US biotech strategic technology offshoring: genetic engineering is the next programmable substrate

One-line summary: Jason Kelly (Ginkgo Bioworks CEO, former NSCDB chair) argues that genetic engineering is a dual-use strategic technology analogous to AI — and the US is actively offshoring the innovation frontier to China, with 1,100 R&D jobs lost in Massachusetts in 2024 and 1/3 of MA lab space empty.

The insight

The NSCDB (National Security Commission on Emerging Biotechnology — Kelly chaired it) followed the same model as the Eric Schmidt AI commission that preceded it: identify a technology with military and economic strategic importance, ensure the US holds the frontier. Kelly's frame:

• Genetic engineering is not just therapeutics. DNA is a second programmable substrate alongside silicon. Agricultural biotech, industrial enzymes, biosecurity threats, national-defense applications — all downstream of the same cell-engineering capability base. Treating it as just "protein therapeutics" is dangerously narrow.
• The market structure makes the US the lever. US consumers pay 70% of global drug profits despite being 4% of the world's population. This is not a free market — it's a US-controlled market. The rules the US sets for drug access determine the economics of the global industry.
• The US is currently paying for Chinese capability building. US pharma is going direct to China to license drugs, US investors are funding Chinese biotech, and the innovation jobs are following. The US consumer pays for all the R&D that's building China's biotech capability.

The chain

US pharma bypasses US biotech → licenses drugs direct from China → discovery scientists lose jobs in US → R&D moves to China → genetic engineering frontier migrates offshore → strategic technology and dual-use capability in adversary hands.

Analog: this is what the AI commission worried about with semiconductors and software — except biotech has both economic and biosecurity dimensions.

Evidence

• jason-kelly in 2026-05-29-podcast-biotech-hangout-episode-184-may-29-2026 (genetic engineering as strategic programmable substrate): "I believe we are very much at the infancy of biotech...the engineering of a cell, the designing of DNA, this is our other sort of programmable substrate alongside computers. And we should not assume the only use of this technology is to make protein therapeutics...it is very clearly a technology that has dual use. Very clearly a strategic technology."
• jason-kelly in 2026-05-29-podcast-biotech-hangout-episode-184-may-29-2026 (US jobs and lab space): "I'm watching us offshore that to China and I'm watching us actively US investors, US pharmaceutical companies supporting the offshoring of what I consider to be strategic technology that will ultimately be more important than computers...we saw a decrease of 1100 R&D jobs in 2024. These are like US scientists who cannot get work anymore in the biopharma industry because that work is now happening in China. We have one third of our lab space here in the Massachusetts area empty right now."
• jason-kelly in 2026-05-29-podcast-biotech-hangout-episode-184-may-29-2026 (US market control argument): "70% of the profits for therapeutics originate with US consumers who make up 4% of the world's population...When you are 70% of the market, you can set the rules. And there isn't some weaselly way to get around that."
• From 2026-05-29-podcast-biotech-hangout-episode-184-may-29-2026 (Chris Garabedian articulating the bear case on restrictions): "the bigger risk is that Pharma bypasses US Biotech and goes straight to China to do the deals that GSK has done with Hangro and BMS has done and Pfizer's doing... that is a bigger threat where they don't need US Biotech." Kelly explicitly agreed: "That is exactly what I'm talking about."
• From 2026-05-29-podcast-biotech-hangout-episode-184-may-29-2026 (ASCO 2026 context, Endpoints sentiment index): Biotech sentiment index at 96 (vs 100 neutral baseline); investment/finance subgroup at 120 — the finance community is bullish even as the underlying innovation base is contracting. Bullish market sentiment may be masking structural deterioration.
• From 2026-05-29-podcast-biotech-hangout-episode-184-may-29-2026 (FDA regulatory tailwind): FDA Commissioner Makary out; interim Kyle Diamantis (Trump-adjacent, under Scott Gottlieb previously). Multiple CRL-rejected companies getting second chances — Reflimunoff announcing BLA resubmission for melanoma; Outlook resubmitting for bevacizumab/ophthalmology (FDA apparently guaranteed approval if manufacturing is okay); Dyne Therapeutics submitted BLA for next-gen Exon skipper. Regulatory environment shifting more permissive for US biotech at the margin.
• From 2026-05-30-autoresearch-regulatory-antitrust-tech-biotech-utilities (FDA acting leadership vacuum): Makary resigned May 12, 2026. Three top FDA positions (including drug review and regulation leadership) now held by "acting" officials with 210-day statutory time limits — further turnover likely before permanent appointments. Earlier departures: Peter Marks (biologics) and Richard Pazdur (oncology) — significant institutional knowledge loss in the review pipeline. User fee reauthorizations at risk: PDUFA, biologics, devices, biosimilars, and generics all expire September 30, 2027; acting leadership creates negotiation uncertainty with Congress. Drug developers with 2026 Q2–Q3 NDA/BLA submissions face higher variance — particularly smaller biotechs.
• From 2026-05-29-podcast-biotech-hangout-episode-184-may-29-2026 (Lilly vaccine acquisitions, $3.8B total): Eli Lilly bought three vaccine companies in one day — Curvo (shingles vaccine, $1.5B), Vaccine Company (EBV vaccine, $1.55B), Limatech (Staph aureus, $780M). Peter Marks (ex-FDA vaccines chief) already hired by Lilly. Lilly is building a domestic vaccine franchise at scale — the most capital-intensive way to stay ahead of a potentially Chinese-competitive vaccine market.
• From 2026-05-29-podcast-biotech-hangout-episode-184-may-29-2026 (Apogee Blackstone $1.3B non-dilutive): Apogee Therapeutics raised $1.3B in a non-dilutive synthetic royalty ($800M) + senior debt ($500M) structure from Blackstone Life Sciences, concurrent with positive Phase 2 data for atopic dermatitis antibody. Blackstone is becoming an active non-dilutive capital provider; this may signal that late-stage biotech can avoid equity dilution in the current market.
• From 2026-05-29-podcast-biotech-hangout-episode-184-may-29-2026 (Revolution Medicines ASCO Phase 3 — RVMD): Diraxonrasib (Pan-RAS inhibitor) Phase 3 Resolute-302 data at ASCO 2026: 13.2 months OS vs 6.7 months OS (standard chemo) in second-line pancreatic cancer — near-doubling of survival. Former Senator Ben Sasse treated with Diraxonrasib publicly. First commercial-scale Pan-RAS inhibitor result in a high-unmet-need oncology indication.

Why it matters to stock-market

• Policy asymmetry risk. If the COINS Act or equivalent legislation passes, it creates a structural headwind for drugs licensed from China and a tailwind for domestic US biotech. The US consumer = 70% of drug profits = US sets the rules is the thesis for why this is enforceable.
• Sector rotation signal. The 1,100 MA jobs lost + 1/3 lab space empty is evidence of a current structural contraction in US biotech employment, not just a cyclical downturn. If the policy pendulum swings (COINS Act / industrial policy), this reverses. If it doesn't, the contraction continues.
• Lilly vaccine build-out: LLY is assembling a standalone domestic vaccine business ($3.8B acquisitions in one day); the Peter Marks hire suggests intent to accelerate FDA approval timelines from the inside. Not currently in suggested-tickers but worth monitoring.
• Near-term sector catalyst: RVMD Diraxonrasib ASCO data (May 2026 plenary) is a potential re-rating event for the Pan-RAS inhibitor class and for clinical-stage oncology more broadly.

2026-06-10 update — practitioner counter: COINS-Act-style capital restrictions may gift advantage abroad; separate manufacturing-security from innovation flows

From 2026-06-09-podcast-biotech-hangout-episode-185-june-5-2026 (Biotech Hangout roundtable) — operators push back on the naive decoupling read:

• tess-cameron: "If I'm a European investor… put that coins act in. That's great. Because… my deals with China biotech are going to become that much cheaper, right?" — restricting US capital into Chinese biotech hands a relative cost advantage to European/non-US acquirers, undercutting the stated goal.
• tess-cameron: "There are actual valid security concerns… manufacturing. That is an absolutely valid concern… we kind of separate out physical supply chains for manufacturing of drug product versus the innovator supply chain which is more around ideas and molecules." — the tradeable distinction: manufacturing/CDMO security (real, glp1-injectable-supply-chain-bottleneck's domain — WST/STVN) is separable from innovation-capital flows (restricting them is counterproductive).
• sam-facelli: "There's no reason why Chinese innovation is going to be any worse. They lead already in material science and chemistry by far in terms of share of new ideas." — China-innovation parity raises the risk that capital-protectionism forfeits access rather than protecting it.

Net: nuances the offshoring thesis from "decouple → US producers win" toward "manufacturing-security (CDMO) is the tradeable leg; innovation restriction may backfire." Conviction held low-medium; the cleaner trade is the CDMO/manufacturing-onshoring leg, not broad XBI protectionism.

2026-07-17 update — "China is a red herring for commodification"; and the US market-control lever restated from the operator side

From 2026-07-17-podcast-biotech-hangout-episode-189-july-17-2026, on BioCentury's report that ~40% of new drug codes originating from China are now first-in-class (a departure from prior years):

• matt-gline: "I think that China is a little bit of a smoke train or a red herring for other dynamics that are changing pretty quickly on the technology side around the commodification of antibody development, around certain kinds of even small molecule chemistry, either with or without AI getting easier and more reproducible. And about that stuff getting pushed to places that can do it cheaper... obviously China, the current leader there... if we closed off innovation from China, I think would just happen somewhere else." — reframes the forcing function from geographic (China) to technological (drug discovery is commoditizing), which weakens the "restrict China → protect US frontier" leg the same way tess-cameron's European-arbitrage point did: if the capability is commoditizing globally, closing off one node just re-routes it.
• matt-gline restates Kelly's US-market-control lever from the operator seat: "what does everyone who invents a new drug anywhere in the world want for that drug? They want it to be studied in late stage trials in the US and approved for use here... a lot of that has to do with our high pricing for drugs. But nonetheless it means that innovation around the world winds up benefiting us." — corroborates the "US sets the rules because it is the market" claim (jason-kelly's 70%-of-profits argument) independently, and adds that the pricing that funds it is the same pricing under policy attack elsewhere in the book (german-drug-pricing-to-section-301-retaliation, pbm-profit-pool-migration).
• john-maraganore concurs the data-quality caveat persists ("still gaps in quality of data from different groups... a bit of a wild west"), but agrees the phase-three US trial "is going to be the answer that goes on the label" — so the reliability discount is real but bounded by the US regulatory gate.

Net: a second, independent panel reframes the thesis's central mechanism from "China-specific offshoring" to "global commoditization of discovery, of which China is merely the current low-cost node." This further undercuts broad China-protectionism as the trade and reinforces the earlier conclusion that the tradeable leg is manufacturing/CDMO security, not innovation-flow restriction. Conviction held low-medium.

Names and exposures

Contradictions / tensions

• Chris Garabedian's counter-argument: The COINS Act may be overly restrictive — most Chinese-licensed drugs are legitimate therapeutic advances, not strategic military threats. Restricting access hurts US patients. Kelly's response: the issue is not the drugs, it's who builds the underlying engineering capability.
• "Euro-washing" concern: Peter Kolchinsky/RA Capital argue multinationals will route through European subsidiaries to bypass US restrictions. Kelly's counter: the US is 70% of the market — you can't sell drugs in the US market without complying, regardless of corporate domicile.
• Biotech sentiment vs. structural contraction: The finance/investment community is bullish (Endpoints index 120 for investors) while the underlying innovation base (jobs, lab space) is contracting. These two signals are inconsistent — either the finance community is early on a recovery thesis, or it's mispricing a structural decline.
• FDA tailwind timing: Kyle Diamantis is interim, not confirmed. The more permissive posture on CRL reversals could be short-lived if a Maha-aligned permanent commissioner is appointed.

What would weaken this thesis

• COINS Act fails or is substantially watered down — policy tailwind doesn't materialize.
• US biotech industry demonstrates it can compete directly with Chinese CROs on cost/speed without government protection.
• FDA becomes more restrictive again under a new permanent commissioner, erasing the regulatory tailwind.

Valuation snapshot

Last refreshed 2026-07-20 (pre-open; marks are the Friday 2026-07-17 close, markets closed over the weekend). Price fills tagged twelvedata. Mkt cap / Fwd P/E are not in the Twelve Data free tier and were not re-sourced this run (this is not a name where the fundamental moves the read).

Forward-looking outcomes (12-month)

Bull case — COINS Act passes with material restriction on Chinese CRO competition; FDA maintains permissive interim posture under permanent commissioner; US biotech investment recovers to pre-2022 levels: XBI re-rates toward ATH; sector capital returns. Implied price: XBI +20–35% from current. Cited: 2026-05-30-podcast-odd-lots-biotech-is-booming-but-its-infrastructure-is-collapsing.

Base case — COINS Act stalls or passes in weakened form; FDA posture holds under interim commissioner; US biotech continues slow recovery: XBI grinds +5–15%; thesis intact but low-velocity. Cited: 2026-05-30-podcast-odd-lots-biotech-is-booming-but-its-infrastructure-is-collapsing.

Bear case — COINS Act fails or is vetoed; permanent FDA commissioner turns restrictive; Chinese CROs continue dominating clinical-trial services at lower cost: sector sentiment drags XBI back toward prior lows. Implied price: XBI -10–20%. Cited: us-biotech-strategic-technology-offshoring.md (contradictions section).

Currently undervalued vs base case? No — downgraded from "Marginal," on the wiki's own evidence rather than on price. XBI at −8.3% from its 52w high is barely off the highs, and the base case here (+5–15%) is the weakest risk/reward in the book. More importantly, the 2026-06-10 practitioner counter above argues the expression is wrong, not just the entry: tess-cameron in 2026-06-09-podcast-biotech-hangout-episode-185-june-5-2026 separates the two legs — "There are actual valid security concerns… manufacturing. That is an absolutely valid concern… we kind of separate out physical supply chains for manufacturing of drug product versus the innovator supply chain which is more around ideas and molecules" — and on the innovation leg, restricting US capital may gift the advantage abroad: "If I'm a European investor… put that coins act in. That's great. Because… my deals with China biotech are going to become that much cheaper." Broad XBI protectionism is the leg that may backfire; the CDMO/manufacturing-onshoring leg is the tradeable one (see glp1-injectable-supply-chain-bottleneck — WST/STVN). Conviction held low-medium. If expressed at all, a small satellite — not a core position, and not via XBI at these levels.

Catalyst path:

• COINS Act legislative calendar (2H 2026): bill vote timeline
• FDA permanent commissioner nomination: posture signal
• XBI component earnings (Moderna, BioNTech, etc.): macro backdrop for sector

Related

• us-critical-mineral-independence — analog: same China-strategic-technology pattern, minerals vs. biotech
• us-industrial-policy-tariff-shield — the industrial policy backdrop
• defense-industrial-base-magazine-depth — same NSCDB-adjacent national-security lens, different technology base