Philly-area biotech is worried about Congress’ crackdown on Chinese manufacturers

For more than a decade, Chinese biotech pioneers WuXi AppTec and BGI Group have forged close scientific and financial relationships developed by U.S. drugmakers, research scientists, and start-ups around Philadelphia and across the United States.

Now, Congress is threatening to cut off federal funding to companies that do business with WuXi and BGI, citing links to the Chinese military that some U.S. officials say makes it hard for such companies to keep the data of their U.S. customers private and therefore creates a national-security risk.

WuXi AppTec is a leader among the contract manufacturers that help take scientists’ breakthrough medical ideas, once proven, to mass production, driving down costs so more people can use them. BGI bought or contracted with U.S. genomic researchers to collect a giant gene database in China.

Officials at research schools like the University of Pennsylvania and manufacturers like Philadelphia-based Cabaletta Bio are studying whether and how they could replace efficient services built up with Chinese partners since the 2000s.

Congressional action that reduces WuXi’s manufacturing capacity “could adversely impact” product trials, production could be delayed or stopped, and it could prove impossible to make replacement products at an affordable price, according to a Securities and Exchange Commission filing in March from Cabaletta, which has ties to Penn and Children’s Hospital of Philadelphia and is developing cell therapies targeting autoimmune diseases.

Noting that a handful of senators and representatives from both parties had urged the Biden administration to add WuXi AppTec and its affiliate WuXi Biologics to the government’s lists of Chinese “military companies” aiding that country’s potential war effort and subject to U.S. sanctions, Cabaletta added that this could “materially impact” the company’s plans. The Biden administration has not acted on the request from members of Congress.

Access to WuXi AppTec production “is a very big issue for the biotech community. They are a major commercial [manufacturer] for cell and gene therapies,” said Steven Altschuler, a biotech investor who was chief executive of Children’s Hospital of Philadelphia when it began its gene and cell therapy programs in the early 2000s.

He’s worried that other American, Asian, and European biotech companies won’t have the immediate capital, labor, and know-how to “pick up the slack” if Congress goes through with its ban in an industry where novel therapies remain dependent on early federal support.

“It could have a real impact on getting cell and gene therapy to patients,” he said.

Likewise, Kevin Mahoney, chief executive at the University of Pennsylvania Health System, whose researchers include leaders in gene and cell therapies, said: “We need low-cost start-up manufacturing to grow these businesses here.”

A bill that passed the Senate Homeland Security Committee, 11-1, in March labels WuXi AppTec and its affiliates and BGI (the former Beijing Genomics Institute) and its successors each “a risk to the national security of the United States,” noting that China-based companies are required to give that country’s military their data and other private information when asked.

The vote followed a report that U.S. intelligence officers in a February briefing had told a group of senators who support the bill that WuXi AppTec had “transferred U.S. intellectual property to Beijing without consent,” Reuters posted last month, citing unnamed sources.

Area Congress members including Sens. Tom Carper (D., Del.), a member of the Homeland Security committee who voted yes on the bill in committee, and Bob Casey (D., Pa.) say they are reviewing the proposed law before deciding whether to support it in the full Senate.

WuXi AppTec, one of the biggest biotech employers in Philadelphia, says that it complies with U.S. law and that its customers’ U.S. data are secure.

“Safeguarding our customers’ information is of the utmost importance,” spokesperson Fangwei Gu said in a statement. “We strongly object to such serious allegations against our company without due process.”

Gu added that the company had earned its reputation as “a trusted partner” and said the company is concerned the bill could damage American leadership in biotech and delay medicine “to those in need.”

The company reported record sales and profits last year, but shares have lost half their value since January, which analysts blame on fears Congress would discourage repeat business. Shares of WuXi Biologics are down even more since the vote.

The losses could affect the bottom line of millions of American retirement savers. Leading U.S. investment companies including Vanguard Group of Malvern, Fidelity, American Funds, Morgan Stanley, Goldman Sachs, State Street, and Radnor-based Putnam Lovell’s Matthews International Funds, have investments in WuXi AppTec or WuXi Biologics, according to SEC filings.

At least 15 publicly traded U.S. cell and gene therapy developers, including Philadelphia-based Amicus Therapeutics and Cabaletta Bio, have signed production deals with WuXi AppTec or its affiliate WuXi Biologics since 2018, according to an Inquirer review of Securities and Exchange Commission filings. That’s not including private companies that don’t file SEC reports.

WuXi AppTec employs around 900 in four buildings in the former Philadelphia Naval Base business district, developed by the partly city owned Philadelphia Industrial Development Corp. WuXi Biologics has a plant at a former GlaxoSmithKline pill factory in Upper Merion Township and another in Cranbury, N.J.

WuXi AppTec is building a factory in Middletown, Del., with help from $21 million in state aid and tax incentives.

Earlier this year, WuXi replaced its top officer in Philadelphia. David Y.H. Chang, a biotech industry veteran of U.S. and Chinese manufacturing operations who became chief executive of the WuXi AppTec Advanced Therapies Unit in 2020, retired home to Taiwan. Chang was replaced by U.S.-born R.J. Fitch, a former Merck manufacturing executive and Philadelphia University graduate who has been with WuXi since 2016.

In the early 2010s, BGI, which operates China’s National Gene Bank, had “world-leading technology” for screening genes, an early step needed for gene therapy, Altschuler said. The field grew rapidly and now has many advanced competitors, he added.

In 2011, Children’s Hospital of Philadelphia announced a 10-year deal with BGI, then known as Beijing Genomics Institute, to sequence cells for research projects. That deal was “terminated” effective May 2018, according to CHOP.

“Since that time, we have remained engaged with the Philadelphia field office of the FBI … on various topics, including BGI, and China generally,” a CHOP spokesperson said in a statement. FBI officials in Philadelphia and Washington declined to provide information about that engagement.

Altschuler said the reasons for the FBI’s contacts to CHOP aren’t clear. “We used their platform,” he said. “We didn’t end up swapping” genetic information or anything else besides using BGI’s tools to read genes.

According to the draft sanctions bill in the House of Representatives, BGI and successors, including MGI and Complete Genomics, a California manufacturer acquired by BGI in 2013, remain active in U.S. biotech. U.S. companies that did business with them would also be banned from receiving federal funds.

Besides relying on contract manufacturers, more biotech companies are building their own cell factories. In Philadelphia, that includes San Diego-based Iovance Biotherapeutics, which counts WuXi AppTec as one of its contract manufacturers, and Philadelphia-based Spark Therapeutics, now owned by Swiss drug giant Roche.

That new capacity won’t automatically ease pressure on start-ups, however.

“We are building for us, with no plan to contract manufacture,” said Iovance spokesperson Jen Saunders, of its Navy Yard site, which adjoins WuXi AppTec.

Spark’s new building on Chestnut Street near its 30th Street labs “is planned for manufacturing only for Spark, and the Roche network,” said Spark in a statement.

Over the years, Penn has debated emulating the University of Massachusetts and other schools by setting up a regional biotech manufacturing facility, possibly at the Pennovation complex in South Philly. It would be a place commercial companies could use, making it easier to lure and grow more successful biotech companies. The neighboring two-square-mile Bellwether development is also soliciting biotech tenants.

Penn already has at least three small cell and gene therapy production sites used by researchers who are developing costly treatments with sophisticated tools.

But such facilities, owned by the tax-exempt university, can’t be readily expanded for commercial use by for-profit companies, Penn officials have noted in internal discussions.

A regional facility run by a nonprofit operator could attract start-ups and reduce production costs, if carefully managed, Penn sources said. But university officials are also wary of an embarrassing failure if a multiyear investment fails to attract users on schedule, and some have argued such risks are best left to the private sector.

A consortium of Pennsylvania and Delaware biotech-related groups joined this year to apply for $70 million in federal funds to set up a network of biotech training, development, and manufacturing sites around Philadelphia and western New Castle County.

The University of Delaware and the Delaware-based National Institute for Innovation in Manufacturing Biopharmaceutical, a group backed by Glaxo, AstraZeneca, and other drugmakers and run by ex-Merck recombinant flu vaccine chief Barry Buckland, would direct the manufacturing effort.

Work began last year on WuXi AppTec’s 1.7-million-square foot manufacturing center on more than 100 acres in Middletown, Del., near the Maryland border. A four-story office building flanked by manufacturing sheds is rising in former farm fields. Delaware has committed $21 million in matching construction funds and future road improvement funding.

So far, $3.6 million of that amount has been paid to the company for work completed to date, according to Ashley Dawson, a spokesperson for Gov. John Carney. Regardless of the sanctions attempt by Congress, “we will continue to honor the terms of the signed and executed agreement, pending changes in legislation.”