Mobilize the Private Sector to get U.S. Products to Scale

In the current economic landscape, capital has become scarcer and investors have become more risk averse. Investors have become more cautious, in part because interest rates have gone up and in part because many promising biotechnology companies have failed to produce attractive returns. As a result, many biotechnology companies that looked promising as recently as the early 2020s are struggling to secure funding for subsequent investment rounds. Biotechnology company bankruptcies hit a 10-year peak in 2023, leading to numerous company closures, layoffs, and restructurings.

Absent government action, the commercial market will not produce a biotechnology sector that aligns with broader U.S. national security needs. Three problems stand out.

First, there is often a gap in funding as a company seeks the necessary infrastructure to scale up. Venture capitalists are willing to fund biotechnology development and private equity is willing to fund expansion once there is a proven product, but between those two stages capital is harder to come by. In that gap, novel technologies with strategic or national security importance are at risk.

Second, emerging biotechnologies lack confident early customers. For an emerging technology, the first customer not only takes the risk of integrating a new product or service into its supply chains but also the risk that a product or service will not be delivered on time. Many buyers of biotechnology products are other companies within a largely business-to-business (B2B) market, meaning that biotechnology is often used to produce ingredients and components for other downstream products. Thus, the market is extremely sensitive to delays in delivery and buyers are reluctant to commit to meeting their needs with biotechnology products. This reluctance, in turn, makes investors hesitant to bet on emerging biotechnology companies.

Third, U.S. biotechnology companies face intense competition from China. The Chinese biotechnology sector is expanding its capacity, and in some cases, Chinese firms are exceeding the performance of U.S. firms. As U.S. firms seek to grow and commercialize, they face formidable Chinese competitors that are rapidly expanding and bringing products and services to market at prices that have no floor. This unfair competition makes it even harder for the U.S. firms to establish a foothold in this nascent industry.

The overall picture is of an industry that is extremely strapped for capital, with high costs and slow timelines. That, in turn, makes American biotechnology companies vulnerable.

The CCP uses a range of legal and illegal tactics to acquire the necessary technologies and gain market access, including making investments, undertaking mergers and acquisitions, dumping products at below-market rates, coercing companies and talent, and buying or stealing intellectual property and data.¹¹⁶

In 2017, for example, two Chinese companies—the private equity fund Asia-Germany Industrial Promotion Capital (AGIC Capital) and the pharmaceutical company Humanwell Healthcare—acquired Ritedose Corporation, a South Carolina biopharmaceutical manufacturer. The sale price was $605 million, a staggering figure some 25 percent more than what alternative buyers offered.¹¹⁷ In 2022, the Chinese firm Huafon purchased DuPont’s biomaterials business and Tennessee manufacturing facility. The Committee on Foreign Investment in the United States (CFIUS), which focuses on national security concerns related to such transactions, reviewed and approved the purchase with qualifications. But even though measures were put in place to limit the transfer of intellectual property from DuPont that had dual-use implications, the Chinese company ended up obtaining the intellectual property anyway.

Other notable CFIUS-cleared transactions include the sale of Syngenta (which has significant control of the global seed market) to ChemChina and the sale of Complete Genomics (which has cutting-edge DNA sequencing technology) to the Beijing Genomics Institute (BGI). Many other questionable transactions were not even reviewed. CFIUS is now waking up to the national security threat of Chinese capital in the U.S. biotechnology sector.

Chinese companies are also amassing control and leverage over large segments of the global biotechnology market. The global biopharmaceutical behemoth Wuxi AppTec, for instance, obtained its position through a staggering number of acquisitions of U.S. and international firms. These include the British firm Oxford Genetics Limited (which specializes in mammalian cell engineering), ResearchPoint Global (a contract research organization based in Texas), HD Biosciences (a California-based company specializing in preclinical drug discovery), and AppTec Laboratory Services (a medical device and biologics testing firm with facilities in Minnesota, Pennsylvania, and Georgia).¹¹⁸ Wuxi AppTec is so entrenched in American biopharmaceutical supply chains that American firms estimate they would need at least eight years to develop alternative sources for its services.¹¹⁹

BGI is another case in point. BGI is less a true private company than an extension of the CCP, having gained its market advantage in part through undisclosed state subsidies.¹²⁰ The firm also gained a technological advantage from U.S. sequencing companies—legally, by acquiring Complete Genomics, and illegally, by willfully infringing on patented technology owned by Illumina.¹²¹ BGI’s combination of state support and American intellectual property allows the company to undercut market rates for sequencing technologies.¹²² As of 2020, BGI said it could sequence a human genome for just $100.

In another move made possible by subsidies from Beijing, the Commission heard from stakeholders that Chinese firms are offering U.S. biotechnology firms, particularly those struggling to access affordable manufacturing plants, free custom facilities if they move their operations to China.

The U.S. government will need to shoulder some of the risk of early-stage financing for biotechnology and encourage private investment through demand-side measures. It should use targeted public support to seed new private investment in critical gaps, mitigating the need for a more expensive approach to claw back U.S. capabilities in the future.

To mobilize the U.S. private sector in support of biotechnology, the United States must:

• Simplify regulation for American biotechnology companies: Streamline regulatory processes to alleviate unnecessary burdens and accelerate the commercialization of innovations;
• Attract private capital to support biotechnology: Enhance incentives and signal demand for private investment to bridge funding gaps and support the commercialization of emerging companies;
• Scale up and de-risk manufacturing: Support pre-commercial manufacturing facilities that enable the scaling up of emerging bioproducts and defray costs for individual firms and investors;
• Protect critical biotechnology infrastructure: Safeguard vital infrastructure against external threats; and
• Fight back against brute force economics: Counteract unfair competitive practices employed by China, leveling the playing field for U.S. companies.

By adopting these recommendations, the United States could lean into the strength of its private sector, neutralize the advantages the CCP uses to undermine U.S. national security, and serve all Americans by bringing beneficial biotechnologies to market faster to defend, build, nourish, and heal.