Western Nations Don a Protectionist Mask for COVID-19

As the term “N95 mask shortage” dominates the news cycle, the spread of the COVID-19 pandemic and resulting medical equipment and drug shortages have caused the world’s nations to adopt protectionist measures that will reshape the regulatory and legal landscape for investment and deal-making across the global health care and pharmaceutical industries.

Manufacturing and supply chain dependency laid bare by COVID-19

COVID-19 has brought to the forefront concerns that Western economies were unprepared for a pandemic. A particular acute and well-publicized shortage in personal protective equipment (PPE) for health care providers has made the lowly N95 protective mask an object of international concern. Shortages of N95 masks have resulted in visceral stories about disposable masks being reused for multiple days, or simply unavailable for health care providers. In March 2020, Alex Azar, the U.S. Secretary of Health and Human Services, testified that there were only about 40 million N95 masks available — around 1% of the projected need for such masks in the United States. The shortages have affected other areas in the health care sphere, such as low-margin and low-tech but essential pharmaceutical components. For example, on February 28, 2020, the FDA put out an unprecedented warning of a shortage in raw material for an unidentified critical drug.

These COVID-19 related shortages have many causes, including the use by health care organizations of just-in-time inventory management built to optimize efficiency rather than resiliency and the lack of planning by governments for a pandemic. Another common thread is the large extent to which the manufacturing and supply of critical equipment and pharmaceuticals originates in China, which was first to be struck by the pandemic.

From stricter export regulation to heightened foreign investment control, protectionist measures adopted in response to COVID-19 are complex and are evolving quickly as the crisis unfolds.

Please get in touch if you would like to discuss the legal and regulatory impact of those measures on your investment or deal-making activities.