The Shifts in CXO and API: Will Trump Inherit Biden's Three Major Pharmaceutical Policy Legacies?

China's CXO (Contract Research, Development, and Manufacturing Organizations) and Active Pharmaceutical Ingredients (API) sectors still face policy risks. The outlook for U.S. allies depends on how willing Trump is to inherit the pharmaceutical policy legacy left by the Biden administration.

Policy Legacy 1: The Biosecure Act

Key Timeline: If the Biosecure Act isn't passed during the upcoming "lame duck" period (prior to Trump's official inauguration in January), it will require a "restart" in the next congressional session. Currently, only the House has expressed support for incorporating the act into the NDAA (National Defense Authorization Act) during the lame duck period, while the Senate is not planning to do the same. Standalone legislation has also faced disagreements, as the House and Senate versions differ. Thus, the remaining two months of this year are crucial for the bill's chances of passing.

If the act does pass during the lame duck period, some believe that the immediate negative impact on CXOs may be limited. Even under the House's version, Medicare is not included, and the impact on WuXi Biologics would be minimal, estimated at only about 2% of their business (since none of WuXi's 742 current projects are funded by federal sources).

If the act does not pass, what would a Trump administration do next term? Two possible scenarios have been suggested:

Ongoing Downward Pressure: Some U.S. legal experts predict that Trump's administration might accelerate the act's implementation, tying it to other trade concerns to drive a resurgence in U.S. manufacturing. Potential policies could include tariffs, stricter regulations on Chinese CXO firms, higher market entry barriers, increased scrutiny of technology transfers, limits on sharing sensitive technologies, and restrictions on Chinese pharmaceutical companies (including CXOs) investing or acquiring assets in the U.S.

A More Optimistic Outlook: This would depend on how the Trump administration perceives the CXO sector. If they view CXOs as facilitators of drug development whose intellectual property belongs to the pharmaceutical companies, and acknowledge that Chinese CXOs offer faster, higher-quality, and cost-effective solutions that benefit American pharma globally, then the sector may avoid direct targeting. Companies like WuXi, which have invested in U.S. facilities, may also gain some protection from policy backlash.

However, if Trump's administration perceives the dual rise of CXOs and Chinese innovation in pharmaceuticals as a threat to the U.S. biotech industry, restrictive measures will likely follow. Even so, there's no need for "extreme pessimism," as a complete decoupling of the industries would be difficult. The ongoing economic interdependence implies potential policy adjustments over time, with unlikely blanket restrictions and opportunities to navigate any new barriers.

For instance, if tariffs are imposed, WuXi Biologics' manufacturing segment (M segment) accounts for roughly 30-40% of their business, with 15-20% of the innovative drugs in this segment sold in the U.S. Assuming a 15% impact on the M segment, WuXi could mitigate some of this through overseas production, especially in the U.S. itself. Currently, around 10% of WuXi's capacity is outside China, with plans to increase this to 40% in the coming years.

Policy Legacy 2: Allied Cooperation in the Supply Chain

On June 6, a "Biopharmaceutical Alliance" was officially launched in San Diego, comprising the U.S., Japan, South Korea, India, and the European Union. Then, on June 14, President Biden issued an executive order to establish the "White House Supply Chain Resilience Committee." This committee is tasked with reviewing supply chains for industries critical to U.S. national and economic security and must submit a comprehensive report by December 31, 2024, with updates every four years.

The report is to guide U.S. cooperation with allies, strengthen global supply chain resilience, and support strategies aimed at decoupling from China.

These measures are intended to diversify away from Chinese dependencies and mobilize allies to build a U.S.-led global supply chain framework.

Further action followed in July: on July 9, the U.S. Department of Commerce's Bureau of Industry and Security (BIS) announced a partnership with the Department of Health and Human Services' ASPR (Assistant Secretary for Preparedness and Response) to conduct a thorough assessment of the U.S. active pharmaceutical ingredient (API) industry, set to begin this winter. Based on this review, likely measures may include encouraging domestic API manufacturing and tightening controls on exports of sensitive API technologies to China.

Biden's 2024 measures signal an intention to reduce U.S. dependence on Chinese supply chains while reconstructing a U.S.-led supply framework with a clear "America First" approach. If Trump assumes office, will these supply chain policies continue?

Guideview believes that the API-related supply chain assessment and corresponding policies align well with Trump's "America First" agenda, so they would likely continue. However, Trump's approach to "allied cooperation" may differ significantly; he has frequently criticized arrangements that don't serve U.S. interests, particularly its economic interests:

• Dependence on Indian Generics and APIs: Trump's administration would likely frown on U.S. overreliance on Indian pharmaceutical inputs, which contradicts his emphasis on self-sufficiency.
• South Korea's Biopharma Ambitions: Trump may not welcome South Korea's goal to become the "top biopharmaceutical producer" if it implies further offshoring U.S. industry. South Korean CDMOs (Contract Development and Manufacturing Organizations) aim to attract substantial U.S. pharmaceutical orders but, unlike Japan, which has invested heavily in U.S. production facilities, South Korea is primarily expanding domestically.

Compared to Biden, Trump's approach may be more "pragmatic," often employing broader protective measures against foreign companies, regardless of ally status. Even South Korean stakeholders acknowledge that from the perspective of their businesses, a Trump presidency may present challenges rather than opportunities. (For more details, see "South Korea Bets on "Supply Chain Restructuring" Opportunities After U.S. Elections, Biosimilar Giants Enter CDMO")

Policy Legacy 3: The Inflation Reduction Act (IRA)

Although the candidates from both parties hold sharply differing views on abortion, immigration, and the economy, Harris and Trump agree on at least one point: both have publicly stated a desire to reduce drug prices in the U.S. However, their strategies for achieving this goal could be vastly different.

The Republican Party, represented by Trump, is less supportive of the IRA's drug pricing negotiation policies. However, since the IRA represents the most comprehensive drug pricing legislation to date and has already become law, it will continue to be implemented regardless of who wins the presidency.

That said, if Trump adheres to the Project 2025 proposal, a 922-page policy document from the conservative Heritage Foundation, his administration may seek to significantly alter the IRA, potentially narrowing its scope. Specifically, it is possible that the drug pricing negotiation provisions in the IRA could be repealed, while other components of the law remain intact.

Additionally, Republicans recently reclaimed the majority in the Senate, which would enable them to confirm Trump's political and judicial appointments swiftly. If they also maintain control of the House as expected, Republicans could potentially adjust the IRA to limit the impact of drug price negotiations or reform Pharmacy Benefit Managers (PBMs) without much Democratic opposition.

Under a Republican administration, Trump might pivot toward transparency-focused policies. Drawing from past achievements, Trump could introduce "a different set of solutions," such as executive orders to enhance hospital price transparency and curtail surprise medical billing.

The Congressional Budget Office (CBO) recently analyzed various proposed drug pricing policies, including a policy resembling Trump's earlier proposal to cap U.S. drug prices based on international costs. This approach could reduce average prices by about 5%, marking the largest impact among seven CBO-reviewed measures, though it remains much less aggressive than the IRA's pricing negotiations.

Evan Seigerman, an analyst at BMO Capital Markets, commented before the election that a Trump win could positively impact the biopharmaceutical market. Under Trump, the IRA might not expand, Federal Trade Commission (FTC) intervention could shift away from the pharmaceutical industry, corporate taxes could be lower, and drug pricing reform might refocus on PBMs. These shifts could favor American pharmaceutical innovation and, by extension, benefit CXOs (Contract Research Organizations). (Note: High drug prices in the U.S. are a key driver of pharmaceutical investment in new drug development. While scaling back the IRA could reduce the financial burden on healthcare payers, it might also help maintain drug prices, supporting incentives for innovation and research.)