4:21 PM
 | 
Oct 10, 2018
 |  BC Extra  |  Politics & Policy

U.S. to scrutinize foreign biotech investments

The U.S. government will scrutinize foreign investments in biotech companies and block those it deems threats to national security under interim regulations released Wednesday.

Biotech is included among 27 “critical technology” areas included in a pilot program to extend the reach of the Committee of Foreign Investment in the United States (CFIUS), the Treasury Department announced in an interim rule.

The Foreign Investment Risk Review Modernization Act (FIRRMA), enacted in August, expanded the jurisdiction of CFIUS to include foreign minority equity investments in U.S. companies for national security concerns (see “Trump Signs Expanded CFIUS Jurisdiction Into Law”).

The statute did not spell out specific industries CFIUS would have oversight over, Stephen Mahinka, a partner at law firm Morgan Lewis, told BioCentury.

FIRRMA gave Treasury discretion to determine how to apply the law, including the ability to run pilot programs.

Treasury has decided to include a wide range of biotechnology R&D, as well as 26 other industrial sectors. The pilot will begin on Nov. 10. Treasury will not run its pilot beyond the implementation of the final FIRRMA regulations, slated for no later than February 2020.

The threshold for CFIUS to review, and potentially block, an investment has expanded to include non-controlling investments that give foreign investors access to material non-public technical information. Other criteria that trigger a CFIUS review include deals that give an investor membership or observer rights on a board, or participation in substantive decision-making, apart from voting of shares, for how to use, develop, acquire or release critical technology.

Previously, the president could only act through CFIUS to review mergers, acquisitions or takeovers by foreign investors resulting in controlling stakes.

The pilot will mandate that parties declare foreign transactions at least 45 days before the anticipated completion date, or face civil fines up to the transaction’s value. CFIUS, an interagency committee with authority to review foreign investments for national security concerns, will have 30 days to take action on each declared transaction.

The new rules will affect a wide variety of activities within biotech, Mahinka said. Aspects of biotech R&D covered under the expansion include vaccines, protein engineering, recombinant DNA, cloning and manufacturing of uncompounded medicinal chemicals and derivatives, such as enzyme proteins or antibiotics. CAR T therapies could be included.

The determination for what falls within the reach of CFIUS will not be modality dependent, rather dependent on whether compounds or biologics are “biotech-derived,” Mahinka added.

The expansion will give CFIUS and the U.S. government a chance to identify foreign investors in biotech, according to Mahinka. He anticipates an increasing number of CFIUS filings from such investments.

While FIRRMA does not single out individual countries, innovators and investors in China have been watching to see how biopharma is affected by the U.S. national security scrutiny of the Asian nation, particularly in the wake of the United States Trade Representative’s Section 301 report in March.

The Section 301 report included a review of Chinese acquisitions in seven sectors, including biotech. The review found that China engaged in practices that “undermine the ability of U.S technology companies to innovate and adapt, and threaten the long-term competitiveness of U.S. industry.”

In June, President Trump said he would direct his administration to implement the changes to CFIUS, “promptly and enforce it rigorously, with a view toward addressing the concerns regarding state-directed investment in critical technologies identified in the Section 301 investigation” (see “Broader CFIUS Jurisdiction May Have Implications for Biotech”).

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