What's Happening?
In October 2026, the U.S. Treasury Department proposed adding biotechnology to the outbound investment program under the Comprehensive Outbound Investment National Security (COINS) Act. This proposal would prohibit U.S. persons from investing in Chinese
companies that utilize biological systems for medicine production, including antibodies, cell and gene therapies, or those developing biotech tools like sequencing and lab automation. Unlike other sectors, biotech investments would face an outright prohibition without a notification tier. Simultaneously, China's Ministry of Commerce (MOFCOM) and Ministry of Science and Technology proposed export controls on five biopharma technologies, requiring immediate registration for their export. These technologies include cell and gene therapy platforms and siRNA drug technology platforms. While pure licensing deals involving upfront, milestone, and royalty payments are generally not covered by these new rules, transactions involving equity, warrants, profit-sharing, or joint ventures are now at higher risk.
Why It's Important?
These new regulations from both the U.S. and China are set to significantly reshape the landscape of biotech deals between the two countries. The U.S. prohibition on equity investments aims to prevent American capital from supporting Chinese biotech advancements that could potentially serve military, intelligence, surveillance, or cyber capabilities. This could limit the flow of U.S. investment into a rapidly growing sector in China, which has been a major source of new drug candidates for large pharmaceutical companies. For U.S. companies, this means a re-evaluation of deal structures, favoring cash-based licensing over equity participation. China's export controls, on the other hand, seek to regulate the transfer of its most valuable biopharma technologies, potentially impacting global access to these innovations. The combined effect could lead to a more fragmented global biotech market and increased scrutiny on cross-border collaborations.
What's Next?
Comments on the U.S. Treasury's proposal are due by December 7, 2026, with final regulations expected around the end of the first quarter of 2027. Deals with an equity component are advised to close before the U.S. rule takes effect. For Chinese companies, registration for exporting listed technologies is already required. Both U.S. and Chinese companies involved in biotech are urged to review their current and planned deals against these new rules. Future discussions are anticipated regarding the precise definition of 'biological system' in the U.S. rule and the practical implementation of China's automatic licensing for certain technology transfers. The long-term impact will depend on how these regulations are finalized and enforced, and how the industry adapts to the new legal frameworks.
Beyond the Headlines
The proposed U.S. and Chinese regulations highlight a broader trend of increasing national security concerns influencing economic and scientific collaboration, particularly in advanced technological sectors like biotechnology. This shift could lead to a decoupling of biotech supply chains and research efforts, potentially slowing global innovation in critical areas like drug discovery and development. The emphasis on cash-only licensing deals and the redesign of NewCo models reflect a move towards more transactional relationships, away from deeper, equity-linked partnerships. This could also raise ethical questions about the balance between national security interests and the global imperative for scientific advancement and public health, especially given the potential for these technologies to address widespread diseases.
