WuXi Congress

Could Congress hinder future Middletown pharma campus?

Jacob OwensBusiness, Headlines

WuXi Congress

Gov. John Carney, Lt. Gov. Bethany Hall-Long, Middletown Mayor Kenneth Branner Jr., and Delaware Prosperity Partnership President Kurt Foreman joined WuXi AppTec Chairman and CEO Dr. Ge Li, WuXi AppTec Co-CEO and WuXi STA CEO Dr. Minzhang Chen, and others celebrate the groundbreaking for the WuXi STA Middletown campus in 2021. | PHOTO COURTESY OF WUXI APPTEC

The Congressional committee that pushed for a ban or sale of the social media platform TikTok is now scrutinizing a Chinese pharmaceutical company that happens to be developing a major taxpayer-supported manufacturing campus in Middletown.

In January, the committee’s leadership introduced legislation that would prohibit the company called WuXi AppTec – as well as certain other Chinese-owned firms – from receiving federal contracts. If passed, the bill could threaten the company’s success in the United States, including at its site in Middletown, which is expected to employ more than 475 people.

“The BIOSECURE Act is intended to block foreign adversary biotechnology companies from accessing federal funds and exploiting the American bioeconomy,” Rep. Mike Gallagher, R-Wisconsin, said in a statement.

A month after introducing the bill, Gallagher, who chairs the House Select Committee on the Chinese Communist Party (CCP), sent a letter to the heads of several federal agencies, including the Department of Defense, urging them to investigate WuXi AppTec, claiming it threatens U.S. intellectual property and has “worked at the behest” of the Chinese government.

Meanwhile, WuXi AppTec has adamantly denied the accusations by the House select committee, and a company spokesperson told Spotlight Delaware that “it relies on misleading allegations and inaccurate assertions against our company. We continue to closely monitor the proposed legislation as it proceeds through additional steps in the legislative process, where it could be subject to further review and modification.”

In all, it comes less than two years after Gov. John Carney was smiling next to the CEO leading what should be Delaware’s biggest economic development project in decades as they turned shovelfuls of dirt at a Middletown site in a private event.

The case of rising geopolitical tensions could ultimately impact the success of a pharmaceutical campus that Delaware taxpayers’ have backed with $19 million in development and job creation grants though.

Congress takes aim

A year ago, the U.S. House of Representatives established a specially organized bipartisan committee, known as the House Select Committee on the CCP, to examine the economic and national security threats imposed by the Chinese government.

Through its first year, it has already helped to push a ban or sale of the social media platform TikTok, expose the forced labor concerns in low-cost, e-commerce companies Shein and Temu, and argued for the revoking of tariff breaks on a variety of Chinese products.

Weight bloom amtrak assault housing CongressIn January, the committee’s leaders introduced the BIOSECURE Act, which aims to prohibit federal contracting with certain biotechnology providers connected to foreign adversaries. The bill expressly names two companies: BGI and WuXi AppTec, the parent company of WuXi STA Pharma which also has a large presence on Philadelphia’s Navy Yard campus.

The bill claims that WuXi AppTec “presents a national security threat to the United States” because it has sponsored events featuring military and civil leaders, received investments from a military-linked fund, granted awards to military researchers and features a former military academy professor among its executives.

Due to those ties, the proponents are seeking to prohibit the federal government from doing business with WuXi AppTec, as well as any of its subsidiaries to include STA Pharma, and also prohibit contracting and loan or grant approvals to companies that use WuXi’s products or services. As one of the world’s biggest contract research, development and manufacturing organizations (CRDMO), WuXi has worked with scores of companies ranging from pharma giants like AstraZeneca, Pfizer and GSK to startups like Iovance Pharmaceuticals, and even U.S. government researchers.

Meanwhile, WuXi AppTec has adamantly denied the accusations by the House select committee and said the company “does not pose a national security risk to any country.”

“WuXi AppTec has a strong track record of upholding the highest intellectual property, data and privacy protection standards, as well as maintaining the trust of our customers. Our No. 1 priority continues to be providing customers with resources and capabilities to advance discoveries in the life sciences and deliver treatments to those in need,” the company’s co-CEOs said in a letter to customers.

What are the chances?

While the BIOSECURE Act is awaiting its first committee hearing in the House, a nearly identical companion bill secured bipartisan approval in the Senate Committee on Homeland Security and Governmental Affair on March 6. Included among those approving the bill to go to a floor debate in the upper chamber was U.S. Sen. Tom Carper (D-Del.).

When asked about the legislation, a spokesperson for Carper’s office said, “Senator Carper believes protecting our national security is extremely important, and he will continue to examine the Senate bill and its impacts.” A spokesman for Sen. Chris Coons (D-Del.) said only that the senator was “still considering this legislation and will decide how he plans to vote should it come before the full Senate.”

In the March 6 hearing, the only legislator to comment on the bill was Sen. Rand Paul (R-Ky.), who questioned whether national security interests were really at its core or whether legislators were seeking favor with competitors to the targeted Chinese companies.

“What’s happening is that people are taking advantage of anger toward China to do sort of parochial protectionist things for their particular state. And I’m worried that that’s where we’re heading. I’m also worried that one of the companies being banned here [WuXi] actually has many different applications throughout the supply chain that we haven’t really fully researched enough to know what the ramifications of stopping this are,” he said.

In the House, a spokesperson for Rep. Lisa Blunt Rochester (D-Del.) said that “she will thoroughly evaluate any bills that defend our nation’s interest and national security” if it were to make it to the floor.

Lobbying loss

The lobbying campaign has already heated up over the bills, with WuXi already suffering a loss in the public relations arena.

The Biotechnology Innovation Organization (BIO), an industry association for American biotech firms, originally offered a full-throated defense of WuXi against the claims in the bills but reversed course a few weeks later after the House select committee turned its eye toward BIO to determine whether it should have to register as a foreign agent.

On March 14, WuXi ended its membership with BIO and the advocacy organization announced that it had changed leadership and would support the passage of the BIOSECURE Act.

“Our adversaries abroad have stated that they intend to become the biotechnology center of excellence in the world. America and our allies cannot let this happen. Securing and advancing our preeminence in biomanufacturing will be one key component of a multi-prong approach to secure and advance this strategic imperative in biotechnology,” BIO President & CEO John Crowley said in a statement.

The change means that WuXi will likely have to self-fund its defense against the claims of Congress rather than leaning on industry backing. Last year, WuXi AppTec and WuXi Biologics spent a reported $180,000 in lobbying Congress.

With Congress already deciding the fate of TikTok in the United States and bipartisan support behind the pair of bills targeting WuXi companies, it’s likely that the bills will continue to press forward rather than be buried away. It’s unclear whether the bills could clear both chambers of Congress and get the signature of President Joe Biden, but a fall presidential election also casts a shadow over the proceedings as well.

WuXi Congress

Work is progressing at the first facility of the WuXi STA Pharma campus in Middletown, where operations have been scheduled to start next year. | SPOTLIGHT DELAWARE PHOTO BY JACOB OWENS

Delaware impact

The arrival of the WuXi project to Middletown has long been seen as a transformational moment for Delaware that could marry its longstanding manufacturing industry with the high-tech pharmaceutical industry of the future.

The state’s economic development team worked for years to land the project at a 190-acre parcel on the southern edge of the fast-growing town. WuXi broke ground in August 2022 and work has been progressing ever since, with a scheduled opening next year.

A WuXi spokesperson said, “We remain committed to opening a new state-of-the-art pharmaceutical manufacturing site and look forward to supporting our customers and the region’s economic growth.”

The $19 million in taxpayer-backed grants approved by the state’s Council on Development Finance in 2021 is the largest grant approval made during Carney’s term, totaling nearly four times that given to Amazon for its massive Boxwood Road fulfillment center. It is also the largest grant approved by the state since Bloom Energy was given $16.5 million to locate in Newark in 2011.

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A spokesperson for Gov. Carney’s office said that the state “will continue to honor the terms of the signed and executed agreement pending changes in legislation that would impact any existing awards.”

It’s unclear whether the Middletown campus, which will provide formulation development, clinical and commercial drug product manufacturing services for a variety of oral and injectable dosage forms, as well as packaging, labeling, storage and distribution services for clinical trial materials and commercial drug products, would fall under the terms of the proposed legislation. It’s reality as a subsidiary to WuXi AppTec means that it will feel the financial fallout of the broader company though.

The news of the Congressional legislation led to a 25% drop in the stock value of WuXi AppTec and a 50% drop to WuXi Biologics on the Hong Kong Stock Exchange, which could put a dent into its ability to raise future funds for growth if it doesn’t recover.

Approval of the federal prohibitions could also limit the market potential for WuXi AppTec in America, where nearly two-thirds of its revenue was created last year. The company reported that it anticipated reaching a free cash flow of about $500 million to $700 million this year.

Lowenstein Sandler, a New York-based law firm that works on transactions in the life sciences industry, alerted its clients to the threats proposed by the BIOSECURE Act.

“Most observers believe that the Act would have a significant impact on U.S. life sciences companies if passed. It would be prudent for these companies to evaluate any existing contracts they have with any of the four named companies and with other companies potentially affected by the law, and to carefully consider the wisdom of any new contracts,” the firm wrote.

This story was originally published on Spotlight Delaware. Get stories like this delivered to your email inbox by signing up for the free newsletter at spotlightdelaware.org/subscribe.

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