By Michael Martina, Michael Erman and Karen Freifeld
(Reuters) -U.S. intelligence officials in late February told senators working on a biotech security bill that Chinese pharmaceutical firm WuXi AppTec had transferred U.S. intellectual property to Beijing without consent, according to two sources.
The U.S. government is concerned that certain Chinese biotech companies are contributing technology or research and development for use by China's military, and the proposed legislation would restrict U.S. government funds going to those Chinese companies.
The classified briefing to about a dozen senators was led by the FBI, the State Department and the Office of the Director of National Intelligence. Those officials said that WuXi AppTec and other Chinese entities had engaged in activity in the U.S. contrary to U.S. national security interests, the sources said on condition of anonymity.
Among the agencies' concerns was information reflected in recent intelligence reporting that WuXi AppTec transferred a U.S. client's intellectual property to Chinese authorities without consent, the two sources said.
The sources did not reveal the name of the client or the nature of the information due to the sensitivity of the classified material.
They declined to comment further on the briefing's contents.
A WuXi AppTec spokesperson said: "We are not aware of any unauthorized transfers by WuXi AppTec of any U.S. client's data or intellectual property to China. Safeguarding our customers' information is of the utmost importance to us, and we store it in keeping with their direction."
WuXi AppTec "respects and fully complies" with the requirements of U.S. federal and state authorities, the spokesperson said.
The FBI, the Office of the Director of National Intelligence and the State Department declined to comment.
China's embassy in Washington said Congress' claims that WuXi AppTec posed a national security threat were unwarranted.
"If anyone believes that WuXi AppTec or its related companies have violated laws regarding intellectual property rights, they should provide convincing evidence to support their claims," the embassy said.
After the Reuters story was published, Hong Kong listed Wuxi shares pared earlier gains of nearly 5% to trade 1% higher, while Shanghai-listed shares were up 0.4%.
The briefing came as the Senate's homeland security committee was considering the proposed Prohibiting Foreign Access to American Genetic Information Act of 2024 that could restrict business with Chinese biotech companies on national security grounds.
A committee aide for Democratic Senator Gary Peters, who heads the bipartisan homeland security committee, confirmed to Reuters that lawmakers received a recent briefing "to discuss the underlying biosecurity threats that the bill is trying to address so that members were well informed."
On March 6, the committee approved the legislation, which could be considered by the broader Senate. The offices of the other seven Democratic and seven Republican senators on the committee declined to comment or did not respond to Reuters about the briefing.
A similar bill introduced in the House alleged that WuXi AppTec and certain other Chinese companies have links to China's military, allegations the company has also rejected.
The Chinese companies have said the legislation contains false, misleading and unfounded allegations.
WuXi AppTec's services range from conducting research and development to making pharmaceutical raw materials and manufacturing drugs. Its customers include large pharmaceutical companies and small biotech firms.
About two-thirds of its sales last year came from the U.S. The company's revenue has more than quadrupled from 2018 to 40.3 billion yuan ($5.6 billion) in 2023.
News about the bills has driven WuXi AppTec's shares down about 36% in Shanghai and about 54% in Hong Kong this year.
'BIOSECURITY THREATS'
The February briefing occurred days before the U.S. Senate Committee on Homeland Security and Government Affairs voted to advance the proposed bill.
The Biotechnology Innovation Organization, which lobbies for companies in the sector, initially opposed the inclusion in the legislation of WuXi AppTec and others.
But by mid-March, under pressure from U.S. lawmakers, BIO reversed its opposition to the bill, citing U.S. national security, and said its member WuXi AppTec had ended its ties to the lobby group.
Around the same time as the briefing, the Biden administration unveiled an executive order barring genomic and other data transfers to China over national security concerns.
The Office of the Director of National Intelligence warned in its annual threat assessment in February that Beijing was trying to fast track its science and technology development through IP theft and other means for economic and military advantage.
BIO'S TURNABOUT
After the briefing, legislators or staff from both political parties told BIO that they had received concerning information about WuXi AppTec's relationship with the Chinese government, according to two additional sources.
The substance of that information was not conveyed, the sources said. But one of the people said U.S. lawmakers' concerns, as well as new direction from BIO's recently appointed chief executive, John Crowley, helped spur the group to part ways with WuXi AppTec.
BIO had backed the company as recently as February, when then BIO CEO Rachel King wrote a letter to the Senate homeland security committee urging it to reconsider the proposed legislation. A week after Crowley took over as CEO, BIO withdrew its support for WuXi AppTec and endorsed biosecurity legislation.
Crowley described BIO's turnabout to Reuters as "an evolution" and said the group wanted to work with lawmakers on legislation and to bring biomanufacturing back to the United States. The Senate committee's vote on the bill and public pressure from the sponsor of the House version, Representative Mike Gallagher, were among the factors behind the decision, Crowley said.
"We can't let China be the biotech center of excellence," he said.