US Biosecure Act spells long-term boost for Indian CDMO, CRO firms

As American biopharma looks to diversify sourcing, Indian companies stand to benefit

Indian drug companies stand to benefit in the long run if the US Biosecure Act is passed. The Act would restrict US federal agencies from procuring equipment and services from certain “biotechnology companies of concern”, primarily some large Chinese pharma companies.

Analysts thus point out that this would impact the supply of numerous drugs used in clinical trials and critical raw materials, thereby providing opportunities for Indian companies to act as alternatives. “Green shoots are already visible as over 60 per cent of listed pharma firms have witnessed an increase in the number of enquiries for new businesses, and 33 per cent of them believe that the Act, if implemented, can be a business driver,” India Ratings and Research said.

The Biosecure Act aims to protect US biopharmaceutical research by reducing federal funding for companies that partner with foreign adversaries' military or intelligence. If passed, the Act could designate specific Chinese companies as "biotechnology companies of concern". This could lead to US biopharmaceutical companies looking to diversify their suppliers before the 2032 deadline set by the Act.

India Ratings felt that Indian pharma companies operating in the contract development and manufacturing organization (CDMO) and contract research organisation (CRO) segments are likely to reap benefits from increased orders, stemming from the passage of the US Act, from American pharma companies over the next 12-18 months.

Indian companies, in anticipation, have incurred significant capex over the past two years, resulting in elevated leverage ratios, and India Ratings expects the ratio to moderate with the benefits of operating leverage feeding into margins and cash flows.

Nandini Piramal, chairperson, Piramal Pharma, a leading CDMO firm, told Business Standard: “Our clients are showing significant interest in understanding the potential implications of the Biosecure Act and charting out their possible responses to the legislation. At our clients’ request, this was the primary topic of discussion in our June 2024 Client Advisory Board meeting.”

She added: “Tangibly the proposed law is resulting in increased inquiries and RFPs (request for proposals) for both our onshore and offshore offerings for our innovator clients across the lifecycle. As a result of our recent capacity expansions, we are ready to meet client requirements in their preferred geography.”

Sibaji Biswas, chief financial officer and executive director at Syngene International had told Business Standard last month that the “China plus One” strategy has been a topic of discussion for some time now, and with the development around the Biosecure Act, there is an increasing momentum to diversify away from China.

“Over the past few quarters, we have seen a steady shift, with global pharmaceutical companies progressively considering India as a viable alternative. This trend is significant not only for our company but also reflects a wider industry movement. India is becoming the preferred choice in the supply chain realignment due to its robust talent pool, infrastructure, and comprehensive capabilities,” Biswas had said, adding that this shift presents an “exceptional opportunity” for India to expand its role in the life sciences sector.

Syngene, a leading CRO and CDMO firm, offers both China-based and China-independent sourcing options for raw materials.

India Ratings said that pharma and biotech firms are analysing supply chains to identify reliance on blacklisted Chinese companies and working on alternative sourcing strategies.

“CDMO players, which were impacted due to weaker capacity utilisation during FY22 and FY23 due to higher capex in the past, witnessed operating leverage benefits play out during FY24, despite debt levels remaining unchanged, leading to an improvement in their credit metrics,” said Vivek Jain, director, corporate ratings, India Ratings.

While the CRO space has been impacted due to the weak biotech funding scenario, the CDMO space did benefit from clients diversifying away from China, especially during FY24.

Some analysts, however, felt that there would not be any immediate upside. “Indian companies have some expertise in small molecules, so they could benefit. For example, Piramal, Suven, and Syngene. For larger biologics or fermentation products, the likes of Lonza, Charles River, and Evotec will benefit,” said one Mumbai-based analyst.

Nirali Shah, analyst with Ashika Group, felt that the implementation of the Biosecure Act could be delayed as it was not included in the National Defence Authorization Act for 2025. “Transitioning to new partners will take time due to potential re-approvals for existing and new drugs under grandfathered contracts. Despite this delay, it is noteworthy that US companies' confidence in Chinese partners has dropped by one-third amid the ongoing Biosecure Act debate,” she added.

Bhavesh Shah, managing director head-investment banking, Equirus, highlighted that this is going to have a long-term effect on the shift in the supply chain practices followed by the global majors to opt for alternatives, including Indian companies.

The next five years present massive potential for Indian CDMO and CRO firms.

“With a strategic focus on biologics, oligonucleotides, peptides, ADCs, and increased investments in advanced manufacturing, such companies are well-positioned to capitalize on the shifting dynamics. The coming decade could transform India’s CDMO industry, leveraging the world's second largest workforce, low wages and minimal infrastructure costs,” Shah said.

IN A NUTSHELL

The Biosecure Act aims to protect US biopharmaceutical research by reducing federal funding for companies that partner with foreign adversaries' military or intelligence

If passed, the Act could designate specific Chinese companies as "biotechnology companies of concern"

This could lead to US biopharmaceutical companies looking to diversify their suppliers before the 2032 deadline set by the Act

US firms’ confidence in Chinese partners has dropped by one-third amid the ongoing Biosecure Act debate