South Korean biotech companies seek to diversify from China as US tensions rise

South Korean biotech companies are working to diversify from China in anticipation that the US could tighten export restrictions on the sector to bolster its domestic industry and curb Chinese growth.

The Biden administration has identified biotechnology and biomanufacturing as strategic industries and is expected to introduce more specific measures within months.

The concerns in South Korea over one of its most important sectors for growth also highlight the collateral damage for third countries from rising tension between the US and China over supply chains and technology.

“We’re trying to reduce our reliance on cheaper raw material imports from countries like China and develop more domestic materials to secure supply chain stability as the US-China conflict intensifies,” said a spokesman for the Korea Pharmaceutical and Bio-Pharma Manufacturers Association.

The US has been increasing the number of export controls on China. Last year, Washington introduced expansive chip export restrictions in an effort to slow its technological progress. Japan and the Netherlands have also restricted China’s access to cutting-edge technology.

Washington is seeking to reduce US reliance on China for new medicines and products. In September, the White House issued two executive orders directing US government agencies to identify actions to “mitigate risks posed by foreign adversary involvement” in biomanufacturing supply chains and to enhance biosecurity in domestic infrastructure.

Executives at South Korea’s top biotech companies — Samsung Biologics, SK Bioscience and Celltrion — are increasingly concerned about the potential fallout from Washington’s policies.

“I am afraid that our products produced here could face higher tariffs in the US or be excluded from potential tax credits,” said an executive at one of the country’s leading biotech groups.

Industry executives and analysts in the US suggest the policy shift will result in closer scrutiny of foreign transactions and could affect investment flows to companies that rely on China for parts of their supply chain.

“From the White House’s point of view, these executive orders are very China-focused,” said John Murphy, chief policy officer at Biotechnology Innovation Organization, a lobby group representing biotech companies in the US and more than 30 other countries.

“The concern we have is that Chinese investment is very widespread. How critically will US authorities look at a South Korean conglomerate’s proposed investment in the US if there is any Chinese money in that venture?”

Gibson Dunn, a US law firm, warned clients that it expected the number of foreign investment transactions reviewed by US authorities to grow following the executive orders.

In March, the US added several units of BGI Group, a Chinese genetic sequencing company, to its entity list restricting technology transfer, saying that BGI’s programme of “collection and analysis of genetic data present a significant risk of diversion to China’s military”.

In response to the rising tension between the US and China, South Korean chip companies Samsung Electronics and SK Hynix, along with automakers and battery producers, are expanding their North American operations.

The country’s pharmaceutical companies have recently stepped up efforts to expand their overseas presence through acquisitions of US peers.

The Korean groups have been producing Covid-19 vaccines and other drugs for multinational companies, including AstraZeneca and Moderna. Korean biotech groups also manufacture copycat drugs called biosimilars, designed to compete against expensive, branded biological drugs.

Samsung Biologics, the world’s largest contract drugmaker, has opened sales offices in Boston and New Jersey and is seeking to build plants in the US and Europe to be closer to its main customers.