On June 30, 2020, United States Senators Elizabeth Warren (D-Mass.) and Marco Rubio (R-Fla.) introduced legislation proposing the Committee on Foreign Investment in the United States (CFIUS), an interagency committee authorized to review certain transactions involving foreign investment in the United States for national security concerns, assist the Federal Trade Commission (FTC) in “conduct[ing] a study on the United States’ overreliance on foreign countries and the impact of foreign direct investment in the U.S. pharmaceutical industry.” In the last decade, CFIUS reviewed a number of mergers and acquisitions in the healthcare industry that resulted in a foreign person obtaining control of a U.S. pharmaceutical supplier, among other pharma entities. More recently, CFIUS jurisdiction was expanded to include not only the review of transactions that result in foreign control of a U.S. business, but also certain non-controlling foreign investments as well, including investments in biotech and companies working with genetic information of U.S. citizens.
The United States Pharmaceutical Supply Chain Review Act (full text available here), comes on the heels of another bipartisan initiative sponsored by Senators Rubio and Warren earlier this year, the Strengthening America’s Supply Chain Act and National Security Act, which focuses on combating U.S. supply chain dependence on Chinese medical supplies. Both Acts build on Senator Rubio’s plan to protect U.S. business interests from what he describes as China’s quest for “global dominance” through China’s government-backed manufacturing and innovation initiative, Made in China 2025. In a broader context, these bipartisan Acts are consistent with the U.S. Government and CFIUS’s continued focus on China-related transactions as well as those involving other foreign parties, with particular emphasis on transactions impacting U.S. critical infrastructure (see, e.g., May 1, 2020 Executive Order on Securing the United States Bulk-Power System).
In this case, the United States Pharmaceutical Supply Chain Review Act would require the FTC and the Secretary of the Treasury, acting through CFIUS, to provide Congress with a report on the following:
- An assessment of: (A) the supply chain of the pharmaceutical industry of the United States and the effect of concentration and reliance on foreign manufacturing within that industry; (B) the effect of foreign investment in the pharmaceutical industry of the United States on domestic capacity to produce drugs and active and inactive ingredients of drugs; and (C) the effect of foreign investment in technologies or other products for sequencing or storage of DNA, including genome and exome analysis, in the United States, including the effect of such investment on the capacity to sequence or store DNA in the United States.
- The number of reviews and investigations conducted by the Committee, in each of the 10 fiscal years preceding the year in which the study is conducted, with respect to covered transactions (as defined in section 721(a) of the Defense Production Act of 1950 (50 U.S.C. 4565(a))—(A) in the pharmaceutical industry of the United States; or (B) relating to the sequencing or storage of DNA in the United States.
- A short description of each such review or investigation, including whether the transaction was approved or prohibited. See United States Pharmaceutical Supply Chain Review Act.
The Act intends to leverage certain CFIUS data in order to increase transparency and identify vulnerabilities in the U.S. pharmaceutical supply chain. As a practical matter, however, the utility of such data may be limited. For example, most CFIUS reviews related to U.S. pharmaceuticals in the last ten years arose from parties who voluntarily notified CFIUS of the transaction. Any data provided by CFIUS pursuant to the Act would not capture unreported (i.e., ‘non-notified’) transactions that avoided CFIUS review and therefore the proposed report may not be indicative of overall investment or industry trends. In addition, the Act directs CFIUS to provide “a short description of each such review or investigation, including whether the transaction was approved or prohibited” but does not address whether the report to Congress would be classified. CFIUS is generally bound by statute to maintain strict confidentiality of such information and ordinarily would not be authorized to release transaction details or results publicly.
Notwithstanding those practical limitations, the Act reflects an intensifying scrutiny by U.S. government on the role foreign parties serve in the domestic healthcare industry, particularly after COVID-19 illuminated vulnerabilities in the domestic medical supply chain capacity. For example, earlier this year, formerly reliable trade partners such as India significantly restricted exports of certain critical active pharmaceutical ingredients (APIs), the requisite components used in generic drugs. Similarly, as recently as May, as U.S. health care workers faced a dire shortage of personal protective equipment (PPE), the Food and Drug Administration (FDA) banned 65 of the 80 authorized manufacturers for N95-style face masks that were later determined to be ineffective at blocking COVID-19. With respect to pharmaceuticals, the global pandemic has left legislators, medical professionals, and policy analysts alike struggling to protect Americans’ access to critical drugs (including those to assist COVID-19 patients), as an estimated 80 percent of APIs are imported from abroad.
If signed into law, the U.S. Pharmaceutical Supply Chain Review Act would provide critical data on medical supply trade patterns as well as domestic manufacturing capacity. The Act may also prompt legislation requiring significant changes to upstream and downstream supply chains of U.S. pharmaceutical companies importing APIs.