Court backs agency on drug origin rulings
On July 28, 2026, the U.S. Court of Federal Claims ruled in AvKare, LLC v. United States that the Department of Veterans Affairs acted within its authority when awarding a national contract for Hydroxychloroquine tablets to Bryant Ranch Prepack Pharmaceuticals. The decision confirmed federal agencies have broad discretion to decide if pharmaceutical products meet Trade Agreements Act (TAA) requirements, including flexibility to designate the country where a drug’s active pharmaceutical ingredient is produced as its origin.
The TAA limits government purchases to products made in the U.S. or approved countries. A product’s origin is determined by where it undergoes “substantial transformation”—a process that changes its name, character, or use. If this happens in a TAA-approved country, the product qualifies for government contracts.
How the VA justified its decision
The VA’s contract required bidders to certify their Hydroxychloroquine tablets complied with TAA standards. Bryant Ranch used an API made in Taiwan, a TAA-designated country, but completed final tableting in India, which is not on the approved list. AvKare protested, arguing the tablets should be considered Indian-made because the last manufacturing step occurred there.
After an initial challenge, the VA reopened its review and asked Bryant Ranch for more evidence. The company provided sworn statements detailing the API’s chemical synthesis in Taiwan and the later tableting process in India. The VA then analyzed the submissions, comparing them with U.S. Customs and Border Protection rulings and public records on pharmaceutical origin determinations.
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It determined the API’s synthesis in Taiwan met the “substantial transformation” requirement under the TAA. The tableting in India, the VA found, was a routine step that didn’t alter the drug’s structure or function. Since Taiwan is a TAA-approved country, the VA awarded the contract to Bryant Ranch.
Court rejects attempt to expand Acetris precedent
The Court of Federal Claims upheld the VA’s reasoning but refused to broaden the 2020 Acetris decision. In that case, the Federal Circuit ruled a product’s origin for TAA purposes could be where it was “manufactured,” even if different from where it was “substantially transformed.” AvKare claimed Acetris required the VA to treat India, the site of final tableting, as the origin.
The court disagreed. It noted Acetris focused on whether a product was “U.S.-made,” not whether it qualified as a “designated-country end product.” The latter depends on where the product was “substantially transformed,” not just assembled or packaged. Because the API’s synthesis in Taiwan gave the drug its essential character, the court called the VA’s decision reasonable.
This distinction affects pharmaceutical suppliers. The ruling indicates companies can’t claim TAA compliance by performing minor steps—like tableting—in a designated country if the main manufacturing happens elsewhere. The court warned such an approach would create a loophole, letting firms bypass the law’s intent with minimal processing in approved countries.
Clear documentation proved critical in this case. The VA’s decision stood because Bryant Ranch submitted detailed evidence, including sworn supply-chain statements and certificates of analysis. Agencies typically review such claims independently but may consult CBP rulings or other guidance. The court clarified agencies aren’t obligated to ignore CBP’s expertise, though they can’t rely on it blindly.
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The case also shows the origin of the API often decides TAA compliance. If the API is made in a designated country, later steps like tableting or packaging in a non-designated country may not disqualify the product—if those steps don’t change the drug’s properties. The supplier must still prove this, however.
The ruling doesn’t set a clear rule for what counts as “substantial transformation” in drug manufacturing, leaving room for future disputes. Suppliers must now work with the VA’s case-by-case approach, using thorough records and a strong grasp of where their supply chains might violate TAA rules.
In the near term, some suppliers may rethink their sourcing strategies, especially those depending on final assembly in designated countries to win government contracts. The court’s skepticism about minimal processing as a compliance shortcut could push companies to move more manufacturing to approved countries or prepare for stricter scrutiny of their claims.
This outcome aligns with recent contract rules defined by courts, where agencies weigh evidence carefully before making decisions.
