certain Chinese companies without losing the ability to contract with the U.S. government.
Following the same model that was used to target Chinese telecommunications companies in the late 2010s, the Act would prohibit federal “executive agencies” from contracting with or extending loans or grants to any company that has certain commercial arrangements with a “biotechnology company of concern,” which includes a list of specific Chinese biotechnology companies and a procedure for identifying additional companies in the future.
While there were some earlier bills circulating in the Senate and House that contained more significant differences, the bills that are currently in focus are mostly aligned. The Senate bill (S. 3558) was introduced on December 20, 2023, and approved by the Senate Homeland Security Committee on March 6, 2024. The House bill (H.R. 8333) was introduced on May 10, 2024 and approved by the House Oversight Committee on May 15, 2024 with amendments to align it more closely with S. 3558. This brings the likely form of the Act into clearer view, though certain important differences remain, as discussed further below.
What would be prohibited under the Act?
The Act provides that a federal “executive agency” may not:
- procure or obtain any “biotechnology equipment or service” produced or provided by a “biotechnology company of concern;” or
- enter into a contract or extend or renew a contract with any company that either:
- uses “biotechnology equipment or services” produced or provided by a “biotechnology company of concern” … in performance of a contract with the “executive agency;” or
- enters into any contract the performance of which 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.”
In each of these latter two scenarios, the essence of the prohibition would be to prohibit federal “executive agencies” from entering into contracts with companies that use “biotechnology equipment or services” produced or provided by a “biotechnology company of concern” in the performance of contracts with those agencies.
In addition, “executive agencies” may not extend loans or grant funds to procure biotechnology equipment or services produced or provided by a “biotechnology company of concern.”
What is a federal “executive agency”?
Executive agency is defined as a U.S. federal government “executive department,” a “government corporation,” or an “independent establishment.” Examples of executive departments include the Department of Veterans Affairs and the Department of Health & Human Services and Defense, which includes the Food and Drug Administration, the Centers for Disease Control, and the National Institutes of Health.
What are “biotechnology equipment or services”?
The definition of “biotechnology equipment or services” is broad, and encompasses any instrument or service in “research, development, production, or analysis” related to “biological materials”:
- Equipment would include such items as genetic sequencers, combined mass spectrometry technologies, and polymerase chain reaction machines, including components and accessories;
- Services would include data storage and transmission related to biological materials, including “disease detection, genealogical information, and related services” and consulting, advising, and support services related to biotechnology equipment;
- The Office of Management and Budget would also be empowered to name any other “service, instrument, apparatus, machine, component, accessory, device, software, or firmware” to count as biotechnology equipment or services as “appropriate.”
What is a “biotechnology company of concern”?
The Act defines a “biotechnology company of concern” to include two separate categories of companies, including (i) certain “listed” Chinese biotechnology companies and (ii) certain “additional” entities to be identified by the U.S. government after the enactment of the Act. In order to be designated as “biotechnology companies of concern” under this process, they must be determined by the U.S. government to:
- be subject to the “administrative governance structure, direction, control, or operates on behalf of” the government of a “foreign adversary,” which is defined to include China, Russia, Iran, and North Korea. (Because the main focus is China, we are primarily focusing on China for purposes of this summary.)
- be involved in the manufacturing or distribution of a “biotechnology equipment or service;” and to
- pose a risk to U.S. national security, either by engaging in joint research with or being supported by a “foreign adversary’s” military, internal security forces, or intelligence agencies, or by providing multiomic data to a “foreign adversary’s” government, or by obtaining multiomic data without express and informed consent.
The Act requires that additional entities designated as “biotechnology companies of concern” be informed of the criteria used to designate them and offered an opportunity to challenge the designation, which could lead to their designation being rescinded.
When would the Act go into effect?
The Act would come into effect in two stages, with the exact timing diverging between the Senate and the House version of the Act. As indicated below, the prohibitions would come into effect under the House version of the Act significantly later than in the Senate version of the Act.
- The “listed” Chinese biotechnology companies would become subject to the Act’s prohibitions:
- in the Senate version of the Act, 60 days after the issuance of guidance, which is required no more than 120 days after the date of enactment of the Act (i.e., approximately 6 months after enactment); and
- in House version of the Act, 60 days after the issuance of regulations, which is required no more than one year after guidance is released, which is required no more than 120 days after the date of enactment of the Act (i.e., approximately 18 months after enactment).
- The “additional” entities identified by the U.S. government would become subject to the Act’s prohibitions:
- in the Senate version of the Act, 180 days after the issuance of guidance, which is required no more than 180 days after the development of the list of additional entities, which is required no more than 120 days after the date of enactment of the Act (i.e., approximately 16 months after enactment); and
- in the House version of the Act, 180 days after the issuance of regulations, which is required no more than one year after guidance is released, which required no more than 180 days after the development of the list of additional entities, which is required no more than 365 days after the date of enactment of the Act (i.e., approximately 36 months after enactment).
Other key differences between the current Senate and House bills
While the bills are now much more closely aligned, there are some other important differences between the current versions of the Act in the Senate and the House. In particular, the bills diverge on the following key issues:
- Grandfathering
- In the Senate version of the Act, a grandfathering clause provides that prohibitions shall not apply to biotechnology equipment or services produced or provided under a contract or agreement entered into before the effective date of the prohibitions as described above.
- The House version of the Act contains a significantly broader grandfathering clause that applies differently to Chinese biotechnology companies “listed” under the Act versus those that are designated later. Under that clause, existing contracts and agreements (including previously negotiated contract options) that were entered into prior to the effective date of the prohibitions would not be subject to the Act’s prohibitions until 2032 for “listed” Chinese biotechnology companies.
For “additional” entities designated under the process set out in the Act, the prohibitions do not apply to existing contracts and agreements (including previously negotiated contract options) that were entered into prior to the effective date of the prohibitions until five (5) years after the regulations that identify such entities are issued approximately two and a half (2.5) years after enactment.
In other words, any such existing contracts and agreements with “additional” entities would not be subject to the Act’s prohibitions until approximately seven and a half (7.5) years after enactment.
- Related Entities
- In the Senate version of the Act, “any subsidiary, parent affiliate, or successor of such entities” relating to the “listed” Chinese biotechnology companies would be considered “biotechnology companies of concern.”
- In the House version of the Act, “any subsidiary, parent, affiliate, or successor of entities” of the “listed” Chinese biotechnology companies, and of the “additional” entities to be identified by the U.S. government, would be considered “biotechnology companies of concern,” provided they meet the criteria of being subject to the “administrative governance structure, direction, control, or operates on behalf of” the government of a “foreign adversary” as described above.
Next steps and prospects for passage
While the Act is gaining traction, it is difficult to predict its final language or even whether it will become law. Given the strong bipartisan support for the Act in both chambers and concerns from the national security community, we anticipate that some form of the legislation will ultimately be enacted. There are two likely paths for a version of the Act to progress through Congress: (1) as part of the FY2025 National Defense Authorization Act (“NDAA”); or (2) attached to a larger legislative package this year. Sen. Gary Peters, the sponsor of the Senate bill, stated recently that “We’ve been working closely with our House counterparts on the bill and we’ll look for a vehicle to move it and the NDAA would certainly be a very real possibility.” Rep. Brad Wenstrup, the sponsor of the House bill, has offered an amendment to the NDAA which is identical to the version of the bill as reported by the committee. The House has tentatively scheduled the week of June 10 for floor consideration of the NDAA.
The legislative push also comes amidst a series of legislative proposals and recommendations from the House Select Committee to limit U.S. engagement with Chinese entities. Earlier this year the Select Committee issued a report documenting U.S. private sector support for high-risk Chinese companies—those allegedly providing drones, biometric data, AI technology or semiconductor support to the Chinese government and Chinese military. The Select Committee is expected to continue to push to restrict American investments in China and to restrict U.S. federal funding from flowing down to Chinese manufacturers.
Key takeaways and potential impact
- In light of the Act’s prohibitions, pharmaceutical and life sciences companies should monitor and assess the potentially disruptive impact of the Act if they (1) have or may enter into contracts with federal “executive agencies” and (2) source “biotechnology equipment or services” from listed Chinese biotechnology companies or from potentially targeted biotechnology-related companies with ties to the governments of China, Russia, Iran, or North Korea.
- Companies that are concerned about their relationships with “biotechnology companies of concern” should assess in advance how to mitigate its potential effects. The long lead times often associated with projects that rely on such “biotechnology services and equipment” from listed Chinese biotechnology companies or potentially targeted companies make this advance planning more urgent.
- Depending on the legislation’s final form and implementation, certain companies could be forced to choose between foregoing relationships with biotechnology companies of concern or foregoing contracts with the U.S. federal government.
- Companies should consider the benefits of accelerating agreements with “biotechnology companies of concern,” particularly in light of the uncertainty of the final form any grandfathering provisions in the Act will take.
- Companies should include termination rights and technology transfer provisions in contracts being entered into with current or potential “biotechnology companies of concern.”
- Given that it may not always be readily apparent whether a counterparty could be designated in the future as a “biotechnology company of concern,” as part of transactional due diligence, companies should consider screening potential counterparties to seek to identify entities that may be at risk of meeting the criteria for “biotechnology companies of concern” under the Act. In the event that such a counterparty is identified, companies should explore whether the potential relationship with the counterparty could impact their contracts with U.S. federal “executive agencies.”
- For companies that are concerned about potentially becoming designated as “biotechnology companies of concern” in the future, it would be prudent to proactively develop and implement mitigation strategies to minimize the risk of designation. For example, such companies should evaluate whether they have joint research with or being supported by a “foreign adversary’s” military, internal security forces, or intelligence agencies; by providing multiomic data to a “foreign adversary’s” government; or by obtaining multiomic data without express and informed consent.
