As Washington ramps up efforts to tighten cross-border life sciences deals involving Chinese assets, Beijing is moving to tighten its own grip on biomedical innovation, rolling out a draft policy that would ban or restrict the export of key biopharmaceutical technologies.
In a proposed update to its export blacklist published (Chinese) Friday, China’s government revealed that it is looking to block foreign acquisitions of proprietary cell and gene therapy, small interfering RNA (siRNA) and pathogen gain-of-function platforms. In this case, platforms are defined as sets of reusable technologies that can support the development of multiple drugs.
In parallel, the new rule would restrict the full transfers of proprietary drug target identification and verification technologies in the fields of cell and gene therapy and siRNA to entities overseas. Unlike a full-on ban, a restriction would mean that such deals would require regulatory approval.
Biopharma assets are among 40 key technologies being targeted by the government’s update, which also covers AI and photovoltaic green energy.
The proposed policy comes as China has become a leading exporter of biomedicines. According to China’s drug regulators, foreign transactions of Chinese biotech assets reached $120 billion as of August so far this year, marking a 36% jump year over year.
However, the draft rule’s real impact on Chinese biopharma transactions may be limited.
For biopharma deals, the new regulations can be summarized as “regulating transfers while leaving licensing unconstrained,” Aaron Gu, a partner at Chinese law firm Han Kun that specializes in healthcare and life sciences, told Fierce.
While keen on keeping ownership of key proprietary technologies within China’s borders, the proposed export ban explicitly excludes several common business development types. Out-licensing agreements, as well as utilizing know-hows to provide outsourced research and manufacturing services, do not fall under the ban, a spokesperson for China’s Ministry of Commerce highlighted in a media Q&A (Chinese).
Similarly, out-licensing of drug target identification and verification techs will generally be approved, the spokesperson added.
That describes nearly all Western deals for Chinese biotech assets so far. Despite a surge in deal count and value, U.S. and European biopharma companies and venture capitalists have almost exclusively focused on buying specific drugs from their Chinese counterparts or utilizing a platform to identify new molecules. Rarely has ownership of a platform changed hands.
As of July 1, only five of all 121 cross-border Chinese biopharma out-licensing deals this year involved ownership transfer, according to local biopharma data intelligence service provider PharmCube.
One deal that would likely not have been possible under the proposed new rule was AstraZeneca’s $1 billion acquisition of Gracell Biotechnologies, which developed the FasTCAR platform for making CAR-T cells. When announced at the end of 2023, the deal was hailed as the first full acquisition of a Chinese biotech by Big Pharma.
Explaining the government’s rationale in the Q&A, the spokesperson framed the proposal as supporting the “orderly international collaboration around China’s biopharma technologies.” As for the pathogen-related component, the spokesperson cited national security reasons.
Rumors started circulating in May that the Chinese government was looking to slam the brake on biopharma platform acquisitions. At the time, an alleged Ministry of Commerce blacklist circulating online also proposed platform bans on other popular modalities such as multispecific antibodies, antibody-drug conjugates and protein degraders.
The Chinese government had been surveying research institutions and biopharma companies over the past two years, trying to get a better grasp of the field’s technology landscape, a senior Chinese biopharma executive told Fierce in an interview in June.
The assessment was launched in response to concerns over the practice of out-licensing or selling early-stage drug candidates—coined by locals as “selling green shoots”—because Chinese biotechs lack the experience or the cash to run late-stage clinical trials and global commercialization, the person said.
“What authorities don’t want to see is someone taking China’s resources to build a great R&D engine, only to sell the entire company overseas, because then China ends up losing the capabilities,” the exec said, commenting on the rumor at the time.
“But if you structure it as a partnership, I’m still the owner,” the exec added. “You’re simply licensing it out so foreign companies can develop it overseas while paying you royalties and milestone payments. I don’t think the Chinese government is against that kind of arrangement.”
“Many of these deals retain rights for China—meaning it won’t impact the development and commercialization of these drugs domestically, so Chinese patients still get access to world-class medicines,” the exec continued. “Second, Chinese companies can gain financial returns through these deals, generating foreign exchange for the country. If you think about it from these angles, that’s really the underlying rationale.”
Now, the published draft policy is “significantly better than market expectations,” Gu of Han Kun said.
The previous rumored list “spanned nearly all the most prominent frontiers of Chinese biopharma business development deals,” he observed. “The market had widely feared that Chinese cross-border dealmaking would suffer a sweeping blow.”
“By deliberately excluding out-licensing structures, the government has clearly taken into account biopharma dealmaking norms and the momentum of cross-border collaboration, reflecting strong support from a policy standpoint,” Gu said.
The Chinese government is seeking comments on the proposed new rule until Nov. 15. Foreign buyers should exercise due diligence regarding this draft policy, Gu said. He noted that, before the revised export control catalogue is officially enacted, any export of technologies falling within the regulated scope must register with the Ministry of Commerce.
Beijing is tightening controls over foreign biopharma transactions just as Washington’s China hawks intensify efforts to curb American purchase of Chinese biotech assets. Congressman John Moolenaar (R-MI), chair of the House Select Committee on the Chinese Communist Party and Congresswoman Debbie Dingell (D-MI) recently introduced the Biotech Investment National Security Act, looking to put China biopharma deals under additional scrutiny.
However, the draft has not moved forward in Congress. The U.S. Treasury Department, which would be responsible for carrying out the proposed restrictions, is working on rules that would likely preserve U.S. companies’ ability to strike most licensing deals for Chinese drugs, Reuters reported last month, citing three people who have been briefed on the process.
Editor's Note: The story was updated at 2:50 p.m. to include a data point provided by PharmCube.
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