Life sciences companies are increasingly global, with the nationalities of individuals in management teams and offices often spanning the major life sciences centers across the United States, in China, and around the world. This globalization can increase exposure to trade, sanctions, and economic policy in those jurisdictions, as well as the trade tensions in the US-China relationship.
Recent years have seen Washington, DC, and Beijing actively introducing rules and amending existing rules, many of which complicate the issues surrounding global supply chain, capital flow and market access, technology cooperation and transfer, and talent mobility for companies, investors, and financial institutions operating in this framework.
In the United States, both the previous and current presidential administrations have asserted broad and often extraterritorial jurisdiction for US national security, trade, and sanctions laws; they apply not only to persons physically in the United States but also to US-origin goods, services, currency, and US persons wherever located, as well as to conduct outside the United States that has a direct effect on the country or on US economic policy—even where there is no nexus to the United States (e.g., secondary sanctions).
A number of broad policies under the previous administration could apply to the life sciences industry, including some that have a more direct implication, e.g., the imposition of tariffs under Section 301 on a broad array of Chinese products, including pharmaceuticals (subject to certain COVID-19 waivers) on the grounds of unfair trade competition. This is in addition to a range of trade measures and heightened scrutiny in national security reviews by the Committee on Foreign Investment in the United States (CFIUS) of Chinese acquisitions and investments in certain industries—including life sciences—with a particular focus on sensitive personal data.
Under the Biden-Harris administration, we have seen a continuation of these policies with some changes in emphasis, including a recent executive order to conduct a review into supply chains in a range of sectors including pharmaceuticals. Congress is expected to be increasingly active, with a comprehensive China trade policy review expected in the fall of 2021, in addition to several pieces of legislation pending that involve trade, intellectual property, pharma pricing, and forced labor—namely, the Strategic Competition Act/US Innovation and Competition Act in the US Senate and the EAGLE Act in the US House of Representatives.
Likely given certain concessions afforded to the pharmaceutical industry, it has on the whole not been adversely affected when compared with some other sectors. However, there are elements of US policy that should be watched carefully, particularly in relation to critical technology and sensitive personal data, including biometric and genetic data that many pharmaceutical companies possess by virtue of conducting clinical trial work.
We have seen China expand its regulatory toolkit in recent months, which the country views as countering the regulatory requirements of the United States and other countries. Myriad rules under the Unreliable Entity List, Export Control Law, Blocking Rules, and Anti-Foreign Sanctions Law are aimed at countering those that comply with foreign instruments deemed to be unjustifiably obstructing business activity in China. As such, life sciences companies complying with US or other sanctions in relation to China could nonetheless be breaching Chinese counter-regulations and therefore be susceptible to enforcement—including significant fines.
Notably, in relation to the Blocking Rules in particular (introduced earlier in 2021), we have yet to see the issuance of any prohibition orders that could cause third country individuals and entities to be sued for damages in a Chinese court for compliance with a blocked non-Chinese law.
An area of growing assertiveness centers on data protection and transfer. Of specific interest to life sciences companies is China’s Human Genetic Resources Regulation that came into effect on July 1, 2019, which requires notification filing prior to electronic data capture (EDC) transmission of clinical trial data to non-Chinese parties, including any transmission to the US Food and Drug Administration or similar non-Chinese regulatory agencies—even if the transmission is for adverse event reporting purposes.
Also, China’s Data Security Law—which took effect on September 1, 2021—potentially affects all business operators in China, including multinational corporations. The law mandates more expansive and restrictive data localization requirements, strict security level certification, and, severe penalties on unauthorized foreign transfer of data.
Furthermore, the Personal Information Protection Law (PIPL)—regarded as China’s version of the EU General Data Protection Regulation—lays out a comprehensive set of rules for how business operators should collect, use, process, share, and transfer personal information in China. The PIPL supplements the existing data protection regime established by the Cybersecurity Law and national guidelines, and provides another pillar in China’s efforts to regulate how companies use data and further protect the personal data of its citizens.
Given the complex global ramifications for Asian life sciences companies of these regulations and countervailing rules from both countries, it is important to do the following: