China Biotech Curbs Could Rattle K-Bio

China’s biotech export controls are imminent. As China moves to tighten export controls on biotechnology and the United States is also considering measures to restrict biotech investment in China, the developments are expected to affect South Korea’s biotech industry as well. Because China’s export controls do not cover all biotech technologies, the impact on South Korean companies working with China is not expected to be significant. Still, attention is focusing on whether South Korea could benefit if mutual regulations between the United States and China intensify. According to the industry on Oct. 23, the Chinese government began collecting opinions until Nov. 15 after implementing revisions to its Catalogue of Technologies Prohibited or Restricted from Export on Oct. 16. A total of 40 technologies in three sectors are covered: artificial intelligence (AI), biopharmaceuticals, and solar power. In the biotech sector, two technologies were proposed for export prohibition: cell and gene therapy process platforms with proprietary intellectual property rights, and technologies for artificial gene synthesis of high-risk pathogenic microorganisms and control of pathogenicity-enhancing mutations. In addition, three technologies were included in the export restriction category: technologies for discovering and validating new targets for cell and gene therapy, key chemically modified synthesis processes and manufacturing technologies for lipid nanoparticle (LNP) delivery systems, and large-scale culture and purification process technologies for vectors used to load gene-editing scissors (CRISPR). This is in fact narrower in scope than the plan leaked to the market in June. According to the Korea Biotechnology Industry Organization, the additional export control items disclosed to the market in June included four advanced areas: antibody technologies, small-molecule targeted therapeutics technologies, small nucleic acid therapeutics technologies, and cell and gene therapy technologies. The core of the system is to provide regulatory exceptions or simplified approval procedures for license agreements and contract research, development, and manufacturing services that do not transfer ownership of the technology overseas, while prohibiting or requiring government approval for transactions that transfer ownership of core technologies themselves. Meanwhile, the United States appears likely to unveil a proposal to regulate biotech investment in China. At the end of last year, the Comprehensive Outbound Investment National Security Act, or COINS Act, was passed in the United States. The law primarily blocks outbound investment in AI, semiconductors, and quantum computing, while granting the Secretary of the Treasury the authority to add technologies subject to regulation at his or her discretion. After passage of that bill, the Biotechnology Investment National Security Act, or BINSA, was introduced in the U.S. Congress this year to include biotechnology, especially pharmaceutical and biopharmaceutical development, among the sectors subject to screening under outbound investment regulations. The follow-up bill designates U.S. pharmaceutical licensing agreements, joint ventures, and equity investments with China-related foreign persons as subject to review by the U.S. Department of the Treasury. Local interpretations suggest that U.S. restrictions on biotech investment in China could become stronger than initially expected. Against this backdrop of regulatory changes in China and the United States, South Korean pharmaceutical and biotech companies also appear likely to fall within the sphere of impact, as more domestic companies are collaborating with China. In October last year, GC Cell licensed in the CAR-T therapy “Fucaso” for the treatment of multiple myeloma from China’s IASO Bio, and applied for domestic product approval in February this year. Samsung Episholdings has established a new drug R&D center in Beijing and, through its subsidiary Samsung Bioepis, is jointly developing an antibody-drug conjugate (ADC) with China’s Frontline Biopharma. If a South Korean company conducted research in export-controlled areas through a Chinese corporation or research center, there is room for the results to be regarded as an overseas transfer of Chinese technology even if they are moved to the company’s headquarters in South Korea. In addition, as the Chinese government raises barriers to technology exports and makes procedures more stringent, Chinese companies could gain the upper hand in bargaining power over the long term. In that case, South Korean companies importing new drug candidate materials or technologies from China could face less favorable contract terms or higher in-licensing costs. When related details were leaked to the market in June, the Bioeconomy Research Center of the Korea Biotechnology Industry Organization analyzed that “overseas licensing models based on product licenses are generally expected not to be affected.” It added, “In the short term, multinational companies are highly likely to take a wait-and-see approach toward Chinese companies because of uncertainty over approval procedures, which will be a major burden on small and medium-sized biotech companies (in China) that already have weak bargaining power,” but also said that “there is also a view that intervention by the Chinese government could bring the effect of ‘national support’ to Chinese biotech companies in negotiations.” Whether South Korea will benefit, taking into account U.S. investment restrictions on China as well, remains to be seen. If the U.S. government’s final plan includes pharmaceutical licensing agreements among transactions subject to review, global pharmaceutical companies could shift their attention from China to new drug candidates in other countries. Jeong Yoon-taek, head of the Pharmaceutical Industry Strategy Research Institute, said, “It appears that China is responding to U.S. regulations by pushing back. While South Korea will face the burden of having to respond to changing rules in each country, it could emerge as an alternative technology cooperation partner due to restrictions on investment in China and other factors, so we need to make a comprehensive judgment and seek ways to secure gains.”