Implementation of the Order would require significant revisions to U.S. law, as well as the renegotiation of U.S. commitments under international trade agreements. But if implemented, the policies reflected in the Order could profoundly change the pharmaceutical industry supply chain.   

The Order establishes ambitious timelines with deadlines for key, significant, and complex actions to occur in early November and early December. It is not clear that these deadlines can be met, given the significant nature of the action to be taken and the potential impact of the November election.  

New Standard for Domestic Production

The Order directs agencies to limit procurement to products “produced in the United States” to the “maximum extent permitted.” “Produced in the United States” requires that “the Critical Inputs” that are “used to produce the Essential Medicine or Medical Countermeasures are produced in the United States,” including, significantly, the API, the core chemical ingredient of pharmaceutical products. Further, “the Finished Drug Product or Finished Device[]” is required to be “manufactured, prepared, propagated, compounded, or processed … in the United States.”

Thus, the Order appears to establish a new standard for what constitutes “produced in the United States” that differs from those of both the Buy American Act and the Trade Agreements Act. This would prohibit U.S. government purchases of products that originate in or have “Critical Inputs” from countries that have Free Trade Agreements (FTAs) with the United States, are parties to the World Trade Organization Government Procurement Agreement (WTO GPA), multiple Caribbean Basin countries, and certain “least developed countries.”

If such changes were to be implemented, they would reflect a fundamental change in existing obligations and require dramatic revisions to U.S. law and international agreements. 

Key Provisions Have Lengthy Implementation Periods 

A key provision of the Order, from which the timing of potentially the most significant procurement requirement flows, is the development by the Food and Drug Administration (FDA) Commissioner of a list of Essential Medicines, Medical Countermeasures, and Critical Inputs. This list must be developed within 90 days from the Order.  

However, little guidance is provided about the content of the list beyond stating that it should include products 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 relative breadth of the list would have a significant effect on the overall scope and impact of the Order. It is uncertain whether this list can be created within the Order’s timeframe.

Within 30 days of the FDA Commissioner’s developing the list of Essential Medicines, Medical Countermeasures, and Critical Inputs, the U.S. Trade Representative (USTR) is directed to modify the procurement coverage for these products under the WTO GPA and applicable FTAs. 

Thus, the Order appears to require the United States to revise its coverage schedules under the WTO GPA and renegotiate approximately 20 FTAs. It is highly unlikely that this could be accomplished in accordance with the Order’s timelines. Importantly, though, this key requirement is subject to the broad exceptions described below. 

Finally, the Order directs the Department of Defense (DOD), within 60 days, to “restrict” such DOD procurements to domestic sources and to reject otherwise acceptable offers of such products” from countries with which the U.S. has a reciprocal defense procurement agreement. Therefore, this requirement would appear to contemplate renegotiation of, or even withdrawal from, 26 reciprocal defense procurement agreements with countries such as Australia, Canada, Germany, Israel, and the United Kingdom.

Additional Short Term Steps 

The Order includes some incremental steps to be taken to encourage greater procurement of such domestically manufactured products and components. These include directing agencies to limit such procurements to the greatest extent possible, dividing procurement opportunities among two or more U.S. manufacturers, and developing strategies for the longer term to encourage domestic production and strengthen the “Public Health Industrial Base.” Consistent with other Administration efforts to reduce regulations, the Order directs the FDA to identify regulations to be streamlined to reduce barriers to the domestic production of such products. 

Further, the Order encourages the use of the Defense Production Act to prioritize contracts for the production of Essential Medicines, Medical Countermeasures, and Critical Inputs over other contracts if needed for national defense reasons. In addition, the Order directs the Secretary of Health and Human Services, through the FDA Commissioner, to “issue guidance with recommendations regarding the development of Advanced Manufacturing techniques.”

Counterfeit Products

With respect to counterfeit products, the Office of Management and Budget is directed, in consultation with agency heads, to review agencies’ authority to limit procurement of such products to e-commerce platforms that have agreed to requirements combating the sale of counterfeit goods. 

Further, the Secretary of Health and Human Services, through the FDA Commissioner, is directed “to negotiate with countries to increase site inspections and increase the number of unannounced inspections of regulated facilities manufacturing” such products outside the U.S. and to “refuse admission … to imports … if the facilities in which they are produced refuse or unreasonably delay an inspection.”

Both the Key Provisions and Incremental Steps Are Subject to Potentially Broad Exceptions

Both the key provisions and the incremental steps noted above are subject to broad exceptions. Specifically, an agency head may determine that one of the following exceptions applies: (1) application of the requirements of the Order would be inconsistent with the public interest; (2) the needed Essential Medicine, Medical Counterpart, or Critical Input is not available in sufficient quantity or quality; or (3) application of the requirements would increase the cost of the procurement by more than 25 percent. 

In addition, the requirements of the Order do not apply to items deemed necessary to respond to a superseding emergency, such as a public health emergency, any major disaster or emergency, or any specified national emergencies. The use of these exceptions is subject to annual reporting requirements.  

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While the intent of the Order is clear, its impact is not. The full impact of any changes will not be known unless and until implementation begins (and after the November presidential election).

The Order is one of recent Executive Orders issued in the last several weeks that could have a significant and fundamental impact on the pharmaceutical industry specifically, and drug supply chain more generally, if such Executive Orders are implemented through agency action. However, the policies reflected here may face significant legal challenges from a variety of stakeholders under the Administrative Procedures Act, the relevant procurement programs, and trade treaties and agreements. 

Sidley continues to monitor these developments and will provide further updates about the Order’s implementation as agencies begin to take the steps directed under it. In the meantime, if you have any questions about these issues, please communicate with your regular Sidley contact or one of the attorneys identified below.

 

 

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¹ In the context of the Order, Medical Countermeasures include personal protective equipment (PPE), and Critical Inputs include active pharmaceutical ingredients (API) as well as raw or intermediate materials used in the manufacture of an API that is deemed by the Food and Drug Administration (FDA) Commissioner to be relevant in assessing the safety and effectiveness of a medicine or countermeasure.