Keeping Your Company’s Federal Contracting Options Safe in the Face of Pending BIOSECURE Act Legislation

The most recent version of  the BIOSECURE Act (the “Act”) was introduced in the U.S. House of Representatives (H.B. 7085) and Senate (S.B. 3558) on January 25, 2024. This proposed legislation should be of interest to any biotechnology companies that want to do business with the federal government in the future.

Background

Section 2 of the House Bill outlines some of the historical background that spurred Congressional action here, including national security risks highlighted by U.S. Departments of Defense (DoD) and Commerce actions against several specific Chinese biotechnology companies. An earlier version of the BIOSECURE Act was included in the House version of the FY24 National Defense Authorization Act (NDAA) but did not become law. Instead, the final NDAA directed the DoD to determine whether Chinese biotechnology companies should be identified as Chinese military companies operating in the United States.

On January 31, the DoD issued an updated list of Chinese military companies operating in the U.S., which did not include some of the Chinese companies specifically identified by Congress in prior and current versions of the BIOSECURE Act. On February 12, a bipartisan group of Senators and Representatives sent a letter to the Secretaries of Commerce, Defense, and Treasury, asking the Secretaries to consider adding WuXi-affiliates to various national security lists maintained by each of the agencies, including the DoD’s Chinese military list.  The Act is intended to address national security concerns by prohibiting certain conduct by regulated industry.

The Act

The Act would prohibit federal agencies from

(a) procuring or obtaining (or loaning or granting funds to procure or obtain) “biotechnology equipment or services” from any “biotechnology company of concern”;

(b) entering into a contract or extending or renewing a contract (or loaning or granting funds to do the same) with any entity that either

(i) uses biotechnology equipment or services from a biotechnology company of concern acquired after the effective date of the Act to perform the federal contract, or

(ii) enters into a contract with a third party that will require the direct use of biotechnology equipment or services from a biotechnology company of concern acquired after the effective date of the Act to perform the federal contract.

To state the inverse, the Act does not apply in cases where federal contractors do not use “biotechnology equipment or services” acquired from a “biotechnology company of concern” to perform the services under the contract—as each term is defined in the Act.

Biotechnology equipment includes genetic sequencers, mass spectrometers, polymerase chain reaction machines or any other equipment, components or accessories designed for the research, development, product, or analysis of biological materials as well as any software, firmware, or other digital components.

Biotechnology services include advising or consulting services related to the use of the above equipment, disease detection, or genealogical information, or any other service for the research, development production, analysis, detection, or provision of information including data storage and transmission related to biological materials.

The U.S. Office of Management and Budget (OMB) can also specify other equipment or services to be subject to the Act’s prohibitions.

Biotechnology companies of concern include BGI (formerly Beijing Genomics Institute), MGI, Complete Genomics, WuXi Apptec, and any subsidiary, parent, affiliate, or successor of such entities. Additionally, the OMB is directed to publish a list of additional biotechnology companies of concern within 120 days of enactment, which may include companies from “foreign adversaries” (i.e., China, Russia, Iran or North Korea).

Although the Act only applies to such equipment or services if they were acquired by the contracting entity after the “effective date” of the Act, which can differ depending on the source company of those equipment and services, it’s worth taking note of these potential provisions now. The planned prohibitions are effective for biotechnology equipment or services acquired from BGI, MGI, Complete Genomics, WuXi Apptec, and related entities 60 days after OMB issues guidance required under the Act (itself within 120 days of enactment of the Act). The prohibitions are effective for biotechnology equipment or services acquired from entities later added by OMB, 180 days after issuance of the above OMB guidance.

This guidance will be critical because the Act leaves open a number of key questions that would be important to compliance and changes to the FAR are not required until a year after the guidance—and therefore after the effective date.  The legislation may be revised, and the below is not an exhaustive list of our questions and concerns, but at present we have several observations and questions about how the Act may be implemented and potential consequences.

1. Scope Part 1—though the Act’s restrictions are seemingly limited to equipment and services that perform activities in relation to “biological materials”—a term that is not defined in the Act—the restrictions may still impact manufacturers of small molecule drugs or API that contract with third-parties using covered products or services as part of, e.g., various non-clinical testing in the development or manufacturing process.
2. Effect on FDA approvals—In cases where a biological product or drug needs to change aspects of its manufacturing processes to avoid using a covered equipment or service, will it need to file supplements with FDA for the CMC update?
3. Scope Part 2—Is reimbursement under Medicaid a grant of funds by the federal government, such that they are governed by the Act? In this regard we note that Medicaid is described in federal regulations as “Federal grants to States for medical assistance.”  See, e.g., 42 CFR § 430.0.

Conclusion

Although the BIOSECURE Act has not been passed by Congress (or signed by the President), its sponsors are expected to push for its inclusion in the FY25 NDAA or as part of other omnibus legislative packages that arise this year. Given the bipartisan attention that Chinese national security risks have garnered in recent years, biotech companies would be well advised to consider the potential impact this legislation could have on existing and future federal contracts. HPM will continue to monitor developments related to the Act.