Key Takeaways
- • The U.S. Treasury Department published proposed rules adding biotechnology to the Comprehensive Outbound Investment National Security (COINS) Act, categorizing "pharmaceutical compounds" as a "prohibited technology" that would trigger outright bans on certain outbound transactions with countries of concern such as China.
- • The draft rules largely exempt traditional in-licensing deals and fee-for-service R&D collaborations, which have driven most multi-billion-dollar Western biopharma deals with Chinese companies, according to Fierce Biotech.
- • Equity investments in Chinese biotechs, including structures like Pfizer's $100 million equity investment in 3SBio, would be prohibited, and U.S. venture capital investment in Chinese biotechs would be affected.
- • Joint venture treatment is ambiguous: Treasury declined to define "joint venture," creating uncertainty for collaborations such as Pfizer's $10.5 billion, 12-asset deal with Innovent Biologics.
- • Comments on the proposal are due December 7, 2026, and industry groups including BIO and MassBio have urged a narrowly targeted approach.
Summary
The U.S. Treasury Department has released long-anticipated proposed rules that would restrict American investment in China's life sciences industry by adding biotechnology to the COINS Act, legislation enacted as part of the fiscal year 2026 National Defense Authorization Act. The draft regulations, published on a Thursday, designate "pharmaceutical compounds" as a "prohibited technology." The definition spans small molecules, polymers, vaccines, blood products, allergenics, cell and gene therapies, monoclonal antibodies, other recombinant therapeutic proteins, and their delivery systems. If implemented as written, the rules would trigger outright bans on certain outbound transactions with countries of concern, including China.
The proposal largely spares the in-licensing deals and fee-for-service drug R&D collaborations that account for most multi-billion-dollar agreements between Western biopharma companies and Chinese counterparts. According to Fierce Biotech, Treasury's Q&A clarifies that covered transactions include acquisitions of equity, convertible debt financing or debt with certain rights, greenfield investments, joint ventures, and certain LP investments. Traditional asset licensing agreements, in which Western drugmakers pay cash, milestones and royalties for ex-China rights, fall outside the scope. Activities outside the definition are covered only if undertaken to evade or avoid the rule. Bristol Myers Squibb's potential $15.2 billion deal with Hengrui Pharma, covering 13 early-stage programs, appears to be a pure licensing agreement and is therefore not affected.
The rules would, however, affect equity-based structures. The COINS Act lists the acquisition of an equity interest in a Chinese entity as a covered transaction, which would bar U.S. venture capital firms from investing in Chinese biotechs and would affect deals resembling Pfizer's partnership with 3SBio, in which Pfizer made a $100 million equity investment alongside its in-license of a PD-1xVEGF bispecific antibody. Laurie Burlingame, a life sciences transactions lawyer at Morse, Barnes-Brown & Pendleton, has previously raised concerns about the "NewCo" model, in which venture investors form U.S. biotechs around China-licensed assets and the Chinese licensor takes an equity stake. Under existing COINS language, only Chinese ownership of 50% or more would make a NewCo a target, but the proposed anti-evasion clause could bring future NewCo deals with equity components under scrutiny.
Joint venture treatment remains unclear. Treasury deliberately did not define "joint venture," instead referring to its plain English meaning as involving the contribution of capital and/or assets by two parties and the sharing of profits and losses. Pfizer's $10.5 billion collaboration with Innovent Biologics, covering 12 assets with co-development of four programs and shared U.S. and European profits or losses, may fall into this gray area, though Treasury said the term would not require forming a new entity. Only transactions completed before the COINS Act's enactment on December 18, 2025 are exempt, so the Pfizer-Innovent arrangement could face regulatory action if the rule is implemented in its current form.
Industry reaction has been cautious. John Crowley, president and CEO of the Biotechnology Innovation Organization (BIO), said the administration is correct that biotechnology is strategic but warned, "We cannot restrict our way to success," urging an approach that avoids uncertainty for innovators and investors. Kendalle Burlin O'Connell, CEO of MassBio, said efforts to address national security risks must be carefully targeted to preserve licensing partnerships that bring discoveries into the U.S. pipeline. Treasury is accepting comments until December 7, 2026, and is explicitly seeking feedback on whether "pharmaceutical compounds" should be more precisely scoped to focus on advanced or frontier technologies.
The proposal largely spares the in-licensing deals and fee-for-service drug R&D collaborations that account for most multi-billion-dollar agreements between Western biopharma companies and Chinese counterparts. According to Fierce Biotech, Treasury's Q&A clarifies that covered transactions include acquisitions of equity, convertible debt financing or debt with certain rights, greenfield investments, joint ventures, and certain LP investments. Traditional asset licensing agreements, in which Western drugmakers pay cash, milestones and royalties for ex-China rights, fall outside the scope. Activities outside the definition are covered only if undertaken to evade or avoid the rule. Bristol Myers Squibb's potential $15.2 billion deal with Hengrui Pharma, covering 13 early-stage programs, appears to be a pure licensing agreement and is therefore not affected.
The rules would, however, affect equity-based structures. The COINS Act lists the acquisition of an equity interest in a Chinese entity as a covered transaction, which would bar U.S. venture capital firms from investing in Chinese biotechs and would affect deals resembling Pfizer's partnership with 3SBio, in which Pfizer made a $100 million equity investment alongside its in-license of a PD-1xVEGF bispecific antibody. Laurie Burlingame, a life sciences transactions lawyer at Morse, Barnes-Brown & Pendleton, has previously raised concerns about the "NewCo" model, in which venture investors form U.S. biotechs around China-licensed assets and the Chinese licensor takes an equity stake. Under existing COINS language, only Chinese ownership of 50% or more would make a NewCo a target, but the proposed anti-evasion clause could bring future NewCo deals with equity components under scrutiny.
Joint venture treatment remains unclear. Treasury deliberately did not define "joint venture," instead referring to its plain English meaning as involving the contribution of capital and/or assets by two parties and the sharing of profits and losses. Pfizer's $10.5 billion collaboration with Innovent Biologics, covering 12 assets with co-development of four programs and shared U.S. and European profits or losses, may fall into this gray area, though Treasury said the term would not require forming a new entity. Only transactions completed before the COINS Act's enactment on December 18, 2025 are exempt, so the Pfizer-Innovent arrangement could face regulatory action if the rule is implemented in its current form.
Industry reaction has been cautious. John Crowley, president and CEO of the Biotechnology Innovation Organization (BIO), said the administration is correct that biotechnology is strategic but warned, "We cannot restrict our way to success," urging an approach that avoids uncertainty for innovators and investors. Kendalle Burlin O'Connell, CEO of MassBio, said efforts to address national security risks must be carefully targeted to preserve licensing partnerships that bring discoveries into the U.S. pipeline. Treasury is accepting comments until December 7, 2026, and is explicitly seeking feedback on whether "pharmaceutical compounds" should be more precisely scoped to focus on advanced or frontier technologies.
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