Image courtesy of Procos SPA

Whether you are a large East Coast pharmaceutical company with millions in R&D budget, or a modest biotech testing out a few compounds from the Bay Area, you will more likely than not have noticed that the partners you need to develop your product have flown in from all over the world. The past two years have seen an unprecedented shift in the US pharmaceutical landscape, as the emphasis on domestic production, the repercussions of the China+1 strategy, and the demand for specialized services have attracted players from Europe and Asia looking to compete in the world’s largest and fastest-growing pharmaceutical market.

The geopolitical dimension: The BIOSECURE ACT
If it has not been made sufficiently clear in recent years, biotech is at the heart of national security. China’s aggressive strategy to become the global biotech leader is having legal, political, and economic repercussions along the pharma value chain in the US. In February 2024, four US lawmakers called China-based biotech Wuxi a “giant that threatens US intellectual property and national security” after allegations that the firm transferred a US client’s IP to the Chinese government without consent. And in its annual threat assessment released the same month, the Office of the Director of National Intelligence (ODNI) cautioned that Beijing is focusing on advancing its biotech sector, and highlighted Beijing's efforts to expedite its scientific and technological development through intellectual property theft and other methods to gain economic, political, and military advantages.

The earlier months of 2024 marked a clear escalation in the decade-long pharma cat-and-mouse game between the US and China. In March, the US Senate and House of Representatives put forth the BIOSECURE Act, intended to “stop funding foreign adversaries’ hostile actions and to stop the flow of genomic data of Americans to the Chinese government.” After this bill set the tone, the Prohibiting Foreign Access to American Genetic Information Act followed. Importantly, China has expressed its ambitions of being a biotech leader particularly in precision medicine and biologics. And as reminded by Gian Paolo Negrisoli, CEO of Flamma SpA, an Italian CDMO with operations in both countries: “Approximately 20% of new pharmaceutical molecules entering phase one of studies now originate from China, a substantial increase from the 8% two decades ago.”

Such conditions create a ripe environment for foreign CDMOs outside of China to increase their presence in the US.

Decoupling Wuxi AppTec and its affiliate WuXi Biologics (along with three other Chinese contractors) would create a hole in the US medicine chest that pharmaceutical companies are not confident domestic CDMOs could fill. Over the years, the Chinese firm grew rapidly through billion-dollar investments in the US, also receiving billions in tax incentives to build research and manufacturing sites in Massachusetts and Delaware. WuXi is so embedded in the US medicine landscape that the firm makes all or most of the ingredients for therapies seeking to treat cancers ranging from leukemia to lymphoma as well as obesity and HIV. The CEO of a Seattle-based biotech who has been working with WuXi for 16 years said the bill could set his firm back two years by the time he finds another contractor, and shared with the NY Times: “What I don’t want to see is that we get very anti-Chinese to the point where we are not thinking correctly.”

Calmer minds will most likely prevail as almost all Big Pharma firms have contracts with China, and both countries have advanced cooperations in several areas, particularly the promising ADC space.   
Drugmakers and biotechs are accelerating their contingency plans, offering broader opportunities for foreign CDMOs and CROs. Already, firms like ArriVent Biopharma and Dianthus Therapeutics announced that they were looking for alternative manufacturers to WuXi. The loud threat of prohibiting US drugmakers from receiving federal grant dollars should they select the aforementioned Chinese contractors has undoubtedly accelerated the pace with which pharma and biotechs were finding alternative suppliers. Increasingly, drugmakers have set their sights on European and Asian contractors. Japanese and German contract manufacturers expressed during talks at DCAT – the segment’s main yearly gathering in New York – having received exploratory inquiries and growing engagement from US firms. Krishna Kanumuri, CEO and managing director of SAI Life Sciences said: “Traditionally, China has been a dominant force due to its scale and capacity. Presently, the prevailing sentiment among Western companies is to diversify their manufacturing sources beyond China without necessarily abandoning it entirely.”    

Foreign expertise for domestic advantage
More than an isolated geopolitical event, the recent national security-related escalations ought to be analyzed as part of a broader long-term trend of bringing manufacturing back to the US after decades of externalizing the supply chain. While the challenges of such an endeavor will be tackled in a separate piece, the push towards domestic production of APIs, chemicals, and drugs further accelerated in 2023-2024 and offers opportunities for contractors eyeing growth in the US market.

Pharma and biotech firms’ need for expertise in growing therapeutic areas along with efforts to manufacture domestically means the trend of billion-dollar contractors making major capex moves in the US is unlikely to wane anytime soon. Samsung Biologics and Lotte Biologics both opened offices in the US this year, eager to join the booming biologics CDMO market (forecast to grow from US$6.6 billion in 2023 to US$12.4 billion by 2028). In 2024, Fujifilm Diosynth Biotechnologies, Japan's leading CDMO, announced it intends to invest an extra US$1.2 billion in its operations to further enhance its biomanufacturing facility in California. Out of Europe, Lonza announced in March it would purchase Roche’s Vacaville, CA, facility for US$1.2 billion.   

With the rise of complex biologics, gene therapies, and HPAPIS, there is a growing demand for specialized manufacturing and development capabilities that many foreign contractors excel in. Most players interviewed this year out of India indicated that the US market represented the larger chunk of their revenue and that they had strategic plans to grow in the country by either setting up shop there or expanding their current footprint. That mutual attraction between pharma firms and Indian contractors is the result of the latter’s highly sought-after technical expertise and understanding of complex regulatory environments globally. For example, beyond expertise in clinal research, Veeda, an integrated CRO out of Ahmedabad, focused on meeting US FDA, EMA, WHO, MCC Canada, and Brazil's ANVISA regulatory standards to meet client requirements globally. Its CEO, Ajay Tandon, explained the competitive advantage: “Indian CROs have significantly evolved, showcasing improved capabilities in both biopharmaceutical and small-molecule segments. This evolution has led to heightened interest from US companies in partnering with Indian CROs.”

European CDMOs are also penetrating the US market at an aggressive rate. Benefiting from a world-renowned reputation for quality, established contractors and newcomers from Germany such as CordenPharma, Aenova, or Axplora, and from Italy, including Dipharma and Procos have seen their portfolio of US biotech and pharma customers grow in recent years. Paolo Paissoni, director of innovation and business development at Procos SPA, said: “Companies trying to nearshore or onshore their supply chains create opportunities for CDMOs in the US.”

Nicola Cadei, general manager of Italian CDMO Fisiopharma, concurred: “The political tensions and strained US-China relations are not favoring business opportunities in the CDMO sector between the two countries, which is benefiting Europe instead. In our cooperation with US customers and partners, we experienced a preference for US markets for EU-based companies, which proves the reliability high quality, and technological standards of the European CDMOs.”

The ever-so-competitive CDMO landscape just became even fiercer. Market growth, demand for technological and regulatory expertise, and the payback of past manufacturing policies mean addressing widespread drug shortages in the US will undoubtedly require a global effort. For US drugmakers and biotechs, the road ahead might separate them from Chinese contractors, and redirect their outsourcing towards other foreign and domestic firms. The latter are feeling the pinch brought by the increase in foreign competition. David Stevens, CCO of Kindeva Drug Delivery, a leading combination product CDMO, shared: “Increasingly, Chinese and Indian CDMOs have started competing on higher-value parts of the outsourcing supply chain, such as biologics and sterile fill-finish, creating additional pressure on US CDMOs.”