Analysis

American scrutiny of foreign supply chains may have broader business implications

  • Americas
  • Creating a Resilient Organisation
American scrutiny of foreign supply chains may have broader business implications

John Lash, Principal and Natasha Moore, Consultant


Around the world, governments are increasing efforts to screen foreign investments by implementing legislation to protect their own national interests, particularly those which may impact national public health. Despite U.S. Congressional gridlock, concerns for opportunistic takeovers amidst the COVID-19 pandemic have fueled bipartisan support of stricter screenings of foreign supply chains that support the healthcare industry, whether through U.S. government contractors or private sector businesses.

On June 30, 2020, Senators Marco Rubio (R-Fla.) and Elizabeth Warren (D-Mass.) introduced the U.S. Pharmaceutical Supply Chain Review Act. Despite the proposal’s obvious focus, U.S. companies and foreign investors alike must take note of this key piece of legislation; if passed, opportunities for cross-border investment may permanently change how all U.S. businesses operate.

Ramifications from the proposed bill could reach beyond the pharmaceutical industry and include all U.S. companies deemed critical to national security. If passed, the bill will require the Federal Trade Commission, working in cooperation with the Committee on Foreign Investment in the United States (CFIUS), to conduct a study on foreign investment in the U.S. pharmaceutical industry, including a review of transactions that have been approved by CFIUS.

Within one year of enactment and annually thereafter, the bill would require the Federal Trade Commission and CFIUS to submit a report to appropriate congressional committees, the Secretary of Health and Human Services, and the Commissioner of Food and Drugs, that provides an assessment of: 

  1. the supply chain of the U.S. pharmaceutical industry and the effect of concentration and reliance on foreign manufacturing within that industry;
  2. the effect of foreign investment in the pharmaceutical industry on domestic capacity to produce drugs and active and inactive ingredients of drugs; and
  3. the effect of foreign investment in technologies or other products for sequencing or storage of DNA in the United States, including the effect of such investment on U.S. capacity to sequence or store DNA. 

Importantly, the reports required by the Act also must identify the number of CFIUS reviews and investigations in both the U.S. pharmaceutical as well as the DNA analysis industries that have been conducted in each of the previous 10 fiscal years. The report(s) must include a short description of each such review or investigation, including whether the transaction was approved or prohibited.

Questions about overreliance on China for critical medicines, personal protective equipment (PPE) and other supplies have surged as Americans faced widespread shortages in the midst of the coronavirus pandemic. If passed, the U.S. Pharmaceutical Supply Chain Review Act would not only evaluate prospective deals in the pharmaceutical industry and other critical U.S. industries, but also review any retroactively cleared foreign acquisitions and investments by CFIUS, especially those involving China. 

International investors and U.S. companies should bear in mind whether and to what extent their own value chain is dependent upon foreign supply chains, and follow the progress of this key piece of legislation when evaluating manufacturing, sourcing, or planned joint venture or investment activity. Importantly, even if not enacted, this bill could indicate a renewed congressional appetite for ever-increasing regulatory rigor and raising the potential of new statutory and regulatory obstacles for some foreign suppliers.

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