Trump Administration Increases Uncertainty for Pharmaceutical Manufacturing

Last week, President Trump issued an executive order aimed at encouraging the expansion American manufacturing of essential medical products — Executive Order on Ensuring Essential Medicines, Medical Countermeasures, and Critical Inputs Are Made in the United States (August 6, 2020) (the “Order”).  The Order sets forth an ambitious plan requiring extensive agency action on a tight timeline that suggests a significant impact.  Closer examination of the Order raises significant questions about the practicalities of implementation and the realistic impact of the Order once the substantial stated exceptions are taken into account.

The List

The heart of the Order is a list of Essential Medicines, Medical Countermeasures (“MCMs”), and Critical Inputs to which the Order’s requirements apply — but the key components of this list do not yet exist.  Instead, the Order directs the Food and Drug Administration (“FDA”) to produce the list within 90 days and to include on the list Essential Medicines, MCMs, and Critical Inputs “that are medically necessary to have available at all times in an amount adequate to serve patient needs and in the appropriate dosage forms.”

The Order provides the following definitions that give some insight into what may be on the FDA’s eventual list:

  • Essential Medicines” are medicines FDA and other agencies “deem necessary for the United States.”
  • Medical Countermeasures” are qualified countermeasures, qualified pandemic or epidemic products, and security countermeasures (as defined for PREP Act and related purposes) as well as certain OSHA-regulated personal protective equipment. This definition is quite broad and includes all FDA-authorized (both approved and authorized under an IND or EDU) drugs, devices, and biologics that are manufactured, used, developed, modified, licensed, or procured to diagnose, treat, prevent, mitigate, cure, or limit the harm caused by a pandemic or epidemic, or any products or technologies used to enhance the use or effect of such drugs, devices, or biologics.  It also includes HHS-determined priority drugs, devices, or biologics that are FDA-authorized or will be FDA-approved within 10 years, as determined by HHS.
  • Critical Inputs” include not only active pharmaceutical ingredients (“APIs”) but also raw or intermediate materials used in manufacturing an API, incorporated as a significant structural fragment into an API, or used as an API ingredient that the FDA “determines to be critical in assessing the safety and effectiveness” of an Essential Medicine or MCM.

The Restrictions

Following the release of the list of Essential Medicines, MCMs, and Critical Inputs, the Order directs several procurement and trade restrictions to come into effect, including:

  • Requiring agencies to limit competition in contracts to only Essential Medicines, MCMs, and Critical Inputs that are produced domestically.
  • Requiring the Department of Defense to, within 60 days, restrict procurement of Essential Medicines, MCMs, and Critical Inputs to domestic sources and reject other offers where considered necessary for national defense reasons.
  • Requiring the U.S. Trade Representative (“USTR”) to, within 30 days, modify U.S. Federal procurement product coverage under relevant Free Trade Agreements (“FTAs”) and the WTO Agreement on Government Procurement (“GPA”) to exclude coverage of the Essential Medicines, MCMs and Critical Inputs.

Under most U.S. FTAs and the WTO GPA, modifications are effectuated through negotiations with the other trade partners and all parties must generally agree to a modification before it may be implemented.  Although the USTR may initiate negotiations before the 30-day timeframe is up, it is not clear whether the USTR will be able to get agreement from all parties on coverage modification.

Similarly, the practicalities of obtaining only Essential Medicines, MCMs, and Critical Inputs that are produced domestically may be daunting, depending upon the scope of the FDA’s eventual list.  In particular, if the FDA’s list includes broad coverage of “Critical Inputs,” it may be challenging for many drug products to qualify, as Critical Inputs can extend up the manufacturing chain to even the raw materials used to create APIs.

The Exceptions

The Order ameliorates some of these issues through the inclusion of several broad exceptions, which have the capacity to cover many products the Government already procures — including MCMs to combat the COVID-19 epidemic.  These exceptions include:

  • Where the agency determines with respect to a specific contract that application would be “inconsistent with the public interest.”
  • Where the agency determines with respect to a specific contract that the relevant products are not produced in the U.S. in sufficient and reasonably available commercial quantities and of a satisfactory quality.
  • Where applying the requirements would increase procurement cost by over 25 percent.
  • Where the procurement is for items necessary to respond to public health emergencies or disasters declared under the Public Health Safety Act, the Stafford Act, or the National Emergencies Act.

For many products, onshoring manufacturing while maintaining high quality standards is likely to increase the price such that the 25 percent cost increase exemption applies.  Similarly, many products (including many pharmaceuticals or other MCMs) are simply not produced in the U.S. in sufficient and reasonably available commercial quantities and of a satisfactory quality.  As the Order defines “produced in the U.S.” to require domestic production of both the Critical Inputs and the finished product, an extensive list of Critical Inputs would yield a vanishing number of eligible products.  And the exception for procurement of items necessary to respond to a public health emergency, while necessary to avoid endangering public health, leaves a gap in the Order’s coverage — including the billions already appropriated by Congress for COVID response.

Other Actions

The Order also directs a range of other agency actions.  A few of the more notable of these include:

  • HHS must use its Defense Production Act authority to prioritize contracts for Essential Medicines, MCM, and Critical Inputs over performance of any other contracts or orders, and to use the allocation authority of such materials, services, and facilities as deemed necessary or appropriate to promote national defense.
  • EPA must identify requirements and guidance documents that can be “streamlined” and must accelerate siting and permitting approvals for relevant domestic manufacturing facilities.
  • FDA must, within 180 days, identify vulnerabilities in the supply chain for Essential Medicines, MCMs, and Critical Inputs, and mitigate these vulnerabilities through actions including proposing or cutting regulations or guidance documents.
  • FDA must also accelerate approval or clearance for producers of domestic Essential Medicines, MCMs, and Critical Inputs — though it is unclear how this may work in practice without putting other filings at risk.
  • Each year beginning December 15, 2021, the Office of Management and Budget (“OMB”) must collect from each agency information detailing procurement sources of Essential Medicine, MCMs, and Critical Inputs over the prior three years, which will be submitted to the President and made public.
  • OMB must also, within 90 days, review the authority of agencies to limit online procurement of Essential Medicines and MCMs to platforms that adopt a policy on combatting counterfeit and pirated goods.

Because the Order will require extensive executive action to carry out and has the potential to impact the entire medical industry, it may be subject to eventual challenges, including under the Administrative Procedure Act or through bid protests or other procurement-focused actions.  Ultimately, given the range of uncertainties surrounding the practical and legal realities of carrying out the Order, it may be no coincidence that the FDA’s critical list determining the Order’s ultimate scope is due on none other than November 4, 2020.