The draft of the much-anticipated Biosecure Act was passed by the US House of Representatives on September 9, clearing its way to head to the US Senate for a final vote. The act aims to prohibit US drugmakers from engaging in business with five Chinese companies after eight years.
The bill seeks to reduce the US biopharmaceutical industry's reliance on China and limit technology transfers to the country. It specifically targets five Chinese companies—WuXi Apptec, Wuxi Biologics, BGI, MGI, and Complete Genomics. As per the act, companies that engage in collaborations with these entities will be ineligible for grants, loans, and contracts from executive agencies.
With up to 120 US biopharmaceutical drugs being under the scanner of this bill, attention has now shifted to Indian pharma companies, which are anticipated to be the major beneficiaries of its passage. Contract development manufacturing players like Divi's Labs, Laurus Labs, Neuland Laboratories, Syngene, Suven Pharma, and Piramal Pharma are likely to witness a spike in work coming their way as US companies shift manufacturing bases away from China.
Brokerage firm InCred Equities highlighted that the CDMO market has been growing at a faster pace than the global pharmaceutical market. A lot of this growth is driven by emerging biotech and biopharmaceutical companies that do not have the capital to invest in setting up manufacturing plants. "As a result, rival companies located in India, Japan, Europe, and America will benefit the most from the Biosecure Act," the brokerage stated.
The brokerage further noted that the shift has already started happening on the ground, as several companies like Beigene and Eli Lilly have started looking for other CDMO partners. Meanwhile, the management of Indian CROs and CDMOs has also stated that they are seeing an increase in inquiries after the introduction of the bill.
The managements of Laurus Labs, Neuland Labs, Piramal Pharma, and Syngene, in interactions with CNBC-TV18, stated they have witnessed an increase in order queries. Buoyed by their improved growth prospects, shares of Laurus Labs, Piramal Pharma, and Syngene surged 3-4 percent.
Laurus Labs anticipates that the shift towards Indian pharma companies will be gradual, starting with smaller projects. Piramal Pharma is seeing increased exploratory discussions and customer inquiries, but no major decisions have been made yet. Neuland Labs is engaging in more talks and meetings with US firms but hasn't yet experienced a significant uptick in proposals or orders. Although optimistic about medium to long-term prospects, Neuland's focus on APIs rather than clinical or biologically focused CDMOs distinguishes its position.
Syngene, on the other hand, is gaining momentum due to its existing long-term contracts and has observed a 'material shift' in Big Pharma's sourcing strategies. Syngene is actively involved in pilot projects related to the 'China Switch' and reported a 50 percent on-year rise in RFP (requests for proposals) value in the first quarter, marking its best performance in four years.
China's loss, India's gain
China's loss of market share due to US trade sanctions and Covid-19 disruptions has created a significant opportunity for India’s CDMO sector. InCred Equities attributes this shift as a major driver of India's CDMO growth, forecasting the market to expand from $19.63 billion in 2023 to $44.69 billion by 2029, at a nearly 15 percent CAGR.
The brokerage also highlights government incentives like the PLI scheme, increased FDI, and private equity as other growth drivers for the industry. Additionally, rising capex is set to boost capacity and skills, while cost competitiveness and a strong regulatory track record will support the growth of domestic CDMO players.
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