As U.S.-China biotech tensions rise, Korea holds its breath

Industry

Published: 14 Feb. 2024, 07:00 Updated: 14 Feb. 2024, 08:19

As U.S.-China biotech tensions rise, Korea holds its breath

Syringes used in injectable medicines are being filled in sterile conditions in Wuxi City, China, in 2023. [WUXI BIOLOGICS/REUTERS]

The biopharmaceutical industry has become the latest battleground for hegemonic competition between the world’s two largest economies, with the United States seemingly beefing up its efforts to wean itself off of China.

While Korea, along with India, has been named one of the potential beneficiaries to fill in China’s place in the market, experts warn that the country is not immune to burgeoning geopolitical risks.

On Jan. 25, the U.S. House of Representatives introduced a bill called the Biosecure Act, singling out China’s major biotech companies such as WuXi AppTec and BGI Group.

Sponsored by Republican Rep. Mike Gallagher, the bill aims to prevent U.S. government-funded medical providers from sharing the genetic or personal data of American patients with “foreign adversary biotech companies of concern,” and named WuXi AppTec a “PLA[People’s Liberation Army]-affiliated firm along with WuXi Biologics. A similar bill was put forward to the Senate in December as well.

Though yet to become legislation, the proposed regulation sent some Chinese biotech shares tumbling on the market.

WuXi Biologics promptly refuted the claims, emphasizing that its CEO, Chris Chen, had no association with any military-affiliated institution and adding that its “global business operations remain as usual.”

This is not the first time that WuXi Biologics has found itself caught in the middle of a geopolitical standoff. The contract development and manufacturing organization (CDMO) was named to the U.S. Department of Commerce's so-called unverified list, mandating stricter due diligence in trading, in February 2022 and remained on it until October that year.

The Biden Administration has been pushing to bring drug manufacturing capabilities back to the United States through federal investments in the biotech sector, issuing an executive order to “safeguard the United States bioeconomy” in September 2022. The White House Office of Science and Technology Policy later released a report outlining plans to mitigate supply chain risks in the sector to secure at least 25 percent self-sufficiency in the production of active pharmaceutical ingredients (APIs) within five years in a bid to reduce reliance on China and India.

However, persistent shortages of cancer drugs drove up the United States' pharmaceutical imports from China by threefold in 2022 from the previous year, according to the official data from the country. China accounted for about 6 percent of its total pharmaceutical imports, or $10.25 billion, as of 2022. The figure dropped to $5.94 billion in 2023, accounting for 3 percent of the total, still above the previous level.

Defying the global move away from China, big pharma companies such as AstraZeneca and Pfizer were also actively seeking partnerships and funneling investments into the world's second-largest pharmaceutical market through last year.

While the biopharma reshoring initiatives seemingly have yet to reach tangible fruition, the United States' latest moves are notably increasing volatility for Chinese biotech companies, as geographic uncertainties — further driven by the upcoming U.S. presidential election — loom large over the market.

But the long-brewing rivalry may open new doors for Korea.

“The U.S.-China conflict is ongoing strong — pharmaceutical manufacturing in China will soon be under sanctions, as was the case for semiconductor technologies,” said SK Biopharmaceuticals CEO Lee Dong-hoon on Jan. 9 at a press meeting during the annual J.P. Morgan Healthcare Conference in San Francisco, California.

“That is why we need to bring our whole value chain to the United States; that's how we can make it global,” stressed Lee. The company aims for its epilepsy treatment Xcopri to achieve blockbuster status by 2029 in the U.S. market alone.

While the proposed Biosecure Act sent Chinese biotech stocks nosediving for several days, Samsung Biologics, an Incheon-based CDMO, saw its share price reach a 52-week high mid-trading at 878,000 won. The latest rally has been partly driven by investors' expectations that Samsung Biologics could benefit from potential sanctions on WuXi Biologics.

Albert Baehny, interim CEO of the Basel-based CDMO Lonza, cautiously mentioned the possible implications of the Biosecure bill during the company's earnings call, saying that "we can expect some benefits from this potential bill in the U.S."

But the Korean biopharma industry is also exposed to geopolitical risks, as the country has been heavily reliant on China for API supply.

China was Korea's largest exporter of drug substances in 2022, according to the latest Food & Drug Statistical Yearbook published in December. Import volume from China stood at $916.9 million that year, while the figure from India, the second-largest exporter, was far smaller at $303.3 million. Korea's self-sufficiency ratio for drug substances took a dip in 2022 as well, hitting 11.9 percent from the previous year's 24.4 percent.

Noh Yun-hong, chairman of the Korea Pharmaceutical and Bio-Pharma Manufacturers Association, said that "because there has been a possibility that high reliance [on the Chinese drug substances] may affect the drug supply in Korea, we have been constantly putting forward incentive programs to produce APIs onshore."

The chairman added that Korea should "prepare to address the potential risk derived from the transition in the global supply chain."

China, moreover, remains a crucial market for Korean biotech and pharmaceutical companies, meaning that a trade curb could hamper the country's business, experts warn.

"The Chinese market has important ties with Korean companies," said Lee Seung-kyou, vice president of the Korea Biotechnology Industry Organization.

The vice president did expect that that the geopolitical tensions could benefit Korean companies in the short term. However, considering that Korea's biotech ecosystem is still in its early stage compared to more advanced economies, Lee warned that, "we need to be more mindful of the long-term prospect of the situation."

BY SHIN HA-NEE [shin.hanee@joongang.co.kr]