(Bloomberg) -- Popular weight loss and diabetes drugs are getting caught up in a bid by US lawmakers to reduce the country’s reliance on Chinese biotech companies.

Much of the active base ingredient used in Eli Lilly & Co.’s Zepbound and Mounjaro medicines is produced by WuXi AppTec Co., one of the main companies in the crosshairs of the Biosecure Act currently under discussion in the US Congress, according to people familiar with the company’s operations. 

Besides its significance in that supply chain, WuXi works with the world’s 20 largest pharmaceutical companies, according to its public disclosures. If the rare bipartisan legislation goes through as currently crafted, drugs already in short supply, from the blockbuster GLP-1 agonists to advanced cancer treatments, will become even harder to produce.

Read more: Cutting China Out of Biotech Is a Bipartisan Issue: New Economy

Crucially, WuXi AppTec and its separate, sister organization named WuXi Biologics (Cayman) Inc. have manufacturing facilities that have been approved by US regulators, a lengthy process that any substitute supplier would have to go through. They also often do other work, including extensive research and development.  

“It’s not just about where you’re sourcing API or biologic material, these CRDMO’s do a lot more than that,” said Nick Shipley, chief advocacy officer of BIO, an industry lobbying group, referring to contract research, development and manufacturing organizations like WuXi AppTec that it counts as a member. “It’s not just as simple as flipping a switch and moving it over,” he said. “That type of disruption in the supply chain could obviously lead to shortages.”

Lawmakers are now working to reduce the initial knock-on damage to the US drug supply from the proposed legislation, which would need to pass both chambers of Congress and be signed by the president before becoming law. It was intended to limit access to American genetic and health care information for biotechnology companies “of concern” with alleged ties to a foreign adversary. 

Senator Gary Peters from Michigan, the bill’s sponsor and chairman of the Senate Homeland Security and Governmental Affairs Committee, is considering revisions that would allow existing contracts to remain in place, according to a person familiar with the discussions. Other options include removing the names of the Chinese biotechnology companies from the legislation.

Committee members voted to advance a version of the bill during a markup Wednesday, but not all were in support of it. 

"I'm also worried that one of the companies being banned here has many different applications throughout the supply chain that we really haven't fully researched enough to know what the ramifications of stopping this are," Senator Rand Paul from Kentucky, the committee's ranking member, said during the meeting Wednesday.

Intertwined Supply Chain

About 66% of WuXi AppTec’s revenue comes from the US, which is why its share price plunged after news of the legislation emerged in January. WuXi Biologics, which isn’t named as prominently, also fell. Both companies deny any links to China’s Communist Party.   

WuXi AppTec said it’s continuing to work on clarifying the facts around its operations and “set the record straight,” while WuXi Biologics didn’t reply to a request for comment. 

“We strongly object to misleading allegations, inaccurate assertions and preemptive actions against our company without due process,” WuXi AppTec said in an emailed statement. “We are confident that upon considering the facts, U.S. lawmakers will understand that WuXi AppTec does not pose a national security risk.”

While the threat to WuXi’s existence is clear, less attention has been paid to how American companies and patients would be affected. 

“It would have a sizable impact on the industry, as it would require companies that have (or would seek to obtain) contracts with the US government to make significant and often complex changes to their operations,” according to a report from lawyers at Ropes & Gray, which works extensively with the industry in China and around the world.

Depending on China

The vulnerability underscores how fragile the US pharmaceutical supply chain is, with most medicines getting their manufacturing start in China or India. Both countries have been beset by quality issues and the expansion of political efforts to reduce American reliance on Chinese companies into the sphere of biotech will now affect the better-regarded suppliers in the industry. 

“We, and the pharmaceutical industry generally, depend on China-based partners for integral chemical synthesis, reagents, starting materials, and ingredients,” Lilly said in a recent filing with the US Securities and Exchange Commission. Finding alternative suppliers if necessary due to geopolitical developments may not be feasible and “would cause disruptions to patients and detrimentally impact our business,” the company said.

The Biosecure Act states that any pharmaceutical company that works with a “biotechnology company of concern” would be ineligible for US government contracts with agencies like the Department of Health & Human Services and the Department of Defense, potentially limiting drug sales for veterans, the national stockpile and perhaps even Medicare and Medicaid. 

The legislation is being crafted amid a broader US push to limit the national security risks posed by a super-charged biotechnology sector in China, which the government believes is America’s fiercest competitor thanks to President Xi Jinping’s multi-year plan to dominate the world’s bioeconomy. There have been allegations in the past that Chinese companies deliberately invested to get access to sensitive health-care data in the US.

Read More: Biden Aims to Stop Foreign Foes From Exploiting US Data

While drugmakers could in theory try to separate their supply chains from Chinese biotech companies just for government or US contracts, it would be arduous and uneconomical. 

WuXi AppTec and the companies that work with it rarely disclose the collaborations. The Shanghai-based biotech company generated $2.7 billion in revenue from the US and another $460 million from Europe in the first nine months of 2023, according to its presentation at a major health gathering in January. It was involved in producing seven of the 15 small molecule drugs approved by the US Food and Drug Administration in the first half of the year, according to a report from Haitong International. 

Lilly’s Risk

The situation is particularly fraught for Lilly. Its main rival in weight loss drugs, Novo Nordisk A/S, just bought several manufacturing plants previously owned by Catalent Inc. that specialize in the complex and sensitive production process and make the medicines for companies including Lilly. Lilly’s chief financial officer, Anat Ashkenazi, recently told investors it was embarking on the most ambitious expansion agenda in the company’s history to support production of the drugs. 

But even with those investments, Ashkenazi said she doesn’t expect Lilly to be able to meet demand for GLP-1 drugs this year, and maybe not even by 2025. 

Lilly declined to comment for this story. The company’s shares were up less than 1% at 11:53 a.m. in New York.

“In that specific competitive class, there’s already less capacity,” BIO’s Shipley said. The Catalent acquisition — on top of this legislation  — could lead to a contraction in the supply chain that should probably worry companies who want to lock up capacity, he said.

The risks are acute for smaller and mid-size pharmaceutical companies, he said. Iovance Biotherapeutics Inc., for example, just scored the first US approval for a T-cell therapy to treat melanoma that will be manufactured at a WuXi facility in Philadelphia. Weight-loss drug startup Structure Therapeutics also relies on WuXi for its API and drug product, according to a US regulatory filing. “There is a risk that, if supplies are interrupted, it would materially harm our business, the company said.”

Neither company could immediately be reached for comment.

Revisions Underway

Passage of a narrowed version of the bill that would allow existing contracts to be maintained would be the “neutral” outcome for WuXi AppTec, wrote Yang Huang, an analyst at JPMorgan in Hong Kong. While such changes would reduce the level of heartburn from the legislation, it won’t disappear, said Bobby McMillin, managing director at Arnold & Porter, a Washington, DC-based law firm. 

Despite the consequences to the drug supply, some in Congress are willing to embrace harsh measures in an effort to decouple the US supply chain from China, a step they say is vital for national security.

“Some people are thinking about shortages first and others are thinking about national security first,” McMillin said. "How do we reconcile those things when they are in tension?”

--With assistance from Riley Griffin and Lulu Shen.

(Updates with committee vote from eighth paragraph. An earlier update corrected senator’s committee title in seventh paragraph. )

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