SAN FRANCISCO – At what BIO CEO and President Jim Greenwood called a "Dickensian moment in the history of biotechnology – arguably the best of times and the worst of times" for U.S. industry players, new rules piloted by the Committee on Foreign Investment in the U.S. (CFIUS) have made things even more challenging. Confusion about CFIUS has led to a decline in Chinese venture capital investment in U.S. biotech and, at some firms, even a pause in cross-border investment as they wait for the dust to clear, experts said.
With the pending implementation of further rules from the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) dictating review for foreign investment in U.S. companies storing large amounts of sensitive personal data, such as genetic information, things are likely to get worse before they get better. "So it's possible that CFIUS in the future is going to reach more heavily into biotechnology than it has today," said Joshua Gruenspecht, counsel at Wilson Sonsini Goodrich & Rosati.
"Right now, I think it's fair to say that from many investors' perspectives, it's a nuisance, but it's not an obstacle. But as CFIUS changes going forward, we may find it becomes a little more of an issue for this community," he said.
But even as FIRRMA's implementation drives foreign investment away from the U.S. and into other markets like Europe, Gruenspecht said, other countries are catching up with their own CFIUS-like regimes. Germany, France, Canada and Japan have all worked to "bulk up" regulations of foreign investments in their domestic companies. The European Union has even been working on a cross-border harmonized regime.
"There's a positive aspect to that for the U.S. biotech community: Potentially in three years or so, it won't be any harder to invest in the United States than it is anywhere else," Gruenspecht said. "Of course, the downside of it is that it may just be harder to invest everywhere, which is just, I think, a drag on investment generally," he said.
Another concern, said James Huang, a managing partner at Kleiner Perkins Caufield & Byers China, is that deteriorating sentiment – whether tied to trade or policy – may lead to "less information flow, especially in technologies that enable us to study different populations better." Broader cross-border collaboration, he suggested, has led to more value creation for venture investors who've seen the candidates they've funded transformed into medicines that can help patients across the world.
Even in light of challenges, over the long term, "you have to expect that things will smooth out," said Helen Chen, greater China managing partner for L.E.K. Consulting. "A lot of the short-term volatility is around the uncertainty. So, the regime might become harder, but I'm sure wonderful attorneys and financiers like the ones [here] will figure out ways to structure things to get through that."