The U.S. Treasury Department is moving to restrict American investment in China’s life sciences industry, releasing long-anticipated proposed rules that add biotechnology to the Comprehensive Outbound Investment National Security (COINS) Act.
Published Thursday, the draft regulations (PDF) categorize “pharmaceutical compounds” as a “prohibited technology” that would trigger an outright ban on certain outbound transactions with “countries of concern,” such as China. The definition of pharmaceutical compounds runs the gamut of different modalities, spanning small molecules, polymers, vaccines, blood products, allergenics, cell and gene therapies, monoclonal antibodies and other recombinant therapeutic proteins, as well as their delivery systems.
If implemented in its current form, the rules would cause additional headaches for U.S. biopharmas looking to tap into China’s biotech innovations. But despite the sweeping scope of the ban covering various types of drug molecules, biopharma business development teams can breathe a measured sigh of relief.
The proposed rule largely spares the regular in-licensing deals and fee-for-service drug R&D collaborations that have driven the majority of muti-billion-dollar deals between Western biopharma companies and their Chinese counterparts. This detail fits the description of a Reuters report in September, which said the Treasury was working on rules that would continue to allow pharma companies to strike most licensing deals for Chinese drugs.
In an accompanying Q&A (PDF), the Treasury Department outlined the types of investment that would be covered under its rules: “Under the proposed rule, certain transactions that involve the acquisition of equity, provision of debt financing that is convertible to equity or that carries certain rights, greenfield investments or other corporate expansions, the creation of joint ventures, or certain LP investments would be covered.
“Activities that do not meet the definition of a covered national security transaction would not be subject to the program except where they are undertaken to evade or avoid the proposed rule,” the agency explained.
Therefore, traditional asset licensing agreements, where Western drugmakers pay cash, milestones and sales royalties for ex-China rights to drugs, fall outside the scope of covered transactions.
The language of the rules matches the current text of the COINS Act itself. COINS was enacted as part of the fiscal year 2026 national defense bill, giving the Treasury the power to scrutinize—or outright prohibit—American investments in sensitive foreign sectors involving countries that it views as adversaries. While the law does not name biotech, it allows Treasury to add new sectors when devising specific rules.
When calls for including biotechnology in the COINS Act emerged earlier this year, Laurie Burlingame, a lawyer at Morse, Barnes-Brown & Pendleton, who specializes in life sciences transactions, explained to Fierce that a pure sectoral expansion of the law likely wouldn’t cover pharma licensing deals, as the law is highly focused on equity investments rather than usual product transactions.
Several high-profile U.S. Big Pharma deals with Chinese companies have drawn scrutiny from Washington’s China hawks in their COINS Act expansion push. But those transactions appear to be pure licensing agreements based on public announcements. These include Bristol Myers Squibb’s potential $15.2 billion deal with Hengrui Pharma covering 13 early-stage programs.
However, some other transaction types that have gained traction lately would fall victim to the rules.
The COINS Act lists “acquisition of an equity interest” in a Chinese entity as a “covered national security transaction.” This provision would prevent U.S. venture capital firms from investing in Chinese biotechs, and it would also impact future deals resembling Pfizer’s recent partnership with 3SBio.
When Pfizer in-licensed a PD-1xVEGF bispecific antibody from 3SBio last year, the New York pharma made a $100 million equity investment in the Chinese biotech. That deal structure would be prohibited under the proposed Treasury rules.
Burlingame previously raised concerns over the COINS Act’s potential impact on the “NewCo” model, in which venture capitalists form a new U.S. biotech based on assets licensed from China. The Chinese licensor often takes an equity stake in the new firm to capture long-term upside.
Under existing COINS language, only a Chinese ownership of 50% or above would make the NewCo a target. But the proposed Treasury rules’ anti-evasion clause could subject any future China NewCo deals that involve an equity interest component to additional scrutiny.
In addition, “entrance into a joint venture” also marks a notable transaction category regulated by the COINS Act.
In its proposed rules, the Treasury deliberately chose not to define “joint venture;” instead, it “refers to the plain English meaning of the term, i.e., as involving the contribution of capital and/or assets by two parties and the sharing of profits and losses.”
This murky definition adds uncertainties to some deals. In Pfizer’s $10.5 billion, 12-asset collaboration with Innovent Biologics, the two companies will co-develop four programs globally and share the development costs, plus U.S. and European profits or losses. Although this unincorporated partnership doesn’t necessarily fit the common idea of a joint venture business, it does involve the contribution of capital from both parties to fund R&D and profit-sharing, and the Treasury said that its term “would not require the establishment or formation of a new entity.”
It’s not immediately clear if the Treasury means to crack down on this deal structure. If it does, the Pfizer-Innovent accord could face regulatory actions—only transactions completed before the enactment of the COINS Act on Dec. 18, 2025 are exempt from the Treasury rules, if implemented.
Following the release of the draft rules, the biopharma industry has reacted with a cautious tone, warning against any broadly restrictive provisions as they study the policy’s details.
“The Administration is correct that biotechnology is a strategic technology industry for the United States. We need policies and initiatives that maintain and advance our global leadership in biotech, particularly as we compete with China,” John Crowley, president and CEO of the influential biotech industry lobby group Biotechnology Innovation Organization (BIO), said in a statement Thursday.
“The details of the proposed Treasury Department rules matter. We cannot restrict our way to success,” he continued. “As Treasury considers comments on the proposed rule, we need to ensure that we do not have an overly broad approach that would create uncertainty for innovators and investors, and that may unintentionally risk weakening U.S. biotech competitiveness.”
In a separate statement, Kendalle Burlin O’Connell, CEO and president of Massachusetts biotech trade association MassBio, said that “efforts to address national security risks must be carefully targeted to avoid undermining the innovation ecosystem that has made the United States a global leader in developing new medicines.”
“For Massachusetts’ biotech industry, international partnerships and licensing agreements can bring promising scientific discoveries into the U.S. drug development pipeline, where American companies invest in and advance potential new therapies,” she added. “Preserving the ability to develop breakthrough innovations from our own world-leading domestic pipeline while also identifying promising innovations from elsewhere is essential to maintaining America's competitive advantage and access for U.S. patients.”
The Treasury Department is seeking comments until Dec. 7, 2026. Apparently recognizing the risk of collateral damage to public health and legitimate business conduct, the agency is explicitly asking for feedback on “whether and how ‘pharmaceutical compounds’ […] should be more precisely scoped to focus on advanced or frontier technologies.”