Middletown pharma campus developer may get blacklisted

Why Should Delaware Care?
The WuXi STA Pharma campus in Middletown has been hailed as a major economic development win for Delaware and it was backed by the largest taxpayer-backed grant of the Carney administration. Now concerns from Congress over its alleged ties to the Chinese government could essentially prevent it from doing business with American companies.

Three years ago, the Carney administration was celebrating the arrival of a Chinese pharmaceutical manufacturer that had plans to invest $510 million in a massive campus in Middletown that would employ hundreds.

Today, that project is teetering on the brink after Congress has advanced legislation that would effectively ban American companies from working with the company, WuXi STA Pharma, over concerns of its ties to the Chinese Communist Party (CCP).

It’s a bizarre turn of events that has pitted local economic development efforts against geopolitical concerns complete with secret Congressional briefings and a heated industry debate. Delaware’s state government, which approved a $19 million taxpayer-backed grant for the project, is also at odds with its federal delegation, which hasn’t opposed the Congressional bill to date.

Chinese ties start inquiry

A year ago, the U.S. House of Representatives established a specially organized bipartisan committee, known as the House Select Committee on the CCP, to examine the economic and national security threats imposed by the Chinese government.

Through its first year, it helped to push a ban or sale of the social media platform TikTok, expose the forced labor concerns in low-cost, e-commerce companies Shein and Temu, and argued for the revoking of tariff breaks on a variety of Chinese products.

In January, the committee’s leaders introduced the BIOSECURE Act, which aims to prohibit federal contracting with certain biotechnology providers connected to foreign adversaries. The bill expressly names five companies: BGI, MGI, Complete Genomics, WuXi Biologics and WuXi AppTec, the parent company of WuXi STA Pharma which also has a large presence on Philadelphia’s Navy Yard campus.

The bill claims that WuXi AppTec “presents a national security threat to the United States” because it has sponsored events featuring military and civil leaders, received investments from a military-linked fund, granted awards to military researchers and features a former military academy professor among its executives.

Due to those ties, the proponents are seeking to prohibit the federal government from doing business with WuXi AppTec, as well as any of its subsidiaries to include STA Pharma, and also prohibit contracting and loan or grant approvals to companies that use WuXi’s products or services. As one of the world’s biggest contract research, development and manufacturing organizations (CRDMO), WuXi has worked with scores of companies ranging from pharma giants like AstraZeneca, Pfizer and GSK to startups like Iovance Pharmaceuticals, and even U.S. government researchers.

Meanwhile, WuXi AppTec has adamantly denied the accusations by the House select committee and said the company “does not pose a national security risk to any country.”

“We strongly object to any unjustified allegations or preemptive actions against WuXi AppTec without due process, including the proposed designation in the BIOSECURE Act. We operate in a highly regulated industry and fully comply with the strict reporting, oversight and inspection requirements of our customers and multiple U.S. government agencies,” a company spokesman told Spotlight Delaware. “We continue to provide lawmakers and federal agencies with the facts about our company and the valued services we provide in the U.S. and around the world. We trust these facts will prevail, and look forward to creating jobs in Delaware, supporting customers in the tri-state area, and contributing to the region’s economic growth.”

House advances BIOSECURE

The BIOSECURE Act spent most of the spring and summer advancing through committee hearings before a Sept. 9 vote by the entire House of Representatives.

It passed with a widely bipartisan margin of 306-81, but Rep. Lisa Blunt Rochester (D-Del.) did not vote on the bill. A spokesperson declined to explain her non-vote, and referred to a quote from April that the congresswoman “will thoroughly evaluate any bills that defend our nation’s interest and national security.”

Michael Sobolik, a senior fellow at the conservative think tank American Foreign Policy who studies U.S.-China relations and has been tracking the BIOSECURE Act, told Spotlight Delaware that Blunt Rochester’s non-vote on the issue “spoke volumes” to him about the arguments at the core of the proposal.

Although Delaware’s congresswoman did not weigh in on the bill, Rep. Jim McGovern (D-Mass.), who’s Boston-area district is also home to a WuXi site, gave a spirited defense of the named companies, questioning whether it was prudent for Congress to single out companies in legislation and why the reasons for the blacklisting weren’t made publicly.

“I have no problem with holding anybody accountable. I would just like a process that has integrity,” he said. “I can’t get a clear answer from anyone on how the Select Committee came up with these names. What was the process? Were these companies brought in for questioning? Again, no solid answers to why these companies and not others. If we’re going to name companies, there ought to be a clear, transparent project that is implemented, the same for all companies.”

Rep. James Comer (R-Ky.), the chair of the House Oversight & Accountability Committee, said “the companies named in this legislation create significant risk to U.S. national security.”

“WuXi, through its two subsidiaries named in the bill, operates genetic testing centers established in coordination with the CCP and helps carry out research to promote the Chinese military and has reportedly stolen U.S. firms intellectual property,” he added, without providing further details.

Sobolik said that he wasn’t surprised the bill passed the House.

Noting that he was “really disappointed” with McGovern’s position, considering he also championed the Uyghur Forced Labor Prevention Act in 2021 to protect China’s most vulnerable minority population, Sobolik said the concern on Capitol Hill was whether he would be able to sway more votes.

“As it turned out, no, not really, which I think speaks to I think it speaks not only to the temperature of China issues in D.C. and Capitol Hill, but I think it also speaks to the fact that the members who were shepherding this bill through the House did a really good job of briefing their colleagues about it,” he added.

It’s still possible that the bill dies in a Congress distracted by the upcoming election or that the U.S. Senate votes it down, but Sobolik said that his conversations on Capitol Hill indicate that Senate leaders are keen to add the BIOSECURE Act as an amendment to the annual National Defense Authorization Act (NDAA) before the end of this year. It’s a belief shared by mega law firm Foley & Lardner LLP, which alerted clients to the House passage of the bill.

“The fact that the Senate support appears to be pretty bipartisan – there’s already committee votes on record in support of this bill on the Senate side – indicates at least right now that the probability of it passing later this year is fairly good,” Sobolik said.

What would happen in Delaware?

If the BIOSECURE Act does pass this year, it would likely end WuXi’s pursuit of the site in Middletown.

An amendment to the bill opens a seven-year window for current contracted clients of WuXi to find other manufacturers for their drugs, which effectively ends any ability for the Chinese-headquartered company to grow new business.

WuXi AppTec has already suffered a 9% year-over-year revenue loss over the first three quarters of 2024 from U.S. customers. And its STA Pharma subsidiary is reliant on the U.S. market, with 67% of its revenue coming from North America, according to an investor presentation.

Earlier this month, the Financial Times reported that WuXi has quietly begun shopping some of its major segments and sites in the U.S. and Europe, including at the Philadelphia Navy Yard.

It’s possible that WuXi could also look to sell the Middletown site, which is properly zoned, permitted and already under construction for a manufacturing facility, to another major pharmaceutical manufacturer.

However, the site is also still largely a shell of a building that is far from completion and has no equipment yet installed. That means it is still possible to convert it to another use, allowing WuXi or another tenant to avoid costly renovations.

If WuXi does sell the site, the $19 million Strategic Fund grant cannot be transferred without approval from state officials, according to a spokeswoman from the Delaware Division of Small Business, which manages the economic development fund.

Those grant funds are reimbursable only after the recipient reaches milestones in site construction or job hiring. To date, WuXi has reportedly received $3.6 million of the $19 million grant.

Michael Fleming, the president of the Delaware BioScience Association, an industry association that supports and lobbies for the biotechnology and pharmaceutical sectors, said he remains hopeful that the Middletown site will reach its original vision.

“We’re very supportive of new manufacturing roles here in the state of Delaware, and we think Delaware has a competitive advantage. We’ve got a really strong heritage as an advanced manufacturing leader,” he said, highlighting local plants run by AstraZeneca, Agilent and Siemens Healthcare as well as the presence of the National Institute for Innovation in Manufacturing Biopharmaceuticals at the University of Delaware.

“We are focused on making sure that we’ve got a workforce to meet the needs and to continue to bring in more of those opportunities. So whether or not the project continues as originally designed, we think there’s a great future ahead still for advanced and pharma manufacturing Delaware,” Fleming added.

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