Biopharma: The Next National Security Frontier

Cybersecurity, weapons manufacturing, and artificial intelligence have long been deemed critical to national security. In a post-COVID-19 world, however, biopharma companies may become far more integral to our nation’s safety.

Background

Recently, the process that reviews foreign investments in the United States for national security purposes underwent a major overhaul. In 2018, the Foreign Investment Risk Review Modernization Act (FIRRMA) significantly expanded the powers of the Committee on Foreign Investment in the United States (CFIUS).

CFIUS is an interagency committee established in 1975 to review transactions involving foreign investors to determine the effect of such deals on U.S. national security. For instance, in 2016, the Obama administration blocked the purchase by a Chinese entity of the U.S. assets of a German semiconductor company. In 2019, a Chinese gaming company was forced to sell Grindr given concerns with its access to user information.

Until last year, CFIUS review was limited to transactions where “control” of a U.S. business was acquired and, to date, the majority of transactions scrutinized have involved Chinese actors investing in technology companies. Amongst other reforms, FIRRMA greatly expanded CFIUS’ jurisdiction to include non-controlling investments and review is now mandatory when so-called critical technologies and infrastructure are at stake.

In the CFIUS context, critical technologies have traditionally included export control items, nuclear equipment, semiconductors, robotics, and cybersecurity. In the wake of FIRRMA, many predicted that scrutiny would expand to other industries, and, already, foreign investments in biopharma, particularly by Chinese investors, have already cooled.

Biopharma’s Growing Role in National Security

In a post-COVID-19 world, it is clear that biopharma companies are going to be at the forefront of our national security. Here is a small sampling of how these companies are helping lead the fight against the novel coronavirus:

  • CEOs from seven pharmaceutical companies, each of which is working on antiviral drugs and a potential vaccine, met with President Donald Trump on March 2 to discuss their efforts.
  • Massachusetts-based Thermo Fisher Scientific received an emergency use authorization from the Food and Drug Administration (FDA) for its diagnostic tests.
  • The German company Qiagen developed a test kit that can process results within an hour and has been ramping up production of RNA extraction kits for use in detecting the virus, which are in critically short supply.
  • Yet another German company, CureVac, was in the news recently when it was reported that Trump had sought to secure the exclusive rights to their vaccine R&D efforts. The company denied this happened.

When scientific research seems far more relevant to combatting modern threats than traditional military spending, it is no surprise that many are considering traditional defense spending less of a priority.

Foreign Investment Review in the COVID Era

The biopharma industry has so far managed to remain relatively below the radar in terms of CFIUS review. COVID-19 will change that. Scientific research is far more likely to be deemed a critical “technology” in a pandemic and transactions that involve biopharma companies will be much more heavily scrutinized moving forward.

And this phenomenon won’t be one-directional. Other countries are increasingly developing foreign investment regimes of their own. The European Commission recently implemented foreign investment screenings — though they are non-binding on member States unless they relate to “[European Union] interests” like satellites. As of 2017, Russia can review foreign investments, if necessary, to ensure national defense and state security. Since 2018, investments in France in certain critical fields require government approval. In 2018, the German government reduced the threshold for mandatory review of certain investments related to national security from 25 percent to 10 percent. Finally, the United Kingdom has also been considering similar laws in recent years.

Ironically, China, which has long had stringent foreign investment rules, just passed a law on Jan. 1 relaxing requirements that foreign companies transfer valuable trade secrets before being able to do business in the country. It remains to be seen how this new law will be implemented in the COVID-19 context.

The more the United States scrutinizes biopharma transactions moving forward, the more foreign regimes will too. While some welcome the added scrutiny from a national security standpoint, this may also result in fewer foreign investments in U.S. biopharma companies and less cross-border sharing of scientific advances – the opposite of what is needed to combat a global pandemic that respects no national boundaries.

The views expressed in this post are the author’s own and do not reflect the views of her employer.

Image: Three potential coronavirus, COVID-19, vaccines are kept in a tray at Novavax labs in Rockville, Maryland on March 20, 2020, one of the labs developing a vaccine for the coronavirus, COVID-19. Photo by ANDREW CABALLERO-REYNOLDS/AFP via Getty Images

 

About the Author(s)

Jeanne-Paloma Zelmati

Attorney in Washington, DC; previously a research associate for the President Emeritus of the Council on Foreign Relations. - Follow her on Twitter (@JPZelmati).