During the COVID-19 pandemic, governments across the globe have become increasingly involved in the private sector.1 State-owned enterprises have long been common in Asia, but the pandemic has increased their prominence in Europe. In Italy and Norway, for instance, governments are taking equity stakes in the airline industry to help distressed companies. Now, with vaccine manufacturing ramping up, it makes sense that governments would intervene in the life sciences and pharmaceutical sectors as well. In our article published earlier this month on, we analyzed the legal framework for state intervention in vaccine production in Germany. Since then, the German government has increased its support for local vaccine production. But what is happening across the pond in the United States?
Here, too, the federal government has intervened to ramp up the vaccine supply. On March 2, 2021, President Biden announced an historic partnership between Johnson & Johnson (J&J) and Merck to increase production of J&J's COVID-19 vaccine. While this partnership between two pharmaceutical behemoths is significant in its own right, it also made headlines for the role government played in brokering the deal. The Biden administration agreed to pay $268.8 million to upgrade two Merck production facilities and is helping Merck procure necessary equipment. Of course, this was not the first time during the Coronavirus crisis that the federal government has intervened to shape the private sector's pandemic response.2] Nevertheless, it is notable that President Biden is engaging the private sector at this scale and so soon into his presidency. The Biden administration's early approach to state intervention during the COVID-19 pandemic may portend even greater involvement down the road, which would present both opportunities and risks for life sciences companies doing business in the U.S.
The Statutory Framework
Over 90 percent of constitutions in the world contain emergency clauses, but not the U.S. Constitution.3 Instead, the federal government's authority to intervene in a pandemic comes from a patchwork of statutes and regulations. At the center of this constellation is the Defense Production Act, 50 U.S.C. § 501 et seq. (DPA). The origins of the DPA trace back to the War Powers Act of 1941 and 1942, passed during WW2 to give President Roosevelt more control over the wartime economy. Congress enacted the DPA in 1950 during the Korean War and has re-authorized it ever since then-most recently in the John S. McCain National Defense Authorization Act of 2019. In short, the modern DPA authorizes the executive branch to mobilize private actors and allocate resources during moments of national crisis. The president can compel companies to prioritize orders from the government, allocate materials/resources, offer loans or loan guarantees, make purchase commitments, and authorize companies to work together. Historically, the federal government has used the DPA to procure defense contracts and respond to natural disasters. For more information about the DPA, see MoFo's articles providing a summary of the Defense Production Act and three key takeaways about the DPA.
In addition to the DPA, the executive branch derives authority to respond to public health emergencies from several other sources. First, the National Emergencies Act, 50 U.S.C. § 1601 et seq., allows the president to declare national emergencies, which essentially unlock statutory powers that the executive branch cannot otherwise access. President Trump declared the COVID-19 pandemic a national emergency on March 13, 2020. Second, the Stafford Act, 42 U.S.C. § 5521 et seq., organizes federal emergency assistance with respect to state and local governments. Third, the Pandemic and All-Hazards Preparedness Reauthorization Act of 2013, 42 U.S.C. ch. 6A § 201 et seq., allows the Food & Drug Administration (FDA) to prepare and stockpile medical countermeasures (drugs, vaccines, and devices), and streamlines the FDA's emergency responsiveness. Fourth and most recently, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") gives the FDA a greater role in drug/vaccine supply chains. This is not an exhaustive list of emergency legislation. But when it comes to intervening in private contracting to boost vaccine production, the DPA is the most significant legislation.
The Biden Administration's Response to COVID-19
On his very first day in office, President Biden passed Executive Order 13987. E.O. 13987 established the position of Coordinator of the COVID-19 Response (currently Jeffrey Zients) and organized that office in the White House. Among other responsibilities, President Biden charged the COVID-19 Response Coordinator with coordinating the government's efforts to produce and distribute personal protective equipment, vaccines, and tests, "including through the use of the Defense Production Act[.]" President Trump depended somewhat on the DPA for his early COVID-19 response, but critics, including then-candidate Biden, argued that he did not fully take advantage of the Act to manage the medical equipment supply chain. Thus, President Biden's early focus on the DPA signaled a shift from the prior administration.
The next day, on January 21, 2021, President Biden signed Executive Order 14001, ordering the secretary of state, secretary of defense, secretary of health and human services, secretary of homeland security, and the heads of relevant agencies to review the inventory of critical pandemic response supplies and fill any shortfalls. In particular, section 2 of the E.O. directs executive officers to "take appropriate action using all available legal authorities, including the Defense Production Act, to fill those shortfalls as soon as practicable by acquiring additional stockpiles, improving distribution systems, building market capacity, or expanding the industrial base."5 Section 3 lays out steps to address the pricing of pandemic supplies. Section 4 seeks to develop "a strategy to design, build, and sustain a long-term capability in the United States to manufacture supplies for future pandemics and biological threats." Section 5 provides that the federal government will communicate with Tribal governments to ensure access to the Strategic National Stockpile.
The Biden administration announced its first significant anti-COVID-19 measures on February 5, 2021. Specifically, it announced plans to sign DPA contracts with six diagnostic companies to make at-home and point-of-care testing more widely available. It also announced that it would use the DPA to give Pfizer priority access to certain materials that are essential in vaccine manufacturing. At that time, the FDA had only approved the Pfizer and Moderna vaccines, while the J&J single-shot vaccine was still under review. The White House expected J&J to get FDA approval, but under-produce in terms of quantity. Of course, the Biden administration later addressed that shortfall when it facilitated the J&J-Merck partnership.
Opportunities for Collaboration Among Private Actors
Given President Biden's early reliance on the DPA within the first 60 days of his presidency, it is likely that the federal government will continue to intervene in private contracting. This is exciting for life sciences companies because government purchase orders and loan guarantees can provide businesses with reliable revenue streams. Moreover, the DPA may create unique opportunities for businesses to collaborate that might not otherwise be possible. Most notably, Section 708 of the DPA provides for voluntary agreements among private parties to meet national defense requirements or needs. Section 708(j) creates a limited defense to antitrust enforcement if anticompetitive behavior was done "in the course of developing a voluntary agreement initiated by the President or a plan of action adopted under any such agreement [or] to carry out a voluntary agreement initiated by the President and approved in accordance with this section[.]" In other words, collaboration between competitors, such as J&J and Merck, does not risk antitrust enforcement when it has the president's seal of approval. And while subsection (j) requires the president to initiate voluntary agreements, there is little antitrust risk if entities pitch these agreements to the White House. Thus, the DPA may create new opportunities for businesses during COVID-19.
Yet would-be collaborators should still be wary of antitrust risks. In April 2020, MoFo antitrust lawyers published an article highlighting several antitrust risks specific to the COVID-19 pandemic. They warned that the Department of Justice and Federal Trade Commission will still go after anticompetitive behavior, especially behavior that seeks to take advantage of the ongoing pandemic such as price gouging, price fixing, and stockpiling/hoarding resources. The article also highlighted possible consumer protection issues related to COVID-19. For instance, consumer protection laws in many states also proscribe price gouging. And although the DPA provides a limited defense with respect to antitrust enforcement, it is not clear that subsection (j) applies to consumer protection laws as well. Ultimately, businesses hoping to collaborate with pandemic responsiveness/vaccine production should be cautious and seek counsel.
The Outlook for Late 2021 and Beyond
President Biden's intervention to ramp up vaccine production has been an unqualified success. Entering office, his goal was to provide 100 million vaccinations within his first 100 days. After reaching that target on day 59, President Biden announced a bold, new goal: 200 million vaccinations within the first 100 days. Given that there are 260 million adults living in the U.S., that is good news; experts predict that approximately 80 percent of the population, or 208 million, must be vaccinated to achieve herd immunity. Altogether, the Biden administration hopes to make vaccines available to every adult in the United States by May 1.
Yet that will not mark the end of vaccine production in the United States. First, as new variants of the coronavirus emerge over the summer, vaccinated individuals may require booster shots to keep up their immunity. Fortunately, Pfizer and Moderna have already started preparing to bring variant-specific third doses to clinical trial. Second, the FDA is likely to approve COVID-19 vaccines for children at some point in the future. To date, the FDA has only approved vaccines for adults. Just last week, however, Pfizer announced a clinical trial for its COVID-19 vaccine involving healthy 6-month-old to 11-year-old children. With over 70 million children living in the U.S., it is likely that demand for the COVID-19 vaccines will remain high through the end of 2021. Third, the U.S. will remain involved in vaccine production even after reaching domestic herd immunity. Soon after entering office, President Biden entered Covax, a partnership with the World Health Organization to deliver COVID-19 vaccines to the developing world. Low- to middle-income countries lag behind wealthy nations in terms of vaccine procurement, and current models estimate that there will not be enough vaccines for the global population until 2023-24.
What exactly does all of this mean for life sciences companies doing business in the United States? It means that, although there appears to be a light at the end of the COVID-19 tunnel, the pandemic will continue to unfold both domestically and abroad well into the future. Correspondingly, private-public partnerships and state interventions into vaccine production should persist into the future as well. Businesses that are currently fighting COVID-19 should brace themselves to continue long-term. And businesses that have not been involved with the pandemic response thus far may yet find opportunities to contribute going forward.
Short-Term Authority and Long-Term Preparedness
Looking beyond COVID-19 vaccine production and rollout, the DPA will also play a prominent role in general pandemic preparedness going forward. Again, E.O. 14001 sought to increase vaccine production capacity for future pandemics. On the surface, it may seem odd that the president could wield emergency powers to achieve long-term objectives. Yet the DPA actually contemplates such prophylactic measures; in fact, preparedness is one of the primary objectives of the policy.6 Of course, life sciences companies may not be able to produce vaccines in anticipation the next deadly virus outbreak, but they can begin to replenish the national stockpile of personal protective equipment and medical devices, such as ventilators. Already, President Biden has used executive authority to bolster supply chains for critical pharmaceutical materials. Look out for similar measures in the future.
Over one year into COVID-19, even with vaccines rolling out across the country, there is still a long way to go in responding to this pandemic and preparing for the next one. And while the Biden administration is still in its infancy, it is already clear that the White House will take a hands-on approach in public health and emergency preparedness-before, during, and after crises. Healthcare and life sciences companies should prepare for-and look forward to-that new reality.
Zachary Fuchs, Litigation Associate, contributed to the drafting of this article.
1 OECD Policy Responses to Coronavirus (COVID-19)The COVID-19 crisis and state ownership in the economy: Issues and policy considerations. The Wall Street Journal: Western Economies Embrace State Intervention, Emulating Asia.
4 Federal Register: Organizing and Mobilizing the United States Government To Provide a Unified and Effective Response To Combat COVID-19 and To Provide United States Leadership on Global Health and Security.
5 Federal Register: A Sustainable Public Health Supply Chain.
6 The Stafford Act defines "emergency preparedness" to include "[m]easures to be undertaken in preparation for anticipated hazards[.]" 42 U.S.C. § 5195a(3)(A).
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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