The U.S. Department of the Treasury recently dropped a 163-page puzzle onto the desks of biopharma executives, venture capitalists and trade attorneys. The proposal outlined how the government plans to implement the Comprehensive Outbound Investment National Security (COINS) Act, aiming to add “pharmaceutical compounds” to an outbound investment blacklist.
Enacted at the end of 2025 as part of the National Defense Authorization Act, the COINS Act was designed to prevent American investment from fueling technologies developed by “countries of concern,” including China. While early iterations focused on tech sectors like semiconductors and artificial intelligence, pharmaceuticals—spanning a wide range of modalities—became a target as the Treasury is tasked with devising specific rules to implement the law.
The draft policy (PDF) stops short of banning straightforward, cash-based drug licensing deals. But it casts what experts describe as a wide, ambiguous net over equity investments, co-development arrangements and “joint ventures” involving Chinese entities.
To Washington’s China hawks, the inclusion of pharmaceuticals in the law would add a critical safeguard to prevent American capital and know-how from fueling Chinese biotechnology growth while preserving U.S. dominance in life sciences.
But to Peter Kolchinsky, Ph.D., managing partner at healthcare investment powerhouse RA Capital, the proposed restrictions would only cripple American innovation and undermine U.S. biopharma leadership.
Rather than starving China’s burgeoning biotech sector, Kolchinsky depicted the draft regulation as a “vaguely worded policy that, as written, would backfire terribly on U.S. leadership, hollow out our entire [U.S. biotech] ecosystem and just hand dominance to Europe and China.”
RA Capital published a formal comment letter on the proposals last week, with the letter slated for submission to the Treasury by the department’s Dec. 7 public comment deadline. Co-signed by a coalition of prominent industry leaders—including executives and investors from Foresite Capital, Third Rock Ventures, Deep Track Capital, Forbion, Venrock, and Mountainfield Venture Partners—the letter warns that the proposed rule will constrain only American companies and investors while leaving foreign competitors free to scoop up China’s most promising clinical assets and market them in the U.S.
Meanwhile, across Washington and Boston, life sciences and national security lawyers are poring over the draft text, trying to help anxious biopharma clients decipher where uninhibited business development ends and a prohibited transaction begins. What they have seen so far is more of a statement piece, which one lawyer described to Fierce as a “maximalist” approach that blends the goal of economic competitiveness with national security. What they foresee is deliberate regulatory ambiguity freezing dealmaking—unless the final version offers more clarity and a narrower scope.
‘If you’re flying blind, you stay grounded’
For proponents of expanding the COINS Act to biopharma, the logic is that if U.S. venture capitalists and drugmakers are barred from pouring money and resources into Chinese biotech, their focus will naturally stay home, bolstering domestic industry.
Kolchinsky flatly refutes that argument. Investors cannot confidently back an early-stage U.S. biotech without surveying the global landscape, he argued, and the COINS proposal “blinds you to the competitive landscape.”
To attract funding, biotechs must prove their science is “actually world-class,” which requires investors to survey the global landscape, Kolchinsky told Fierce in an interview. But under the proposed rules, Chinese developers would have no incentive to even sit down with American VCs and fewer reasons to speak with U.S. pharmas.
“Why would any Chinese company now so much as meet with a U.S. investor?” Kochinsky asked. “It might not even want to meet with a U.S. pharma if it’s interested in a co-commercialization deal, which it now knows a U.S. pharma can’t offer it.”
With China running clinical trials at a fraction of the time and cost required in the U.S., the thousands of Chinese biotechs may easily find partners in European pharmas and investors, who face no such restrictions on co-commercialization or equity-based deal structures, Kolchinsky suggested. As a result, European players would maintain full visibility into Chinese pipelines while Americans would be shut out.
“Pfizer would be less confident in doing a partnership with a U.S. biotech, and U.S. investors would be less confident in investing in a U.S. biotech because they can’t compare what that U.S. biotech has to what else is out there in China,” he said.
“The answer is, you don’t invest,” Kolchinsky continued. “There’s no rule that says that a U.S. investor has to invest in biotech. There’s a lot of other things to invest in.”
“If you’re flying blind, you stay grounded,” he added.
The longtime biotech investor described a bizarre possible future: one in which European VCs, with access to full market intelligence, would become the main source of investment for American biotechs.
However, European entities may not stay completely beyond the reach of COINS. The U.S. has historically been able to snatch up foreign entities in its policymaking. For example, the Foreign Corrupt Practices Act (FCPA), a U.S. law that bans individuals and businesses from bribing foreign government officials, has punished European pharmas in the past.
But COINS is different, according to Deborah Curtis, a partner at Arnold & Porter and a former chief counsel for industry and security at the Commerce Department’s Bureau of Industry and Security.
The FCPA relies on U.S. “touch points,” where a U.S. dollar transaction is usually the hook, whereas COINS’ restrictions apply to any “U.S. person.” The latter is relatively easier for foreign firms to evade legally by simply cutting Americans out of the loop, Curtis told Fierce.
“What does this mean in practice? It means that if you have a U.S. entity that’s engaged in the activity and the contracting or any kind of decision-making, no matter where you’re headquartered, you’ll probably be caught,” Curtis said. “If your executives are U.S. persons, [you will] be caught.”
Foreign companies will therefore need to build a Chinese wall internally to shield American staffers from China-related deals or find other pathways for investments to flow without participation from U.S. entities. “That again usually backfires for the U.S., because it just means nobody wants to hire U.S. persons,” she said.
On whether a hypothetical rule that also restricts EU companies’ ability to invest in China would help level the playing field for U.S. companies, Kolchinsky said he’d need to see an enforceable proposal to be able to comment.
The ‘joint venture’ riddle
At the heart of the industry’s anxiety is how the Treasury proposal treats the myriad deal structures that keep modern biopharma dealmaking flowing. While the draft policy spares plain-vanilla licensing deals—where a U.S. company pays upfront cash, milestones and royalties for rights to a drug—it prohibits U.S. persons from engaging in “joint ventures” with Chinese partners around covered technologies.
Yet the Treasury abstained from providing a legal definition of a joint venture in its draft, opting instead for a “plain English interpretation” that covers arrangements “involving the contribution of capital and/or assets by two parties and the sharing of profits and losses.”
That phrasing has set off alarm bells regarding the popular “NewCo” model, in which U.S. VCs form a U.S.-based company built around an asset licensed from a Chinese biotech. The Chinese licensor is often granted a minority equity stake in the U.S. startup.
Legal experts who spoke to Fierce all pointed to the joint venture component as one of the most pressing ambiguities in the draft text, as it adds uncertainties to any U.S.-China deals with an equity element, or a co-development or co-commercialization structure, which has gained popularity among larger Chinese biopharmas.
To Ron Lanton III, a lawyer who advises healthcare and other technology companies on government affairs, a traditional licensing agreement will be able to proceed as usual under the COINS draft.
“I think the analysis changes when you have parties that begin to contribute assets—whether that’s equity, whether that’s cash, whether that’s some kind of financial arrangement between two entities, the percentage[s] of ownership,” Lanton told Fierce. “That’s where it gets a little gray.”
To many observers, targeting a U.S.-based NewCo under an outbound investment rule may seem like overstepping, because a minority stake from a Chinese licensor resembles an inbound transaction. As RA and its peers noted in their public comment, NewCo collaborations involve placing a Chinese drug under a U.S. company’s control without transferring novel platforms or technology back to China.
Besides, such minority stakes in U.S. biotechs are already policed by the Committee on Foreign Investment in the United States (CFIUS), making them “nothing more than a royalty on the company’s success,” according to the comment letter.
Lanton suggested that the draft rule reflect a protectionist, “America First” philosophy that encompasses both outbound and inbound policy goals. Similarly, another trade lawyer noted to Fierce that while a Chinese company's ability to obtain a shareholding in a U.S. biotech is technically a CFIUS question, the complex bells and whistles attached to biopharma deals mean a transaction could trigger scrutiny under both regimes.
When dissecting the Treasury’s two-pronged characterization of a joint venture, legal experts warned that companies cannot rely too heavily on technicalities.
“Treasury is looking at some kind of shared business arrangement, and one that’s probably distinct from a standard shareholder-company relationship,” Brian Curran, a partner who focuses on national security policies at Hogan Lovells Cadwalader, told Fierce in an interview.
Asked whether both capital or asset contributions and profit-and-loss sharing must be present to trigger the joint venture ban—because passive shareholding alone does not equate to profit-sharing—Curran noted that the conjunctive phrasing suggests both features are required, but he urged caution.
“I think the most straightforward way to interpret Treasury’s comment is to say it would have both of those two features,” he said. “I do think that parties have to carefully examine their business arrangements to see if they might qualify as JVs and certainly avoid taking steps purposely intended, for example, to mask what are actually profit- and loss-sharing activities.”
To Anne Salladin, a partner at Hogan Lovells Cadwalader and a former senior Treasury counsel, how profit-sharing will be interpreted for a prohibited joint venture remains “a big question mark.”
Some biopharma licensing agreements may also rely on joint steering committees to make critical decisions. Salladin wondered “whether standard co-governance arrangements could rise to the level of a joint venture.”
Calls for more clarity around what constitutes a “joint venture” in the COINS proposal were consistently shared by experts who spoke to Fierce. But the industry probably won’t get this much-needed clarification.
Salladin mentioned the Treasury’s existing Outbound Investment Security Program (OISP), which took effect at the beginning of 2025 and securitizes U.S. investments in China across semiconductors, quantum computing and AI. When asked about the definition of a joint venture related to OISP, Treasury previously gave the same response of “plain English interpretation.”
“What constitutes a joint venture is just a huge question, and I think the lack of elaboration on that point by Treasury makes it very open-ended and, as a result, challenging to evaluate,” Salladin said.
The chilling effect
What makes the proposed policy’s vagueness particularly punishing is the day-to-day compliance burden. Arnold & Porter's Curtis recalled a recent experience advising on the semiconductor outbound investment rules, where the U.S. banks and transaction attorneys involved had different opinions on what’s legal.
“Compliance almost becomes unmanageable [because] no one wants to get involved in facilitating a violation,” she said. “I feel like you’re going to now have biotech lawyers speaking expert ‘dolphin speak’ to each other, and all the deal lawyers are going to be like, ‘Can you just work this out?’”
In the fast-moving world of biopharma dealmaking, regulatory ambiguity is often just as detrimental as an outright ban.
RA's Kolchinsky pointed out that when a Chinese biotech weighs competing term sheets, the mere risk that a U.S. deal might be delayed or blocked by Treasury review will drive the seller into European arms. He drew a comparison to an antitrust review by the U.S. Federal Trade Commission, suggesting that a buyer facing higher regulatory risks typically has to offer higher prices to be competitive.
In which case, can’t U.S. companies just stick to pure cash-and-milestone licensing deals?
“It’ll cost you more,” Kolchinsky told Fierce. “Chinese companies are ultimately weighing the value of equity and cash and milestones and royalties. If you can’t offer equity upside, you’re going to have to pay up.”
That dynamic, Lanton observed, could inadvertently tilt the playing field in favor of Big Pharma at the expense of VCs. Large pharmaceutical companies have deep balance sheets to pay upfront cash without offering equity stakes.
Even so, Kolchinsky argued large U.S. pharmas would face a disadvantage compared with their European peers.
“I could see how occasionally a U.S. pharma might be able to win a straight licensing deal for cash, so that might still happen,” Kolchinsky said. “But my guess is that because of the greater flexibility, European multinationals and European investors in their startups would basically win everything worth winning in China.”
Despite the ambiguous term, it’s possible that some U.S. company will eventually push the envelope and test Treasury’s boundaries. But Lanton asks his clients a simple question: “Do you want to risk that and be a test case?” Between reputational blowback and steep litigation costs, few executives would want to volunteer as the regulatory guinea pig, he suggested.
Economic security is the new national security
Deterring U.S. investment into China’s biotech economy and trying to maintain the U.S.' innovative edge in medicine appear to be the purposes of the COINS expansion, Landon observed—even though, as Kolchinsky argues, it could backfire on the U.S. life sciences ecosystem. The broad remit of the draft Treasury rule is also reflected in the wide range of pharmaceutical modalities it aims to regulate, raising concerns that ordinary cancer drugs, autoimmune therapies or cardiovascular medicines could be swept up along with genuine biosecurity threats.
The Treasury itself seems to recognize that very risk, now seeking comments on “whether and how ‘pharmaceutical compounds’ … should be more precisely scoped to focus on advanced or frontier technologies.”
Lanton argued that the Treasury is “bringing a sledgehammer for a very small screw” and that the department ought to draw a line between ordinary therapeutics and compounds or pathogens that can be weaponized. Kolchinsky also proposed narrowing the rule’s scope to biological agents and toxins already flagged by the CDC’s Federal Select Agent Program.
Yet lawyers across multiple firms suggested to Fierce that the industry shouldn’t hold its breath for a bioweapons-only carve-out, because a narrow sense of “national security” no longer fits the narrative of U.S. politics. As Salladin put it bluntly: “National economic security is now national security.”
“There is a national security heart to this in terms of what technologies are we giving away here in various transactions,” said Dan Kracov, chair of Arnold & Porter’s global life sciences industry group. “But I think there’s also a real economic security aspect as well in terms of just making sure that we don’t give up the jewel that is our biotech industry in the United States wholesale.”
Kracov noted that U.S. policymakers are now determined not to let U.S. biotech follow the trajectory of the electric vehicle industry, which is now led by China.
Bobby McMillin, a partner at Arnold & Porter and former general counsel for the Senate Health, Education, Labor & Pensions Committee, suggested that the U.S.’ political focus on biotech has expanded from genomic data privacy. What bothers hawkish policymakers, McMillin said, is “the co-development and the training people that many of these members see as our direct adversaries.”
“I think if it was just plucking products and bringing them here, then there’d be less concern about that,” he told Fierce. “But I think that the notion of manufacturers going in [and] training Chinese scientists to then potentially overtake us is a big concern.”
Hogan Lovells Cadwalader's Curran concurred, drawing a page from how the U.S. government regulates semiconductors.
He pointed out that, much like how the government approaches CFIUS, policymakers increasingly view broad “technological leadership” as a core aspect of national security. Because of this, Curran said he expects the pharmaceuticals regulations under COINS will mirror the chip sector, where restrictions aren’t limited purely to military or defense end-uses because the underlying technology can be used for both civilian and military purposes.
“As a result, there’s very little chance that Treasury would trim them back just to cover, say, select agents and toxins or bioweapons,” Curran said.
Some legal professionals and life sciences experts noted that the Treasury appeared to be under pressure to publish the draft rule—with pharmaceuticals included—without enough time to think it through. Given the proposal’s broad scope, people generally expect the final rule to narrow down to some extent.
“I think there’s going to be an awful lot of pressure placed on the practicality of this and the potential blowback of some of these restrictions,” Kracov said. “So I would expect it may narrow somewhat, both in terms of technology and in terms of the ability to be more than just a cash license at the end of the day. And other things could develop that may be less prohibition and more review.”
Ultimately, Kolchinsky believes the geopolitical tug-of-war over biotech leadership is missing the real adversary.
“Our general position is we may be peer adversaries with China in many areas, but we are allies in trying to fight off diseases,” he said. “Disease is the bigger enemy here. So, why are people trying so hard to discourage R&D collaboration?”
In Boston and San Francisco, this plea for scientific globalism may find many allies. But in today’s Washington, where countering Beijing is one of the few causes uniting Democrats and Republicans, and where every cross-border transaction is viewed through the lens of superpower rivalry, pitching China as an ally of any kind may be the toughest sell in town.
The growing role of China as a source of biopharma innovation is one of the hot topics being discussed at Fierce Biotech's high-impact event in London this month. Find out more information and register by clicking on the banner below:
