Planning For The BIOSECURE Act

FH
Foley Hoag LLP

Contributor

Foley Hoag provides innovative, strategic legal services to public, private and government clients. We have premier capabilities in the life sciences, healthcare, technology, energy, professional services and private funds fields, and in cross-border disputes. The diverse experiences of our lawyers contribute to the exceptional senior-level service we deliver to clients.
Bipartisan legislation moving through the U.S. House and Senate, known as the BIOSECURE Act, could limit the ability of U.S. life sciences companies...
Worldwide Food, Drugs, Healthcare, Life Sciences
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Key Takeaways:

  • Bipartisan legislation moving through the U.S. House and Senate, known as the BIOSECURE Act, could limit the ability of U.S. life sciences companies to contract with biotechnology companies with ties to the Chinese government or another "foreign adversary."
  • The potentially broad scope of the legislation would both prohibit the U.S. government from contracting with a "biotechnology company of concern," as well as prevent companies that contract with or receive funding from the federal government from having contracts with these biotechnology companies of concern.
  • Depending on the legislation's final form and implementation, a range of companies could be forced to choose between forgoing relationships with biotechnology companies of concern or forgoing relationships with the federal government.
  • Life sciences companies doing business with WuXi AppTec, BGI Group, MGI, or Complete Genomics (entities specifically named in the legislation) as well as other potential biotechnology companies of concern (e.g., companies with ties to the governments of China, Russia, North Korea, or Iran), will want to monitor the developments of this legislation and assess in advance how to mitigate its potential effects. The long lead times often associated with certain biotechnology services and equipment supply make this advance planning more urgent.
  • While the legislation is only under consideration at this point, given the strong bipartisan support for the bill and concerns from the national security community, it is expected that some form of the bill will become law in 2024.

Legislative Summary

Members from both parties in the House and Senate have introduced legislation in both houses (H.R. 7085 / S. 3558) to bar federal agencies from entering into:

  • Contracts, loans, or grant agreements for biotechnology equipment or services from "biotechnology companies of concern" due to their relationship with the Chinese government (or the governments of Russia, North Korea, or Iran).
  • Contracts, loans, or grant agreements with companies, including U.S. companies, that use "biotechnology equipment or services" from biotechnology companies of concern acquired after the legislation's relevant effective date, or enter into contracts that require the direct use of "biotechnology equipment or services" produced or provided by a biotechnology company of concern acquired after the legislation's relevant effective date.

The legislation directly names four companies as "biotechnology companies of concern": BGI Group, MGI (a former subsidiary of BGI), Complete Genomics (a U.S. company that is a subsidiary of MGI), and WuXi AppTec. The federal government (led by the Office of Management and Budget, in consultation with agencies such as Defense, Commerce, and HHS) will develop a list of other biotechnology companies of concern based on their relationship to the governments of certain "foreign adversaries" (referring to a statutory definition that covers China, Russia, North Korea, and Iran) and the national security threat the companies may present to the U.S.

The Senate version of the bill contains a provision for existing contracts with biotechnology companies of concern (with restrictions not applying to contracts with biotechnology companies of concern entered into before the legislation's relevant effective date).

Scope of Restrictions

Which Contracts with Biotechnology Companies of Concern Would Be Prohibited?

The legislation would prevent "any entity" that enters into certain contracts with biotechnology companies of concern from having certain contracts with the U.S. government. The bill broadly defines "biotechnology equipment or service," to mean items "designed for use in the research, development, production, or analysis of biological materials" (with a few particular items named, such as mass spectrometers) and services relating to "the research, development, production, analysis, detection, or provision of information, including 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. OMB would also be empowered to name any other "service," "instrument," software, and a variety of other items to count as biotechnology equipment or services as "appropriate."

Which U.S. Government Contracts, Grants and Loans Would Subject a Company to the Restrictions?

The contracting restrictions would apply to life sciences companies that enter into funding agreements with agencies such as the National Institutes of Health and likely would apply to a broad swath of government contracts, such as sales to the Department of Defense or Veterans' Affairs. Based on the legislative text, it would not necessarily restrict life sciences companies that receive reimbursement for prescription drugs or medical devices that are covered by Medicare or Medicaid (as these arrangements do not necessarily involve supply contracts with the federal government).

Timeline for Potential Implementation

The implementation of the legislation would take effect in two stages. Restrictions related to the WuXi AppTec, BGI Group, MGI, or Complete Genomics (entities specifically named in the legislation) would take effect within 60 days of the publishing date of implementing guidance from OMB, which must be published 120 days after the bill's enactment (or, if OMB misses the deadline, the restrictions simply take effect 180 days after the bill's enactment). Restrictions relating to other biotechnology companies of concern on the OMB list would take effect 180 days after OMB publishes the same implementing guidance.

Planning for Potential Impacts

Companies considering contractors for covered services and equipment should weigh the risks of entering into agreements with currently named or potential "biotechnology companies of concern." Similarly, companies with plans to enter into, extend, or renew covered government contracts or grants will need to take into account the potential effect on any anticipated agreements with biotechnology companies of concern. Until the legislation and guidance are in place, the effect on future purchases under existing contracts may not be clear. While force majeure or equitable doctrines such as impossibility or impracticability may come into play in certain situations, companies entering into or renewing potentially covered contracts will want to anticipate this legislation when negotiating termination rights, cancellation penalties, and other relevant provisions.

Related Considerations

Over the last few years, the U.S. has taken various other steps to address national security concerns related to China.

For example, the Committee on Foreign Investment in the United States (CFIUS)—an interagency committee with broad authority to review certain transactions involving foreign investments in the U.S.—has continued to ramp up its activities, with a focus on several industries, including life sciences. In 2022, President Biden issued an Executive Order directing CFIUS to specifically consider the risks a transaction poses to U.S. technological leadership in certain key sectors, including biotechnology and biomanufacturing.

Further, in August 2023, the U.S. announced the creation of a new outbound investment program which will prohibit and require notification of certain investments by U.S. persons into entities located in, subject to the jurisdiction of, or owned by persons from China and its Special Administrative Regions of Hong Kong and Macau, if those entities are engaged in activities involving one of three industries: (1) semiconductors and microelectronics, (2) quantum information technologies, and (3) artificial intelligence. While the new outbound investment program does not currently address life sciences investments, it is possible the program will be expanded in the future to include a broader range of industries. We expect the new program to come into effect sometime this year.

Conclusion

The BIOSECURE Act's bipartisan support reflects growing interest for both Congress and the Biden administration to discourage life sciences companies from doing business with companies that present national security concerns. We expect that there will be further modifications to both the scope of restrictions and timeline for implementation in the proposed legislation as it goes through Congressional review and consideration. We will continue to monitor the development and movement of the legislation closely.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Planning For The BIOSECURE Act

Worldwide Food, Drugs, Healthcare, Life Sciences

Contributor

Foley Hoag provides innovative, strategic legal services to public, private and government clients. We have premier capabilities in the life sciences, healthcare, technology, energy, professional services and private funds fields, and in cross-border disputes. The diverse experiences of our lawyers contribute to the exceptional senior-level service we deliver to clients.
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