U.S. Calls for Investigation into Chinese Biotech Firms Amid National Security and IP Theft Concerns

The U.S. government is urging federal law enforcement to investigate biotech company GenScript Biotechnology Co. and three of its subsidiaries over its possible links to the Chinese Communist Party (CCP).

GenScript, a biotech and life sciences company founded in 2002, offers gene synthesis and other research and development applications, with its base of operations located in Nanjing, China.

The move comes amidst rising tensions between the two countries, with U.S. officials pushing for private companies to break free from their dependence on China.

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Lawmakers urge FBI to investigate GenScript

On May 31, the U.S. House Select Committee on Strategic Competition Between the United States and the Chinese Communist Party sent a letter to FBI Director Christopher Wray and the Director of National Intelligence Avril Haines in which lawmakers raised concerns over the company’s close ties to China.

In the letter, committee chair Rep. John Moolenaar, along with ranking member Rep. Raja Krishnamoorti, expressed worries that the GenScript could divulge intellectual property secrets from U.S. biotech and pharmaceutical companies to the Chinese government, and asked the FBI to conduct a probe into the company.

"GenScript's role as a Contract Development and Manufacturing Organization (CDMO), including services such as the production of custom gene synthesis for companies and U.S. government entities, raises concerns about potential risks to the intellectual property of U.S. firms and GenScript's broader role in advancing the PRC's (China) biotech capabilities," the letter said.

The letter further cites GenScript's corporate materials, interviews with media, and sharing information from universities and the U.S. government as evidence that GenScript is engaged in healthcare espionage, with the aim of achieving “self-reliance in critical technologies and leveraging these advancements to boost the [Peoples Republic of China]'s global competitiveness and influence."

"While these aspirations do not necessarily equate to illicit behavior, they do underscore the need for vigilance in safeguarding U.S. competitiveness and preventing the transfer of sensitive technologies and capabilities to PRC state-influenced entities," lawmakers added.

GenScript, founded by Chinese nationals Fangliang Zhang, Ye Wang, and Luquan Wang in New Jersey, is one of many CDMOs with labs based in China that outsource contracts with global pharmaceutical companies.¹

Notably, their current CEO Shao Weihui also serves as the company’s CCP Committee Secretary, which is technically a political office with the Chinese government. 

According to the company’s website, it has amassed over 200,000 customers across the globe in 100 different countries, and maintains a sales, manufacturing, and research and development presence in North America, Asia, and Europe.

In addition to custom gene synthesis services, the company offers peptide synthesis, protein engineering, antibody development, and contract research and manufacturing services for drug discovery and development. The company was listed on the Hong Kong Stock Exchange in 2015.

In their letter to the FBI, congressional committee members also focused on three subsidiary companies of GenScript: Bestzyme, Legend Biotech, and ProBio.²

The companies are considered by lawmakers as potential national security risks because of their intellectual property value to China’s biotech industry.

GenScript’s Legend Biotech, a drug developer with ties to China, is known for partnering with Johnson & Johnson in 2017 to develop cancer cell therapeutic Carvykti. The drug is expected to make more than $5 billion in sales this year.²

China propels biotech industry

Despite only a decade ago legalizing pharmaceutical contract manufacturing, China has already become one of the leaders in outsourcing for biomanufacturing, with experts expecting the country to surpass the United States in the near future.

A study conducted by BioProcess International that surveyed industry leaders found that a majority of respondents (17%) saw China as the top potential offshore production location. The U.S. was the second choice, with 15%.

China’s growing dominance in the sector is due to their contract development and manufacturing organizations (CDMOs) expanding their services into biologics. Meanwhile, domestic biotech companies are rapidly building the capacity to independently develop biologics. 

According to a report by McKinsey & Company, China’s leading CDMOs and biotechs represent about 7% of the global capacity for monoclonal antibodies, which played a crucial role in treating Covid pneumonia. 

In addition, China’s CDMOs are upgrading their manufacturing capabilities to match global standards.

Important companies such as Asymchem, Pharmaron Beijing, and WuXi AppTec, generated over three-quarters of their 2021 revenues from non-China customers, according to the report. 

These companies are also expanding their global presence. For instance, Shanghai-based dMed merged with Clinipace, a clinical research organization in Raleigh, North Carolina. 

The McKinsey report predicts a high likelihood that by 2028, drugs originating from China become significantly more prominent.

The Biosecure Act reflects strained relationship between U.S. and China 

The briefing on GenScript comes amidst a turbulent time for U.S.-Chinese relations in the healthcare and pharmaceutical sector.

Nearly a month before the committee meeting on May 10, legislators introduced a bill to prevent U.S. companies from doing business with Chinese biotech contracting companies, including CMDOs WuXi AppTec, WuXi Biologics, MGI, Complete Genomics, and BGI.

The bill, known as the BIOSECURE ACT, would limit these companies from obtaining U.S. government contracts, and extends the deadline to 2032 for U.S. companies to cut ties with these companies and develop other partnerships.

According to lawmakers, the bill aims to safeguard Americans' personal health and genetic information from foreign adversaries while forcing U.S. companies to reduce their dependence on China.

"China has so much control of the market. We've got to start this shift," said Rep. Brad Wenstrup said in an interview. 

John Crowley, president of advocacy group BIO, said the bill is a step towards severing ties from Chinese manufacturing, adding that it "highlights a key vulnerability in our global supply chain.”

Although the bill was not included in the recent National Defense Authorization Act (NDAA), legislators remain committed to submitting it as a stand-alone measure.³

The NDAA, passed in 2021, requires the U.S. defense secretary to release a black list of mainland Chinese military companies, which are defined as any company that contributes to the mainland Chinese defense industrial base through science and technology initiatives.

Some biotech industry leaders and researchers were vocal in their criticism of the bill, claiming that it would reduce competition and increase prices for U.S. companies.⁴

Complete Genomics also accused competitor Illumina, which some experts say holds a monopoly over gene sequencing, for backing the bill to eliminate competition.

Reports revealed that Illumina spent nearly half a million dollars lobbying for several bills, including the BIOSECURE Act. 

The Chinese companies spent $200,000 in their own counter-lobbying efforts.

Michael Snyder, chair of genetics at Stanford University School of Medicine and director of the Stanford Center for Genomics and Personalized Medicine, said the center chose to partner with Complete Genomics due to its lower operating costs.

CCP rolls out Five Year Plan for pharma global dominance

China has recently accelerated the development of its pharma industry under its Five-Year Plan.

Under the CCP’s plan, China aims to become a leader in global pharma, from research and development to drug manufacturing.⁵

Specifically, China is targeting an average annual increase of more than 10% in R&D investment across the industry. It also sets a higher standard for internationalization.

This plan is already well underway.

The past five years has witnessed the market capitalization of Chinese biopharma companies surge from $1 billion in 2016 to over $200 billion by 2020. 

CEC Capital, for example, reported that Chinese healthcare startups secured RMB 190 billion in funding in 2020, a significant increase from RMB 92.8 billion in 2019. 

Between 2010 and 2020, 141 new drug and biotech companies were launched, a notable rise compared to the 79 startup labs established from 2000 to 2010. In contrast, the number of biotechnology companies in the U.S., EU, and Japan declined over the past decade

China’s influence on the global stage can further be seen in the world's largest pharmaceutical company, Sinopharm, which is controlled by the state-owned China National Pharmaceutical Group Corporation.

U.S. response aims to bolster national security

These developments are concerning for the United States, which currently sits at the top of the global pharma and biotech industry.

U.S. lawmakers Rep. Krishnamoorthi and Rep. Mike Gallagher, who drafted the NDAA, warned in a letter to Defense Secretary Lloyd Austin on March 29 that China views dominance in biotechnology as key to bolstering the country’s scientific and technological power. They also stressed the importance that biotech supremacy could have on military success.⁶

In its annual threat assessment released in February 2024, the Office of the Director of National Intelligence (ODNI) highlighted that Beijing is prioritizing biotechnology and accelerating its development of science and technology through intellectual property theft and other methods for economic, political, and military gain.

"China now rivals the United States in DNA-sequencing equipment and some foundational research. Beijing’s large volume of genetic data potentially positions it to lead in precision medicine and agricultural biotechnology applications,” the ODNI stated.

The National Security Commission on Emerging Biotechnology (NSCEB) also published a white paper in early February recommending that the federal government conduct a competitive analysis of the U.S. biotech infrastructure and technological advancements compared to strategic adversaries.

The NSCEB cautioned: "If the United States does not lead, others will, and we risk a future in which biotechnology undermines, rather than supports, U.S. national security. The People’s Republic of China intends to win the age of biology and is making significant investments and shrewd policy decisions with the intent to outpace the United States."

Conclusion

As for the FBI’s probe of GenScript, it remains to be seen how the agency will respond. 

Recent legislative and investigative actions are a response to the potential risks posed by Chinese biotech firms like GenScript Biotechnology Co., which are critical for advancing China's scientific and technological ambitions. 

The outcome of the FBI's investigation into GenScript will likely have significant implications for the future of U.S.-China relations in the biotech industry.

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Key Takeaways

1. The U.S. government is urging investigations into GenScript Biotechnology Co. and its subsidiaries due to their potential links to the Chinese Communist Party and national security risks.
2. The U.S. House Select Committee on Strategic Competition expressed concerns that GenScript might disclose U.S. intellectual property to China.
3. The Office of the Director of National Intelligence (ODNI) warned that China is rapidly advancing in biotech through intellectual property theft, posing a competitive threat to the U.S.
4. The BIOSECURE Act and similar bills aim to restrict Chinese biotech firms from obtaining U.S. government contracts, encouraging U.S. companies to reduce their reliance on China.
5. Prominent industry voices, including BIO CEO John Crowley, stress the importance of maintaining U.S. biotech dominance to ensure national security and continuous access to essential medicines.
6. China has significantly developed its pharmaceutical industry, with major investments and strategic plans to enhance its global competitiveness, raising concerns in the U.S. about losing its leading position.
7. Reports indicate that Chinese biotech firms are expanding their capabilities and market presence, with potential scenarios suggesting increased global influence of China's biopharma industry by 2028.